Thread: Enthusiasm for globalization ebbs

Enthusiasm for globalization ebbs

http://www.usatoday.com/money/economy/t ... usat_x.htm

Posted 1/15/2007 1:16 AM ET
By David J. Lynch, USA TODAY

WASHINGTON — At home and abroad, globalization is under increasing stress.

From Venezuela, where President Hugo Chavez announced plans last week to nationalize critical industries, to Thailand, which has imposed new controls on foreign capital, countries are embracing long-discredited economic strategies. In Geneva, multilateral talks aimed at a new global trade pact remain deadlocked.

The backsliding overseas comes as a new Democratic majority on Capitol Hill, which is intent on overhauling the Bush administration's trade policy, is getting down to work. Many of the new Democratic lawmakers campaigned on so-called fair-trade platforms and are deeply skeptical of the free-trade strategies pursued by Republican and Democratic presidents alike for a generation.

"The idea of globalization and continued societal embrace of openness seems to be in a very deep sense of crisis," says Rawi Abdelal, a professor at Harvard Business School.

The ebbing enthusiasm for additional integration is particularly noteworthy coming after four consecutive years of global economic expansion. In the USA, unemployment is a low 4.5% and the Dow Jones industrial average closed Friday at a record high. Economic conditions elsewhere, from the mature economies of the European Union to developing markets in China and India, likewise are sunny.

That's what makes the pervasive gripes over globalization — the free flow of goods, services and capital across national borders — so striking.

"Despite the relatively favorable average income gains of the past few years, a common feature of the political context in economies around the world is the fragility or weakness of public support for openness and economic integration," Timothy Geithner, president of the Federal Reserve Bank of New York, said in a speech last week.

As perhaps the world's most globalized economy, the USA benefits enormously from increasingly integrated markets and financial flows.

Foreign capital finances the U.S. current account deficit, effectively allowing savings-poor Americans to live beyond their means. Free trade boosts U.S. output by $1 trillion annually, $10,000 per U.S. household, according to the Peterson Institute for International Economics.

Assuming continued progress knitting together national economies, there is more to come. By 2030, total world trade is expected to almost triple to $27 trillion, according to the World Bank. Trade as a percentage of total output will rise from about one-quarter to more than one-third.

Uri Dadush, director of the bank's international trade department, says including in the global marketplace once-excluded countries such as China, India and the former Soviet bloc is potentially a century-long process. "We are just at the beginning of this," he says.

That's what worries some people: 59% of Americans believe free trade costs more jobs than it creates, according to a 2006 poll by the non-profit German Marshall Fund of the United States.

Today, shoring up public support for global integration "may be the most important economic challenge of our time," Geithner told a New York audience last week, adding that the task is complicated by rising income inequality and growing consumer financial insecurity.

The risk of a 50% drop in family income has more than doubled since the 1970s, according to Jacob Hacker, a Yale University professor.

More workers face risks

If more workers today feel chilled by trade liberalization rather than cheered, they may have good reason.

When the current era of global interdependence began with the 1991 collapse of the Soviet Union, only the jobs of low-skilled factory workers appeared threatened by foreign competition. Technological change, shrinking communication costs and falling trade barriers are exposing a growing share of the labor force to foreign competition.

Many of the newly insecure are white-collar workers in service industries, including computer programmers, radiologists, copy editors and accountants. So far, despite controversy over "outsourcing" in the 2004 presidential race, the number of jobs actually transferred overseas has been limited. But, ultimately, 28 million to 42 million service sector jobs could be at risk, according to Alan Blinder, former Federal Reserve Board vice chairman.

"We have so far barely seen the tip of the offshoring iceberg, the eventual dimensions of which may be staggering," Blinder wrote in Foreign Affairs last year.

Key Democrats say further liberalization is possible only if trade deals are rewritten to include labor and environmental standards and if voters' financial anxieties are addressed. An early test could come with consideration of free-trade pacts with Peru and Colombia, completed last year but not yet approved by Congress. Rep. Charles Rangel, D-N.Y., chairman of the powerful House Ways and Means Committee, says the deals must be reopened to require that both countries comply with International Labour Organization standards (ILO).

