New rules, not protectionism, is the answer to the challenge of globalisation, argues Will Straw
IN his 2005 party conference speech Tony Blair said: ‘In the era of rapid globalisation, there is no mystery about what works: an open, liberal economy, prepared constantly to change to remain competitive … The temptation is to use government to try to protect ourselves against the onslaught of globalisation by shutting it out – to think we protect a workforce by regulation, a company by government subsidy, an industry by tariffs. It doesn’t work today.’
The global financial crisis has shaken many progressives’ faith in these assumptions. While growth across the developed world has stalled, it has continued apace in many middle-income countries, especially in Asia and Latin America. This has led some to wonder whether the emergence of fast-growing economies will mean that countries in the west will become submerged. Others worry that while reductions in global poverty are to be welcomed, the pressure on the global commons from increased demand for food, water and fossil fuels will become unsustainable.
Watching this year’s elections in France and the United States, parties of both right and left are now adopting increasingly protectionist rhetoric. Barack Obama’s state of the union speech recommended tax breaks for companies that make products in the United States while his likely Republican rival, Mitt Romney, says that he will slap tariffs on Chinese goods on his first day in office.
Meanwhile, the Socialist French presidential hopeful, François Hollande, has threatened to introduce new tariffs for ‘unfair competition’ and has urged the return of the ‘sovereignty of the republic, in the face of globalisation’. Marine Le Pen of the National Front wants to leave the euro and reintroduce customs borders as part of her fight against globalisation.
Last March IPPR commenced a review led by Peter Mandelson into the future of globalisation. Our remit was to consider how the global economy was changing, how Britain and, indeed, Europe could continue to make a living within it, and what policy reforms were needed at the international and domestic level to make globalisation more sustainable and equitable without recourse to protectionism.
Over the last year we have visited 10 cities across five continents to understand better the nature and limits of the changes taking place in the global economy. There is little doubt that, 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. The World Bank projects that the number of people living on less than $1.25 per day will have fallen from 46 per cent in 1990 to 15 per cent in 2015. 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 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 like democracy, liberty and human rights.
But not everything is rosy. For all the talk of a ‘global middle class’, just 31 per cent of people in central and south America and 13 per cent in Asia Pacific earn between $10 and $100 per day (the definition used by the Organisation for Economic Cooperation and Development). Even with its rapid projected rates of growth, China’s GDP per capita will still be half that of Britain’s in 2050. India’s will be under a quarter.
And while it contributes to reductions in poverty, without government action globalisation will tend to increase levels of inequality within countries. Brazil is virtually alone among the world’s major economies in reducing inequality over the last decade. It has done this in part through its ‘bolsa familia’ (family allowance) policy of providing conditional cash transfers for those poor families that enrol their children in school and have them vaccinated. More of these schemes are needed.
Another conclusion is that international action is desperately needed to make the global economy work more effectively and fairly. As the BRICS and others continue to grow, it is right that the old, undermined, rules of the Washington Consensus become obsolete. But a world with no rules will create a downward spiral. Instead, we need to agree new rules.
Multilateralism is essential to prevent the re-emergence of the global imbalances that were the principal cause of the financial crisis, to stop a race to the bottom in the level of corporate taxation paid by multinational companies which are placing pressure on national budgets, and to avert the kind of protectionism that is increasingly characterising the relationship between the US and China. Given these challenges, it feels like an inopportune moment for the government to have lost influence in the EU. David Cameron needs to work rapidly to win back trust from his European colleagues and he should also prioritise the creation of a G20 secretariat to drive forward that body’s important role. As a country with one per cent of the world’s population and contributing less than four per cent of global GDP, Britain needs to work with others to have our voice heard.
There are, however, some things that we can do at the domestic level to address the negative side of globalisation which can cause job losses or put pressure on wages. We need to move firmly beyond the now-dated 1980s mindset that the best industrial policy for government is ‘no policy’. We recommend in our report, The Third Wave of Globalisation, that the government should set out an industrial strategy for every sector in which Britain has an existing or potential comparative advantage and establish a National Investment Bank. Indeed, this is the approach that many of the most successful new economies have adopted.
Labour’s skills policy in the past focused too much on improving the ‘supply’ of skills by increasing qualification levels across the economy. This, of course, remains critical but governments must also improve the ‘demand’ side. The skills already existing in the economy should be properly utilised by businesses. Those in lower-skilled sectors are just as entitled to ‘good’ jobs with opportunities for progression and development. Finally, welfare policies need to be decisively reoriented to deal with the key risks that individuals face, including income loss and unemployment. A national salary insurance scheme is one route to achieving this.
As French and American politicians prepare to meet their electorates, New Labour’s approach to globalisation appears to have been rejected. But instead of their more insular approaches, we advocate an updated approach to globalisation which reflects the lessons of the global financial crisis and the rise of Asia. We should see globalisation and the liberalisation of global markets as a means, rather than an end. We should build new global institutions and rules that create the greatest chance of equitable and sustainable growth. Domestically, an active and effective government should work to enhance our competitiveness, equip our workforce with the skills and resources it needs, and protect those who lose out.
Blair was right to suggest that we should not use government to shut out globalisation but government certainly has a role to play to ensure, as he might say, that globalisation helps the many, not the few.
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Will Straw is associate director for globalisation and climate change at IPPR. The Third Wave of Globalisation by Will Straw and Alex Glennie with a foreword by Peter Mandelson is available to download
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