The Political Response
The anti-globalization voters are right about one thing: while technology—lower transport and communications costs—may have provided the conditions that led to the growth of globalization during the past third of a century, globalization is shaped by policies and politics. One might hope that the discontent with globalization, in both the developed and developing countries, would lead to a rethinking of globalization, a resolve to manage it better, and to ensure that the potential fruits are shared equitably. That may well happen.
It will not, however, be easy. The simple strategy, widely supported by globalization’s advocates, is “globalization with compensation,” that is, we need to recognize that without appropriate government policies, globalization can create losers, and we have to make sure that the vulnerable are helped at least enough that that doesn’t happen. Everyone needs to be a winner. There are two problems with this strategy. First, on its own, it is unlikely to have support from those who have been on the losing side of globalization. Why would they have confidence that the elites who in the past promised them that globalization would benefit them would now deliver—not just this year, but permanently? When politicians argue simultaneously for weakening of the social protections and for new trade and investment agreements and the expansion of globalization, it is understandable that voters will be especially skeptical about promises of “globalization with compensation.” A new trade agreement commits them to openness, but any future administration can easily take away the promised “compensation.” Even were the promises somehow made within the agreement itself, would they be enforced? There has been a loss of trust that will not be easily restored. Only deep structural change might make such compensation credible—the construction of a twenty-first-century welfare state described in chapter 4.
Moreover, some, perhaps much of the support for globalization comes from corporations that have benefited from a weakening of workers’ bargaining rights. Good systems of social protection actually enhance the ability of workers to bargain for their rights. Almost surely, they would lead to higher market wages. It is not clear that these corporate interests would really support this kind of globalization. The losers from globalization, of course, sense this—one of the reasons that they will be skeptical about promises of compensation.
More than “compensation,” however, confidence in globalization needs to be restored. The advocates of globalization rightly point out the key role of the creation of an international rule of law—the rules-based system of globalization, so challenged by Trump, is especially important in curbing unbridled power. This book has argued strongly for the benefits, even to a powerful country like the United States, of such a rules-based system. But the rules themselves matter. They have to have legitimacy, but they can only have legitimacy if they are derived in what is seen as an open, fair, and transparent way—not in the way, for example, that recent trade agreements were negotiated.
There is thus a narrow path forward for achieving the potential benefits of globalization. It requires a deep commitment to shared prosperity, reflected in permanent institutions and policies described in chapter 4, and a deep commitment to more democratic, open, and transparent processes for making trade agreements and for running the global institutions responsible for global governance.
There is another scenario, though, in which politicians like Trump take advantage of the discontent to blame the dysfunctions of globalization on the misconduct (“unfairness”) of others, and attempt to redefine the rules of globalization to their own advantage. This is the direction the world is now headed, in which the world will deglobalize and the potential fruits of globalization will be lost.
Perhaps the most likely scenario is muddling through, a continuation of badly managed globalization, with much discontent. With the contours of globalization being redrawn by China, the multinationals in the West will not be quite the cheerleaders for globalization that they were in the past. Indeed, they will continue their hypocritical stance—a belief in free markets, with rules set so that they can win, and urge their governments to take forceful actions on their behalf. But the threats of the West will ring more hollow, and its ability to get what it wants will be more limited. While the global influence of Western multinationals may decline, the global economy will continue in its current course, with large western multinationals—now joined by those from the rest of the world—reaping a disproportionate share of the gains, and ordinary citizens, especially in the advanced countries, left wondering, when will the promised benefits of globalization arrive? If this happens, the discontent with globalization will continue, and it will be a tough political battle to preserve an open global system.
There can be no sustained globalization without sustained shared prosperity, and muddling through doesn’t get us there. Without a belief in sustained globalization, the full benefits of globalization can’t be achieved—one can’t construct efficient global supply chains if there is a threat at any moment of deglobalization. Moderate political leaders, always striving to achieve balance and compromise, can’t and won’t get us there. They won’t get us to sustained shared prosperity, and so won’t get us to sustained globalization. Ironically, only the political leaders committed to the construction of the twenty-first-century welfare state can get us to a twenty-first-century sustained globalization.
CONCLUDING COMMENTS
Over the past three-quarters of a century, the world has created a rules-based system for governing globalization. It was not easy creating this system, and it is an imperfect system. There were many in America, and in other countries, who objected that any system of international law meant giving up some sovereignty. The WTO could—and did—declare some of America’s trade practices to be in violation of the WTO, and the United States changed its policies or provided compensation to those who brought the complaint. But America also gained enormously because when others broke their commitments, the United States could bring suit. There didn’t have to be a trade war to resolve the dispute. And both sides gained by avoiding a trade war.
In GAID, I criticize the system of globalization that had been created because it was unfairly tilted toward the United States and other developed countries. What I saw offended basic notions of social justice. I believed that we could create a system of globalization that was both fairer and worked better—that even the United States would benefit in the long run from this system of fairer and better-managed globalization. As an American, I believed it was in our enlightened self-interest to do what we could to create this better system. In GAID and even more in my subsequent writings, such as Making Globalization Work, I laid out what could and should be done. I was working to make globalization work better for all. I believed an alternative world was possible, one in which the United States was vitally engaged. I was not arguing for a withdrawal.
