Home > Uncategorized > Denying globalization’s downside won’t stop right-wing populism

Denying globalization’s downside won’t stop right-wing populism

from Jim Stanford

I was somewhat surprised to see Stephen Poloz recently urging economists to do more work identifying and disseminating research on the supposed benefits of free trade.  That’s slightly beyond his job description (perhaps more fitting with his last position as head of Export Development Canada).  But like economic leaders elsewhere in the world, Mr. Poloz is obviously concerned with the disintegration of popular support for neoliberal free trade deals.  That disintegration will have tectonic economic and political consequences.

True believers may think that merely educating citizens about how trade deals reallyare good for everyone (á la David Ricardo’s textiles and port parable) will save the day for globalization.  But I think there’s a much deeper problem.  The reality is that trade liberalization, as currently practiced (with an emphasis on corporate power and capital mobility, and absent effective demand-management and imbalance-correcting tools), has harmed many millions of people — in both developed and developing countries — and is now repressing growth, not stimulating it.  All the comparative advantage pontificating and CGE modeling in the world won’t magically convince people to deny their own lived reality: namely, that globalization is one reason (among others) why their economic prospects have visibly diminished over the last generation. 

Posted below is my recent column in the Globe and Mail.  I argue that the first step in confronting the dangerous allure of Donald Trump, Nigel Farage, and Marine Le Pen must be to acknowledge that there has been a significant and lasting downside to globalization — and it’s much more than a matter of “transitional adjustment problems.”  Then policy can start serious work on how to support the segments of society that have been harmed by globalization, and develop tools that can manage and ameliorate those downsides.  To my mind that would be a much more productive direction for future economic research than merely stepping up a “sales job” for trade liberalization that has been both intellectually dishonest and economically damaging.

Readers interested in a longer take on this same question can watch the video of my recent talk at CIGI’s public lecture series in Waterloo.

*  *  *

It’s time trade tycoons address the dark reality of globalization

(first published: Globe and Mail, October 7)

The architects of globalization are worried, quite rightly, by both the rhetoric and the reality of recent trade developments.  On the rhetorical front, the rise of nationalistic populism – exemplified by Donald Trump, Brexit, and ascendant hard-right politicians everywhere – is hammering more nails into the coffin of a trade liberalization agenda that was already moribund.

In real economics, meanwhile, the dynamism of world trade was already fading fast, even before the populists came on the scene.  In recent decades, trade has grown twice as fast as global GDP; these days, however, it isn’t even keeping pace.  Canada’s exports, for example, equal barely 30 percent of GDP today, way down from 45 percent in 2001.  The old idea that trade is the engine of growth is taking a beating, from politicians and empirical data alike.

So far, however, trade elites have responded by merely doubling down on overstated claims that unregulated free trade is the best of all worlds.  A top World Bank official worries that populism would “break the trade-based economic engine that has delivered peace and prosperity to the world for decades.”  IMF head Christine Lagarde urges world leaders to “better identify the benefits of trade … to respond to the easy populist backlash.”  Even Bank of Canada Governor Stephen Poloz waded in, urging economists to do “compelling research that reminds people of the impact of trade.”  (Poloz, of course, assumes that impact is positive.)

In other words, thought leaders should simply work harder to convince the citizenry that free trade is good for them.  At most, globalization may impose transitional adjustment costs, as workers move from old jobs to new, more productive ones.  Those temporary problems can be solved with support for mobility and retraining.  Trade-created jobs and prosperity will then be right around the corner.

This response is arrogant and condescending.  It assumes the trade nabobs know better what’s good for us, than we do ourselves.  And it is not likely to succeed.  The reality is that hundreds of millions of people across the developed world (and in many developing countries, too) have been hurt by globalization as presently practiced: whereby mobile private companies decide what to produce and where, and every jurisdiction can only bow down to business in hopes of capturing a slice of scarce investment and jobs.

We must remember that the economic theory underpinning free trade assumes that all resources (including all workers) will be productively employed, that trade flows will be balanced and mutually beneficial, and that the efficiency gains from trade will be shared throughout society.  In the quantitative economic models routinely trotted out to “sell” each new trade deal, these assumptions are embodied in mathematical equations imposing full employment, balanced trade, and the existence of a “representative household” (portraying each country as one big family, happily sharing all its wealth).  None of these assumptions have any connection to reality; they are all imposed for the mathematical (and ideological) convenience of the economists.

In the real world, entire industries and communities have been dislocated by the unbalanced investment and trade flows which the theory denies.  Enormous trade imbalances (from China and Germany’s huge surpluses, to chronic deficits in the U.S., the U.K., and Canada) correspond to the migration of capital, work, and income in favour of free trade’s “winners.”  And these costs are not temporary or transitional.  Large swaths of societies have been effectively cast aside under modern free trade – left to face lasting unemployment, non-participation, or low-productivity service jobs.

Going to those devastated communities, the fodder for Brexit and Trump, and telling them they aren’t really unemployed, and are in fact better off than they think they are, will hardly turn the tide of this debate.  If we want to avoid the isolationism, xenophobia, and worse which Trump and his ilk portend, we must start by recognizing that there is indeed a downside to free trade.

Acknowledging that modern free trade produces losers as well as winners, allows us to start developing and implementing policies to moderate those downsides – and purposely share the upsides.  This means actively managing trade flows, limiting beggar-thy-neighbour trade surpluses, supporting incomes for all workers, ensuring sensible and fair exchange rates, and actively fostering domestic investment in desirable, trade-intensive industries.

All this implies a much bigger role for government in managing globalization, than free-traders imagine.  But it would be an infinitely more effective response to the gathering backlash, than trying to convince suffering people that they have nothing to complain about.

