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Globalisation has been a double-edged sword. To those able and willing to
seize the opportunities and manage globalisation on their own terms, it has
provided the basis of unprecedented growth. China and India, two countries
with, together, 2.4 billion people, have for more than a quarter century
been growing at historically unprecedented rates with hundreds of millions
of people moving out of poverty. They have taken advantage of globalisation
of knowledge and globalisation of markets.
Tom Friedman has written a very influential book, entitled “The World is
Flat.” But the world isn’t flat and in many ways is getting less flat. Where
Friedman is right is that there has been a huge change in the global
economic landscape. China and India had the education, the technology, the
resources, to take advantage of the new technology, to close the gap between
them and the advanced industrial countries.
But elsewhere, matters have not worked out so well. There is growing disparity
between the richest countries and the poorest countries and growing
inequalities within most countries around the world and globalisation, as it
is managed, has played an important role in both of these disturbing trends.
The number of people in poverty in Africa has doubled in the last two
decades and globalisation has contributed to these problems. Africa was
left, by its colonial legacy, with neither resources nor the education, for
instance, to take advantage of the new technologies that make such a
difference in India and China. But making matters worse is the fact that the
last trade agreement – the Uruguay round, signed in Marrakesh in the spring
of 1994 - was so unfair that the poorest countries of the world, including
sub-Saharan Africa as a region, were actually made poorer. The North
insisted that the South remove their trade barriers, open up their markets
to the goods produced in the North and eliminate their subsidies, but the
North did not fully reciprocate.
Of particular concern is agriculture. Seventy per cent of the people in the
developing world depend directly, or indirectly, on agriculture. The massive
subsidies in the North serve to depress the incomes of those in the South
and increase the poverty. To give a couple of examples: the United States
subsidises cotton to the tune of $3 billion to $4 billion a year. Twenty
five thousand very rich cotton farmers divide that money, most of the money
going to about five thousand of these farmers. But the consequence is that
the United States, which would not be exporting cotton at all, has become
the world’s largest exporter and as it exports more, global prices of cotton
fall and 10 million people in sub-Saharan Africa suffer as a result. But
it’s not just the United States, Europe also is to blame. The average cow in
Europe receives a subsidy of, by some estimates, in excess of $2 a day – a
number which has considerable resonance, because $2 a day is the World
Bank’s definition of poverty. Some 40 per cent of those in the developing
world live on less than $2 a day. So, it is better to be a cow in Europe
than to be an average person in the developing world.
In the North, global competition has helped drive down wages of unskilled
workers, exacerbating similar trends coming from changes in technology and
the weakening of labour unions.
Economic theory never said that everyone would gain as a result of
globalisation. In fact, it warned that there could be losers; that, as I
mentioned before, unskilled workers from the North would face competition
from the South and that competition would have the effect of lowering wages.
To see this most clearly, think about a world in which there is perfect
economic integration; in which barriers between developed and less developed
countries were removed; in which goods and services flowed freely and in
which markets worked perfectly. Of course we’re nowhere near that so-called
ideal state. But in that so-called ideal state unskilled workers everywhere
in the world would be exactly the same, and that would mean unskilled
workers in the United States and Europe would receive exactly the same wage
as unskilled workers in India and China, and the level of those unskilled
wages would be much closer to that today prevailing in India and China, than
that prevailing in the United States and Europe today.
What globalisation said was that winners could compensate the losers – not
that they would. And they haven’t. In fact, globalisation has often been
used as an excuse for taking away social protections. When, last spring,
young workers in France went on protest concerning their low wages and
weakening job protections they were told globalisation demands it. But then
they asked, “you told us that globalisation was going to make us better off.
How can lower wages, weakened job benefits, make us better off?”
Occasionally the response would come back, “well, in the long run you’ll be
better off”. But then, the quip of Keynes comes to mind: “in the long run,
we’re all dead”.
In the United States, wages at the bottom have not only been stagnating,
they’ve been falling. In fact, wages at the bottom are today about thirty
per cent below what they were thirty years ago. More disturbing is that even
in the middle wages have begun to decline. Today, real income of the median
American family is lower than it was five or six years ago.
Some say that globalisation is inevitable, but that is simply wrong. The
extent of globalisation, as conventionally measured for instance by the
ratio of trade or capital flows to GDP, was actually stronger before World
War I than in the inter-war period and, unless we ensure that globalisation
has more winners and fewer losers, there can be a backlash against
globalisation. Indeed, in many quarters, especially here in the United
States, one can already see such a backlash taking shape.
As I said, often globalisation is used as an excuse for weakening job
protections, undermining the welfare state. Scandinavia has shown, however,
that there is an alternative. Scandinavia, is a region of Europe, a region
of the world, that is perhaps more open than any other but it has managed
globalisation in ways to ensure that the benefits are shared more equally to
ensure that health and education is provided for all; to ensure that as
citizens lose their jobs assistance is provided to help move them in to new
jobs. The result of this is that there is greater capacity for undertaking
risk and Scandinavian countries have had among the highest rates of growth
in the world, the highest penetration of the new technologies. True, they
have amongst the highest
tax rates, but what that shows is that taxes by themselves do not necessarily
discourage economic growth and economic prosperity. It depends on how those
tax dollars are spent and in Scandinavia, by and large, they manage to spend
these dollars well.