Trump’s election, the Brexit vote, and the rise of protectionist politics elsewhere have upended all of this. Trump in particular has pushed quickly for a new protectionism, for the United States to pursue an America First policy, ignoring international commitments when it is inconvenient to honor them.
Like it or not, we are all linked together by sharing the same planet. One country’s actions can—and do—have large effects on others. The international economy is linked in myriad and very complex ways. Rare minerals that are needed for modern technology are located in only a few countries: a world without trade is inconceivable. Terrorists and viruses move quietly across borders. Climate change is real: the emission of greenhouse gases by the United States, China, and others has enormous consequences for people living thousands of miles away. In Africa and India, desertification is throwing people off the land that they have long occupied. Pacific island states will sink beneath the sea, and the citizens of these states will become involuntary migrants. Globalization is thus a reality with which we will have to deal. But how we deal with globalization matters a great deal. If we deal with it in the right way,
the world of the future can be marked by shared prosperity.
We don’t know where all of this will end, but this much is clear: if Trump has his way, the United States will lose its global influence, standards of living of Americans will decrease, including for those who supported him, and the world will not be safer, more secure, or more prosperous.
The hope is that the United States and the world will emerge from this episode with a greater resolve to create a fairer and better globalization—the kind of globalization I had in mind as I wrote Globalization and Its Discontents at the beginning of this century.
NOTES
INTRODUCTION TO GLOBALIZATION AND ITS DISCONTENTS REVISITED
1 Source: IMF, World Economic Outlook database (WEO), April 2017, using GDP (in current U.S. dollars) and population data for the year 2016 and the IMF’s definition of “emerging and developing economies.”
2 GDP per capita (current U.S. dollars) in 2016. Source: World Bank, World Development Indicators database.
3 Of course, Smith and Ricardo didn’t call it “globalization.” That term emerged in the middle of the twentieth century, and didn’t become widely used until the 1980s.
4 More sophisticated analysts quarrel with the way we measure GDP and income, and in particular price deflators, the adjustments used for inflation. While our metrics are imperfect, and do underestimate some of the benefits of technological change, they also underestimate the reductions in well-being as a result of increased insecurity. On net, my judgment is that matters may be worse than the most commonly cited numbers suggest. I chaired the international Commission on the Measurement of Economic Performance and Social Progress, which investigated these matters. See, for instance, its 2010 report: Mismeasuring Our Lives: Why GDP Doesn’t Add Up, with J. Fitoussi and A. Sen (New York: New Press, 2010).
5 A. Case and A. Deaton, “Rising Morbidity and Mortality in Midlife Among White Non-Hispanic Americans in the 21st Century,” Proceedings of the National Academy of Sciences 112 (49) (2015), pp. 15078–83. They subsequently updated their findings in “Mortality and Morbidity in the 21st Century,” prepared for the Brookings Panel on Economic Activity, March 23-24, 2017.
6 National Center for Health Statistics (2016), Mortality in the United States, 2015, NCHS Data Brief 267.
7 Milanović ranks people in the world from the bottom to the top in terms of income. Those around the global 50th percentile represent the new middle classes in the emerging markets, and they’ve seen an increase in incomes of some 100 percent between 1988 and 2011. See Branko Milanovic´, Global Inequality: A New Approach for the Age of Globalization (Cambridge, MA: Harvard University Press, 2016).
8 Source: The World Bank China Overview, available at http://www.worldbank.org/en/country/china/overview.
9 Comparison based on IMF World Economic Outlook (WEO) and World Bank data available as of August 2017. This comparison deflates the nominal value of the trade increase using the producer price index. Using the consumer price index—which is the more common way of looking at inflation, but less appropriate for gauging trade increases—a somewhat lower figure is arrived at. However, the point stands that trade has grown dramatically faster than the size of the global economy.
10 Sources: IMF World Economic Outlook (WEO) and International Financial Statistics (IFS), April 2017.
11 There is a large literature showing how excessively strong and poorly designed intellectual property regimes can impede innovation. The most telling example is provided by what happened when the U.S. Supreme Court decided that one couldn’t patent genes. An American company, Myriad, had the patent on two genes, the presence of which dramatically increased the likelihood of breast cancer. The company would not allow others to provide tests for the presence of the gene, and its own tests were not as accurate as those developed by others. After the Court’s decision, there was a rash of innovations, bringing down the cost and improving the quality of the tests. Elsewhere, I have explained how tighter intellectual property rights reduce the size of the pool of knowledge for others to draw upon, thereby impeding innovation. See “Intellectual Property Rights, the Pool of Knowledge, and Innovation,” NBER working paper 20014, March 2014, available at http://www.nber.org/papers/w20014.pdf?new_window=1. For a broader explanation of how innovation can and has been hurt, see C. Henry and J. E. Stiglitz, “Intellectual Property, Dissemination of Innovation, and Sustainable Development,” Global Policy 1(1), pp. 237–51.