As written, the deals only require Peru and Colombia to enforce their own labor laws. ILO standards are more labor-friendly, guaranteeing workers the right to assemble and form unions, rights that workers lack in both countries. The administration opposes renegotiating the agreements but may be willing to address labor standards by appending "side letters" to the agreements.

"I don't see that as politically viable," says Jeff Vogt, a global economic policy specialist at the AFL-CIO.

Union officials insist on rewriting the treaties so that the tougher labor standards will be subject to the binding dispute resolution procedures that govern the full accord. Adding a side letter would be far weaker, they say.

Breaking the stalemate, and assembling a congressional majority for these modest-sized trade deals, won't be easy, says Daniel Griswold, director of the Cato Institute's center for trade policy studies. "Peru and Colombia are in significant trouble," he says.

Providing more help for workers hurt by trade will be a central focus for Democrats in the new Congress. The existing trade adjustment assistance program, which provides training, re-employment and relocation aid to 50,000 workers a year, is widely regarded as insufficient. Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, has proposed replacing the program with expanded "globalization adjustment assistance" that would for the first time provide benefits to service industry workers who lose their jobs because of foreign competition.

It's not clear how receptive the Bush administration would be to any significant thickening of the social safety net. Treasury Secretary Henry Paulson, in his first speech after taking office, called for "thinking more creatively" about ways to help those affected by trade. But the administration has put forward no new proposals.

"One of the most important challenges (in the new Congress) will be rebuilding a bipartisan consensus on trade and investment. … The administration has just begun to reach out to members of Congress to find a way forward," says Cal Cohen, head of the Emergency Committee for American Trade, a business lobbying group.

A big trade battle could come this spring over renewal of the president's fast-track negotiating authority. The so-called trade promotion authority, which expires July 1, limits congressional action on trade deals to a single up-or-down vote rather than allowing 435 House members and 100 senators to propose an unlimited number of line-by-line changes.

Along with the global Doha Round negotiations, named for the Qatari capital where the talks began in 2001, the administration is negotiating bilateral trade deals with key trading partners such as South Korea and Malaysia.

Time is running out for Congress to act on any of those potential treaties under the president's existing authority. Congressional debate over an extension, however, is likely to be contentious. Democrats are certain to tie an extension to broader labor and environmental protections, which the administration and some business leaders would oppose.

A new approach needed?

Among Democrats, there is a consensus that the U.S. needs a new approach to managing the ongoing remaking of international economic ties. At one extreme, the party's populist wing, represented by newly elected Sen. Sherrod Brown, D-Ohio, wants to renegotiate long-settled treaties such as NAFTA and give Congress a greater role in writing new trade agreements.

Free-trade supporters, on the other hand, including some who designed the Clinton administration's economic policies, are eyeing a variety of measures aimed at promoting individuals' economic security.

Only by improving education, pensions and health care can public support for further liberalizing trade be maintained, say pro-trade experts at the Hamilton Project, a policy study group created by former Treasury secretary Robert Rubin at the Brookings Institution.

No one has yet developed a full legislative proposal. And some, such as Harvard's Abdelal, say it may be the 2008 presidential campaign before the issue is fully joined. But eventually the debate will occur. The aftershocks caused by adding more than 2 billion low-wage workers to the international labor pool, and the ever-growing interdependence of developed and developing countries, are rattling U.S. policies and institutions created for a much different world.

"Globalization has outrun the normal dynamics of international trade, particularly how you approach it as a policy matter. … Everybody is just trying to figure out their response," says Robert Shapiro, a Washington consultant who oversaw economic policy for President Clinton's 1992 campaign. "This is a large change in how the world works."

'Outrun' is a good word. I used to try and explain to pro-outsourcing people that by the time a person can retrain and get up to speed in new career, the wolf will have long burst through the door. My mortgage company commences foreclosure, for example, after three months. Yet the people running things always seem to think that we can just go get other jobs and should stop complaining. My field, IT was hot in 1999. Most major papers carried pages of job ads for us every Sunday. By 2001 it was dead, hundreds of applicants for every job, people desperate for work, any work. That's how fast it can turn, and it's only getting faster.