Is Globalization Headed for the Rocks? A View from the Radical Center Thomas I. Palley Economics for Democratic & Open Societies

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 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 WORKERS Globalization Less than full employment Small Government Labor Market Flexibility

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. 19 th century trade = manufactures for raw materials  application of absolute advantage (which coincided with comparative advantage). Mid-20 th century = manufactures for manufactures  trade as competition policy. 21 st 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.