12 The top marginal tax rate has fallen dramatically in the globalization era, going from 70 percent in 1980 to as low as 28 percent in 1988, and to 39.6 percent in 2017. In 1997, taxes on capital gains—a major form of income of the very rich—was markedly reduced, with further reductions under President George W. Bush, eventually reaching just 15 percent. This contributed to the regressive nature of U.S. taxation, in which those at the top pay a smaller percentage of their income in taxes than those lower down.
13 While some inequality may be useful in providing incentives, there is now a general consensus—including among such mainstream institutions as the IMF and the OECD (the “think tank” of the advanced countries) that excessive inequality leads to poorer economic performance, undermines democracies, and leads to a divided society. See, for example, Joseph E. Stiglitz, The Price of Inequality: How Today’s Divided Society Endangers Our Future (New York: W. W. Norton, 2012).
14 Of course, this was not always the case, but it was true for many of the better-managed firms, and was the “story” depicted by the advocates of capitalism.
15 Sean F. Reardon and Kendra Bischoff, “Income Inequality and Income Segregation,” American Journal of Sociology 116 (4) (January 2011), pp. 1092–153; Richard Fry and Paul Taylor, “The Rise of Residential Segregation by Income,” Pew Research Center, August 1, 2012, available at http://www.pewsocialtrends.org/2012/08/01/the-rise-of-residential-segregation-by-income/.
16 Unlike German steel producers, America hadn’t competed by producing high-quality specialty steels, which require highly skilled workers and involve advanced technology. The country didn’t make the investments in people and technology that that required. It was trying to compete in the mass-produced steel in which China had quickly learned to excel.
17 A Google image search yields many haunting photos (http://bit.ly/ 2hmTJ3B). A picture of what has happened to the school and community surrounding it can be vividly seen in a film I did after publishing GAID, to graphically show the impact of globalization on various parts of the world: Around the World with Joseph Stiglitz, directed by Jacques Sarasin (Les Productions 100 Faire Bleu, Swan Productions, ARTE France, with the participation of Île-de-France), available at https://vimeo.com/153222282.
18 For instance, at the time that I wrote GAID, many of the critical decisions were made by the G-7, a group of the richest advanced countries (United States, Germany, France, Canada, Italy, Japan, and the UK). China and India were excluded, even though they had 40 percent of the world’s population. There have been some significant changes in global governance since the publication of GAID.
19 I emphasize “for the most part” because, for instance, the standard economic models underestimated the dangers of capital market liberalization and overestimated the benefits. See Joseph E. Stiglitz, “Capital Market Liberalization, Globalization, and the IMF,” in Joseph E. Stiglitz and José Antonio Ocampo, eds., Capital Market Liberalization and Development (New York: Oxford University Press, 2008), pp. 76–100. (Revised and updated version of an article with the same title originally published in Oxford Review of Economic Policy 20 [1] [2004], pp. 57–71.) So too for certain other aspects of globalization, as I emphasize in chapters 1 and 2.
20 I elaborate on this idea in my paper by the same name: “Social Protection Without Protectionism,” in Mary Kaldor and Joseph E. Stiglitz, eds., The Quest for Security: Protection Without Protectionism and the Challenge of Global Governance (New York: Columbia University Press, 2013), pp. 24–47.
21 A commonly used indicator i
s the inequality-adjusted Human Development Index (HDI) put out annually by the UNDP, in which the Scandinavian countries Norway, Denmark, Iceland, and Sweden ranked 1, 5, 9, and 14, respectively, in 2015. (Source: Human Development Report 2016: Human Development for Everyone, UNDP, March 2017, available online at http://hdr.undp.org/sites/default/files/2016_human_development_report.pdf.)
22 This is a main theme in my recent books The Great Divide: Unequal Societies and What We Can Do about Them (New York: W. W. Norton, 2015) and The Price of Inequality: How Today’s Divided Society Endangers Our Future, op. cit.
23 The idea of a Washington consensus was originally formulated by John Williamson in 1989. The term evolved to incorporate all of the central tenets of IMF/World Bank orthodoxy, even when they were not included in Williamson’s original formulation. Thus, capital account liberalization became part of the Washington Consensus, even though Williamson himself was critical of it. For a broader discussion of the evolution of the term, see Joseph E. Stiglitz, “Is There a Post-Washington Consensus Consensus?” in Narcis Serra and Joseph E. Stiglitz, eds., The Washington Consensus Reconsidered: Towards a New Global Governance (New York: Oxford University Press, 2008), pp. 41–56; and John Williamson, “A Short History of the Washington Consensus” in the same volume, pp. 14–30.
24 This term is used even when the policies apply outside of the industrial sector, for instance, in agriculture.
25 As I explain in the afterword, many of these ideas are being questioned today, even within the IMF and the World Bank—a shift that began some twenty years ago. For instance, the 1998 World Development Report, Knowledge for Development, recognized the importance of secondary and university education, as well as primary education, if the knowledge gap separating advanced countries and developing countries was to be addressed. In the afterword, I also explain how in the past quarter century the Washington Consensus has become discredited. A new consensus has emerged, called the Stockholm Consensus. (For a summary, see https://www.sida.se/globalassets/sida/eng/press/stockholm-statement.pdf.)
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