Coping with a more globalized world

International Herald Tribune
December 3, 2008For almost three years, this column has devoted itself to exploring the challenges of globalization: how governments, businesses and individuals strive to reduce their risks and take advantage of new opportunities. One crucial question still remains: How should societies as a whole manage the transition to a more globalized world? 

In essence, globalization is a process of integration. Markets for commodities, manufactured goods, services, labor, investment funds and even ideas are becoming more and more connected. Over the past couple of decades, these connections have formed at an unprecedented rate. 

The process of connection and integration depends fundamentally on trade. Certain things can be stolen or obtained without a direct cost, but most things must be bought. Most transactions have a buyer and a seller who trade voluntarily, even though they may not be able to control the price. 

According to economic theory, every voluntary transaction leaves both parties at least as well off as before. If it didn’t, they wouldn’t trade. But the benefits of the transaction aren’t always equally distributed. And there are losses, too; by entering into one transaction, the buyer and seller may bypass other transactions, and that can hurt the people who are left out. 

Yet the most basic economic models suggest that globalization should benefit the world as a whole, and even that everyone on the planet could be made better off, if only the gains of globalization were properly distributed. 

Right now, the world does very little to distribute those gains. Consumers in rich countries who benefit from access to a wide variety of low-cost imports don’t band together to aid local producers that go out of business. Exporters who open new markets in emerging economies often exploit lax regulation and weak competition rather than trying to ensure a brighter future for the citizenry. 

There are some initiatives, like the Trade Adjustment Assistance program in the United States, that attempt to retool struggling businesses and retrain unneeded workers. They are few and not especially successful. Yet tinkering with them until they are successful could be very worthwhile, more so than the basic economic models might suggest. 

The reason has to do with the concentration of the gains from globalization. In general, globalization has been a force for less inequality between countries and more inequality within countries. On the one hand, the opening of markets allows less-developed economies with reduce productions costs to catch up with more-developed ones with higher production costs. On the other hand, the gains from that catch-up process often accrue to the people with the most education and wealth in the less-developed economies, while the losses often fall upon the least educated, poorest people in the more-developed ones. 

There are important exceptions, of course. Hundreds of millions of Chinese have been lifted out of poverty in the past two decades, a substantial number of them because of surging Chinese exports. Likewise, hundreds of millions of working-class people around the world have benefited from the inexpensiveness of those very same exports. 

Still, in many countries the gains from globalization have been concentrated among the wealthy, while losses from globalization have been concentrated, if not among the poor, then at least among the relatively disadvantaged. And there is the magic of the thing: Each dollar of gain to a person of privilege might mean much more in the pocket of a less well-off person. 

Distributing the gains from globalization could therefore be a more socially productive process than those basic models, which assume that a dollar is worth the same to everyone, might suggest. That doesn’t mean it’s easy, though. 

Indeed, there is a dearth of holistic approaches to this problem. Should the United States enact a new GI Bill – which offered higher education to returning World War II veterans – to reincorporate the legions of workers displaced by globalization into the labor force? Should there be an international code of conduct, and an enforcement body, for businesses doing business outside their home countries? Should all countries contribute to a fund to identify and clean up the side effects of globalization? 

These kinds of ideas could help the world to realize its full economic potential. I am putting down my pen for now, but I hope others will continue to discuss and pursue them.

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