  1. October 20, 2016 at 12:16 pm

    Right-wing populism aside, fixing on a dogma and denying alternatives is a recipe for eventual disaster in a complex, uncertain, world, as we found out around 2008. Even if we didn’t have Farage, Trump or le Pen (and maybe their influence is waning), we should still be looking for alternatives to the status quo.

  2. Jorge Buzaglo
    October 20, 2016 at 3:02 pm

    European social democracy seems prepared to declare “mea culpa” about neoliberalism, and to propose a wide discussion towards a new, post-neoliberal paradigm. See: https://www.socialeurope.eu/wp-content/uploads/2016/10/OccPap11-final.pdf

  3. October 21, 2016 at 6:58 am

    I assume anyone reading this blog has also read Voltaire’s Candide. The meaning Voltaire put into the book is often misunderstood. Voltaire wasn’t describing madness or abnormal actions. Terrible suffering at the hands of lunatics. No, Voltaire was describing normal life. The routine things are expected and do not seem out of place. That’s also the case with trade (national and international) as organized by those living within the structures of neoliberalism. Neoliberals intend that some would win, some lose, some be given hope and prosperity while others suffer defeat and degradation. The world would seem out of kilter, not properly organized with any other result. So, we fool ourselves if we argue that “bad” results of neoliberal trade must be and can be mitigated or changed, but the good results retained. Like Voltaire’s Candide neoliberalism is the “best of all possible worlds.” If we omit any aspect of neoliberalism, we lose that world. So say the supporters of neoliberal life. If that includes, as in Candide some of us being drawn-and-quartered or disemboweled, then so be it. It’s just one aspect of “the best of all possible worlds.” I don’t think “moderating” or “re-directing” this world is even possible. And if it is the consequences in terms of human suffering and chaos will be extensive. No, the solution as I see it is to replace the neoliberal world of trade with another set of standards for trade. Totally reorganized around democratic decision making and community. And we get there the same way neoliberalism’s supporters moved their choice to taken for granted status.

    • robert locke
      October 21, 2016 at 9:52 am

      As I read the arguments of economists right up to WWII, majority opinion among them favored protectionism. Free trade was not the dominant opinion. So the re-education came at the end of the 20th century. If you asked economists in Asia about it now the neoliberalist view is still not predominant there. Neoliberalism was never normal life, except in Anglo-Saxonia in late 20th century, and it is rapidly fading away there.

      • October 21, 2016 at 1:33 pm

        I think the history you cite is correct. But this is really not about neoliberalism. It’s about the protection of business and commercial interests. First liberalism philosophy encompassed and protected those interested. Then neoliberalism took over that job. Much of liberalism was undermined by social democracy. Neoliberalism is intended as a cure for that problem. Neoliberalism worked to undermine social democracy. First, by contending business transactions in markets made social democracy unnecessary. Second, by contending social democracy tends toward corruption and irrational outcomes. If it’s now on the way out, as you suggest, my question is what will replace it to protect business and commercial interests? And will it be even more destructive of social democracy? The populism of Trump, the National Front, and Alternative für Deutschland (AfD) are contenders as replacements right now.

  4. October 22, 2016 at 7:50 am

    ” No, the solution as I see it is to replace the neoliberal world of trade with another set of standards for trade. Totally reorganized around democratic decision making and community. And we get there the same way neoliberalism’s supporters moved their choice to taken for granted status.”

    Okay, so given we actually agree on replacement trading standards determined by democratic decision making, are we really to get there by buying up those who actually make the decisions, who in turn have bought up those supposed in a democracy to represent us?

    As I see it, the only way to get wherever we want to go is to strip money of its power to attract – and so empower mental infants to bully each other – by adults by teaching their infants while they are little (so it becomes constitutional: taken for granted rather than a merely legal doctrine) that “proper” money is not gold but an IOU: that pocket money has to be earned and shopping money spent on what it was provided for. Mum and Dad may be able to write cheques as necessary, but once spent, credit cannot be returned and has to be earned by the spenders, i.e. repaid by helping Nature supply, maintain and regenerate the real goods we use and consume, which include ourselves, our localities and the ecosystem we live in.

    • October 22, 2016 at 9:34 am

      Nice ambitions, Dave. But based on history such massive cultural changes as you describe require decades to set in place and begin to have impacts. And the set up and implementation often is not smooth. Often it involves both political and military conflicts. When I was an environmental regulator I was one of the group advocating government purchase of all fossil fuels (especially coal) and leaving the fuels in the ground as a way to address climate change. It’s expensive but much less than the costs these fuels inflict on the world through climate change. Such strategies can begin to address problems like climate change and economic inequality immediately. And simultaneously they can also help begin the longer term processes of cultural change. Far as I can see they’re a win win. In my view this approach is not only more rapidly effective but also more practical in terms of achieving the identified goals.

      • October 22, 2016 at 10:29 am

        Those were not ambitions, Ken. They were an attempt to express the whole issue in a few words in the hope that it would help others get their heads round the whole picture. Historically, until enough of those who work together can see the whole picture, nothing’s going to get done. In the days before printing that used to take centuries, and thereafter a generation. With the internet and mass media it is now possible for such a summary to “go viral”. It is of course still likely most people will see this one in terms of teaching kids instead of honest “credit card” money demotivating and disempowering financial thieves and bullies.

      • October 22, 2016 at 12:55 pm

        I think I understand. You say you’re attempting “… to express the whole issue in a few words in the hope that it would help others get their heads round the whole picture.” But others may not agree with your diagnosis of either/or the problems or their solutions. While what you and others say and write may “go viral” that’s no assurance that the viralness in its self will change anything.

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