If globalization increases overall well-being, why have so many people become so hostile?
Fifteen years ago, in Globalization and its Discontents, I described growing opposition in the developing world to globalizing reforms.
Now, globalization’s opponents in the emerging markets and developing countries have been joined by tens of millions in the advanced countries. Opinion polls show that trade is among the major sources of discontent for a large share of Americans. Similar views are apparent in Europe.
How can something that our political leaders – and many an economist – said would make everyone better off be so reviled?
One answer occasionally heard from the neoliberal economists who advocated for these policies is that people are better off. They just don’t know it. Their discontent is a matter for psychiatrists, not economists.
But income data suggest that it is the neoliberals who may benefit from therapy. Large segments of the population in advanced countries have not been doing well: in the U.S., the bottom 90% has endured income stagnation for a third of a century. Median income for full-time male workers is actually lower in real (inflation-adjusted) terms than it was 42 years ago. At the bottom, real wages are comparable to their level 60 years ago.
The effects of the economic pain and dislocation that many Americans are experiencing are even showing up in health statistics. For example, the economists Anne Case and Angus Deaton, 2015’s Nobel laureate, have shown that life expectancy among segments of white Americans is declining.
Things are a little better in Europe – but only a little better.
Under the assumption of perfect markets (which underlies neoliberal economics), free trade equalizes the wages of unskilled workers around the world. Trade in goods is a substitute for the movement of people. Importing goods from China reduces the demand for unskilled workers in Europe and the U.S..
This force is so strong that if there were no transportation costs, and with no other competitive advantage, like technology, Chinese workers would in effect migrate to the U.S. and Europe until wage differences had been eliminated entirely. Not surprisingly, the neoliberals never advertised this consequence of trade liberalization, as they claimed – one could say lied – that all would benefit.
The failure of globalization to deliver on the promises of mainstream politicians has surely undermined trust and confidence in the “establishment.” And generous bailouts for the banks that had brought on the 2008 financial crisis, while leaving ordinary citizens to fend for themselves, reinforced the view that this failure was not merely a matter of economic misjudgements.
In the U.S., Congressional Republicans even opposed assistance to those who were directly hurt by globalization. More generally, neoliberals, apparently worried about adverse incentive effects, have opposed welfare measures that would have protected the losers.
But if globalization is to benefit most members of society, strong social-protection measures must be in place. The Scandinavians figured this out long ago; it was part of the social contract that maintained an open society. Neoliberals elsewhere have not – and now, in elections in the U.S. and Europe, they are having their comeuppance.
Globalization is only one part; technological innovation is another. But all of this openness and disruption were supposed to make us richer, and the advanced countries could have introduced policies to ensure that the gains were widely shared.
Instead, they pushed for policies that restructured markets in ways that increased inequality and undermined economic performance; growth actually slowed as the rules of the game were rewritten to advance the interests of banks and corporations. Workers’ bargaining power was weakened.
The rules of the game need to be changed again – and this must include measures to tame globalization. The two new large agreements that President Barack Obama has been pushing – the Trans-Pacific Partnership between the U.S. and 11 Pacific Rim countries, and the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the U.S. – are moves in the wrong direction.
The main message of Globalization and its Discontents was that the problem was not globalization, but how it was being managed. Unfortunately, the management didn’t change. Fifteen years later, the new discontents have brought that message home to the advanced economies.
Copyright Project Syndicate