Is Globalization Headed for the Rocks? A View from the Radical Center

Thomas I. Palley

Economics for Democratic & Open Societies

www.thomaspalley.com

Framing the Debate

(1) Right v. Center v. Radical Center.- Going to the “root”- Dealing with “causes” v. “symptoms”(2) Globalization vs. Neo-liberal (Corporate)

Globalization Globalization likely to continue. Question = is neo-liberal globalization

headed for the rocks?

The Debate Over Neo-liberal Globalization

Neo-liberal Globalization

Structure Sound

RIGHT = No changes needed

CENTER = minor“compassionate”changes needed

Structure Problematic

RADICAL CENTER =change neo-liberal globalization

The View from the Right

• The Right = “Sunny Flat World”

(1) globalization delivering large economic gains via trade/out-sourcing/re-arrangement of global production patterns.

(2) All benefit – within countries & across countries.

(3) Good for North & South.

(4) Policy implication = full steam ahead More of the same.

The View from the Center(The Mass. Avenue Consensus)

• The Center = “Flat World with a cloud or two.”(1) Large gains for all.(2)North suffers some temporary dislocation costs

need adjustment assistance (e.g. wage insurance).(3) South also gains A) Middle-income south

needs governance reform. B) Low-income south also has governance problems & may have poverty trap needing “aid.”

(4) Governance reforms to be done by “market opening” compete corruption away.

(5) Mandatory international financial standards & property rights; all other standards voluntary.

The View from the Radical Center - 1

• Neo-liberal globalization more than just an economic project.

• Also a political project, with dramatic implications for democracy and distribution of power.

• Both economic and political dimensions are troubling.

• Globalization = integral part of “neo-liberalism” needs to be assessed in that context.

The View from the Radical Center - 2

• Average annual global economic growth slower post-1980.

• Widening income inequality within countries & across countries.

• True for U.S & Europe.

• Especially true for Latin America adopted neo-liberal creed most explicitly in form of “Washington Consensus.”

• Africa has special political & governance difficulties but shows that openness & global integration do not reduce corruption may increase corruption by increasing stakes (resource curse).

The View from the Radical Center - 3

• Flat World metaphor suggests level playing field on which compete on equal terms.

• Neo-liberal globalization anything but.• Playing field designed by corporate elites,

not an invisible hand.• Alternative metaphor = “The Box”

workers boxed in.

The Box

WORKERSGlobalization

Less than full employment

Small Government

Labor Market Flexibility

80

100

120

140

160

180

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

Inde

x (1

973=

100)

Productivity

Compensation -average

Compensation -median female

Compensation-median

Compensation-median male

Source: Source: State of Working America, 2004-05, Economic Policy Institute, Washington, DC.

The Great Decoupling US Productivity & Compensation Growth, 1973 – 2003.

The View from the Radical Center - 4

• Globalization today differs from past part of neo-liberal policy frame.

• 19th century trade = manufactures for raw materials application of absolute advantage (which coincided with comparative advantage).

• Mid-20th century = manufactures for manufactures trade as competition policy.

• 21st century = global labor arbitrage capital & technology mobile

The View from the Radical Center - 5

• Structure of today’s global economy: Changed competition (Global sourcing)+ Changed technological conditions (capital

mobility)+ Neo-liberal trade policy (market opening) + 2 billion new workers (end of dam of socialism) = downward wage & workplace pressures.• When join two swimming pools, water levels

will equalize.

The View from the Radical Center - 6

• Workers cannot outrun the box.• Both private & public sector workers boxed

in.• Both Northern & Southern workers boxed

in. Changing Economic Policy therefore

critical Social Policy is NO substitute

The View from the Radical Center - 7

• Government also boxed-in:

(1) Mobility of investment & production +

(2) Fear of employment losses +

(3) Vulnerability to financial disruption

Shrinks space & political will for policy such as fair taxation, unionization.

Creates economic & political “lock-in”.

The View from the Radical Center - 8

• Exposure to globalization can be a source of social & political discontent.

• Economists focus on “poverty” and ‘absolute income”

• Globalization produces “marginalization” = sense of disempowerment & irrelevance

additional source of resentment reinforces economic resentments caused by “box”

A Radical Center Agenda

• Accumulating resentment sets stage for change.• Big change probably requires a serious downturn.• Agenda = re-pack the box. Take workers out, put

CEOs & corporations in (1) Globalization with standards, (2) Full employment policy, (3) Progressive government, (4) Restore worker bargaining power, (5) Corporate agenda that re-aligns corporate behavior with national interest and social purpose.

Dangers

• Danger = nationalist/nativist reactions fuelled by- economic anxiety & resentment, - illegal immigration, - war on terror rhetoric, - wrongly identifying trade deficit with the box.• “It can happen here”• That is why we need to make “economic policy”

(the box) the focus of political debate.