Responding to the Globalization Backlash

by Roger Alford

Deputy U.S. Trade Representative John Veroneau delivered a nice, succinct speech this week to business leaders addressing the globalization backlash. Here’s a quick summary:

As a result of unprecedented gains in productivity in recent generations, millions of people today enjoy lives unrecognizable a century ago, in terms of the quality and quantity of food, health care, housing and other goods and services. By today’s standards, Thomas Hobbes’ characterization of life as “nasty, brutish, and short” seems overly cynical and unimaginative….

So if globalization is so great, what accounts for the political backlash? First, we must recognize that the backlash is real, and is often fueled by heartfelt anxiety about the global economy….

The backlash comes from two very different groups: Those who think there’s been too much globalization in their lives; and [t]hose who think there’s been too little globalization in their lives.

Veroneau then outlines the appropriate policy responses to these two groups. He argues that for those who argue there is too much trade we should focus on job creation, education, portability, and effective public safety nets.

Job Creation: Job creation is the best form of adjustment assistance. A system of regulation and taxation that encourages job creation and entrepreneurialism is the best antidote to job losses….

Education: …. Any country’s fate today will be determined significantly by its investment and output in education.

Portability: Employment-related public policies must reflect the frequency with which workers today change jobs…. [M]ore can be done to enhance the availability and portability of healthcare and retirement benefits.

Social Safety Net: An effective public safety net is essential. People will be less anxious walking the high wire of a dynamic economy if there is a net below. The dynamic nature of today’s economy is the key source of its productivity. But it is also a key source of the anxiety about the economy. Some of the gains attributable to the global economy must be used to assist those who are adversely and temporarily affected.

Finally, Veroneau addressed how to calm the anxiety of those who think there is too little trade. Here the focus should be on openness, rule of law, and foreign assistance/capacity-building.

Maintaining political support for the policies and institutions that support the global economy requires expanding the opportunity to plug into the global economy….

Openness: Policies of openness are progressive in that they benefit the poorest the most…. In a close economy, the elite do fine…. The more open and transparent a society is, the more opportunities available to non-elites in a society.

Rule of Law: … Clear and enforceable property rights allow for what economists call ‘impersonal exchange.’… It is what allows us, for example, to finance our houses with money from perfect strangers. Without clear and enforceable property rights, people with capital would lend only to those whom they know personally and trust to repay the debt…. Rule of law is directly linked to progressive, broad-based economic growth….

Foreign assistance/Capacity-building: Without a strong domestic commitment to strengthening rule of law, foreign assistance … will meet with very little success…. Helping countries build institutions and adopt best practices to foster rule of law is critical…. Helping countries promote open economic systems can also play an important role in promoting independent political institutions….

A passage in Jeffrey Frieden’s recent book, Global Capitalism sums it up well, ‘The history of the modern economy illustrates two points. First, economies work best when they are open to the world. Second, open economies work best when their governments address the sources of dissatisfaction with global capitalism.’

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