The Centre Left and Globalisation
Today they announced “a major new project on the future of globalisation” chaired by Peter Mandelson.
In the press release they state that:
The benefits of global growth have not been shared equitably (either between or within countries) and global institutions have been unable to resolve the major fault lines which have emerged in the global economy (including trade and currency imbalances).
Nothing to disagree with there. Where I become a tad more concerned is with:
The project will start from the position that free trade, global integration and open markets are vital for economic prosperity… In this context, there is a risk that centre-left policymakers will retreat into a more protectionist mode.
I am simply not convinced that a belief in “free trade, global integration and open markets” is the best starting point when considering globalisation. And I’m far from convinced that centre-left policy makers retreating into a more protectionist mode is a major risk. The bigger risk, as I see it, is centre-left policy makers (who like the authors of the IPPR press release remain convinced of the benefits of free trade) reacting to the world as they wish it to be rather than as it is.
Now let me caveat this – my ideal solution to the question of global imbalances would be some form of International Clearing Union (as proposed by Keynes as Bretton Woods), in the spirit of this I thought the Geithner Plan presented at the recent G20 summit was a worthy aim. I agree with Gordon Brown that a Global New Deal focussed on correcting imbalances and creating jobs and, in a first best world, some form of progressive multilateralism is the centre-left’s base response to globalisation.
But we don’t live in a first best world. We live in a world of rising currency and trade tensions. We live in world in which Germany seems unprepared to engage in multilateral action within the Eurozone itself, let alone globally.
Leaving aside the current currency and trade tensions, we live in a world in which the future of globalisation will be shaped more by China than by liberal democracies.
I’d rather the IPPR started with a blank page and considered the centre-left response to globalisation from first principles than began by believing that such actions are “vital” to prosperity.
As Paul Krugman noted yesterday (a man who won his nobel prize for his work on trade theory) “trade does not equal jobs”:
If you want a trade policy that helps employment, it has to be a policy that induces other countries to run bigger deficits or smaller surpluses. A countervailing duty on Chinese exports would be job-creating; a deal with South Korea, not. If you want the Korea deal, fine; but don’t claim virtues for it that it doesn’t possess.
We should look again at Alan Blinder’s (another noted Liberal, in the US sense, economist) work from 2006.
So repeat after me: Globalization is good for the world. Which is where economists usually stop.
And where my alleged apostasy starts.
For these same forces don’t look so benign from the viewpoint of an American computer programmer or accountant. They’ve done what they were told to do: They went to college and prepared for well-paid careers with bountiful employment opportunities. But now their bosses are eyeing legions of well-qualified, English-speaking programmers and accountants in India, for example, who will happily work for a fraction of what Americans earn. Such prospective competition puts a damper on wage increases. And if the jobs do move offshore, displaced American workers may lose not only their jobs but also their pensions and health insurance. These people can be forgiven if they have doubts about the virtues of globalization.
Or note what Michael Pettis say about protectionism:
[Trade barriers] force domestic consumers and foreign producers to bear the cost of the adjustment. Remember however that local households comprise both domestic consumers and domestic workers, so the real impact on household income may be positive if trade barriers are expansionary for employment (which they usually are in diversified deficit economies). The question is which households. The unemployed working class may benefit while the struggling middle class may get hurt.
A few weeks ago I challenged free marketeers as to what was here response to rising protectionism.
I understand that their ideal scenario would be unfettered free trade, free floating currencies and minimal government action – but in a real world in which country after country is adopting (or threatening to adopt) measures such as deliberate devaluation, tariffs or export subsidies, what exactly do they propose the UK should do?
I am increasingly realising that that very same question (with a slight amendment or two) could be addressed to much of the centre-left.