Globalization and Employment: Is Anxiety Justified?

By Lee, Eddy | International Labour Review, January 1, 1996 | Go to article overview

Globalization and Employment: Is Anxiety Justified?

Lee, Eddy, International Labour Review

Eddy LEE * The rapid growth in world trade, foreign direct investment, and crossborder financial flows over the past decade has been the main manifestation of the increasing "globalization" of the world economy. This phenomenon has been driven primarily by a worldwide wave of economic liberalization - the lowering of tariff and non-tariff barriers to international trade, the encouragement of foreign investment, and the deregulation of financial markets. At the same time, technological developments have magnified the effects of this liberalization by reducing the costs of transportation and communications, hence expanding the scope and volume of goods and services that are internationally tradeable.

The wave of economic liberalization that has underpinned this globalization of the world economy reflects a radical change in attitudes towards economic policy. In democratic societies this clearly represents a voluntary shift in political attitudes. But whether democratic or not, ruling regimes across the world, with only a few exceptions, have embraced the view that freer trade, investment and financial flows will be the most effective means for ensuring material prosperity. This view is buttressed by central tenets of neo-classical economics but perhaps a far more powerful influence has been the "international demonstration effect" of the phenomenal economic success of open economic policies in East Asia in contradistinction to the collapse of centrally planned economies and the failure of dirigiste policies in large parts of the developing world.

At the same time, however, there is a significant current of apprehension over the implications of globalization for employment and income inequality. On the face of it this is difficult to reconcile with the voluntary shift towards a more open world economy in democratic societies, which are also the only countries where the apprehension is voiced. But this can of course be understood as part of normal democratic debate. There are, besides, some objective grounds for the apprehension. As with all far-reaching economic transformations, globalization generates losses as well as gains. Moreover some of the losses are concentrated in particular groups of workers or geographical areas, rendering the costs more visible, while gains are more widely diffused and hence less noticeable. Proponents of globalization do not, of course, deny that there are these costs of transition or adjustment. Rather the argument is that the benefits outweigh the costs, that it should be possible for winners to compensate losers in the adjustment period, and that thereafter all would be better off. The rub, of course, is that the potential compensation is often not put into effect. In addition, the element of uncertainty over the future has to be taken into account. There can be no certainty that future outcomes will be as beneficial as predicted by the proponents of globalization. For this reason also, anxiety that globalization will result in job losses and increased inequality is understandable.

Against that background this article will examine four main sources of anxiety about the effects of globalization:

the fear in industrialized countries that globalization is unleashing new international competition from newly industrialized countries that they cannot withstand and which is causing rising unemployment and falling relative wages among unskilled workers;

a similar fear in developing countries that liberalization will lead to job losses and rising wage inequality;

the fear that globalization of the labour market is leading to a race to the bottom with respect to wages and labour standards; the fear that in the face of these new problems globalization also implies a loss of national policy autonomy and governments are becoming impotent.

These concerns must be addressed if the basis for confronting the employment problem is to be established and the feasibility of full employment as an objective confirmed (see ILO, 1996). …

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