Magazine article Public Finance

Globalisation: A New Third Way

Magazine article Public Finance

Globalisation: A New Third Way

Article excerpt

Globalisation has become synonymous with many of the world economy's problems in recent years. The recession and stagnation that has followed the worldwide financial crisis have left many people in western countries angry about international banking, and the mega-rewards of the international business and financial elite has seemed a world apart from most people's everyday struggles.

Meanwhile, the so-called emerging economies are now creating about half of global growth, with China producing the equivalent in output of a new Greece every four months.

The two big election campaigns this year - in the US and France - have seen the language of protectionism and insularity come to the fore during the primaries. US presidential hopeful Mitt Romney says he'll slap tariffs on Chinese goods on his first day in office. President Barack Obama wants to create tax incentives for companies that make their products in the US.

In the Socialist primary election in France, Arnaud Montebourg, who came third, stood on a platform of 'demondialisation'(deglobalisation) while the eventual presidential candidate, Francois Hollande, has threatened to introduce tariffs for tinfair competition' and has urged the return of the 'sovereignty of the republic, in the face of globalisation'.

In the UK, the Institute for Public Policy Research has been working with Lord Mandelson, the former UK Business Secretary and EU trade commissioner, to research a different approach to the challenges thrown up by globalisation. We argue that progressive governments need to avoid the kind of populist policies that could lead to the kind of beggar-thyneighbour protectionist spiral that took place in the 1930s. But neither do we think that the 1990s view of globalisation is an adequate response to the changes in the global economy. That approach too often saw openness and liberalisation as a good thing in itself rather than a means to the wider goals of sustainable growth, poverty alleviation or a more equitable society.

Over the course of the last century, the progressive integration of the global economy has helped drive the economic growth that has contributed to lifting millions of people out of poverty around the world.

In the developed world it has brought down the cost of consumer goods, driven productivity increases in many sectors, and created new markets for goods and services where western firms have comparative advantages.

Many people now have unprecedented opportunities to travel and work abroad, and the increasing cultural and political dialogue between individuals has helped to spread the acceptance of universal values such as democracy, liberty and human rights. The changes in the global economy should be seen as an opportunity for the continuation of these outcomes.

Nonetheless, globalisation has been associated with four main problems. First, we have known for some time that there is a strong correlation between trade and growth, but academic evidence shows that trade alone is not enough to guarantee growth. Indeed, it works only when accompanied by other pro-growth policies.

Second, while trade encourages higher productivity and helps drive technological innovation, it can also lead to job losses and put downward pressure on wages.

Third, while globalisation has helped lift millions of people out of poverty and reduced global inequality, it has also contributed to increased levels of inequality within countries. …

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