How to share the benefits of globalisation

Look, I've got nothing against globalization, just as long as it is not in my backyardIn the comments on my post on "Who benefits from globalisation?", both Ben and Paul ask what we might do to ensure that the poor obtain a greater share of the benefits of globalisation in the future. 

This is a very interesting question, worthy of a longer reply than I’m going to give it here. But here is an outline of what we might do.  I’d welcome other suggestions in the comments section.

  1. Ensure that further liberalisation gives priority to changes that will benefit poor countries (eg removing agricultural subsidies, removing tariff escalation, unconditionally ending all quotas and tariffs on exports of LDCs, simplifying phyto-sanitary standards) rather than those which are primarily designed to benefit rich countries.
  2. Give priority to extending the logic and practice of globalisation to the market for labour, to complement liberalistion of the markets for goods and for capital.  Even small increases in migration would be of huge benefit to poor countries.  The asymmetry of our policy rhetoric on free trade for goods but growing anxiety about the movement of people verges on hypocrisy.  We can’t expect others to accept our arguments on the benefits of globalisation if we remain adamantly opposed to those parts of it that we are uncomfortable about.
  3. Massively increase investment in global public goods, such as R&D into scientific innovation that would help the poor (a green revolution in Africa, new vaccines, solar power etc), conflict prevention and reductions in environmental degradation.   By definition, the costs of these public goods should be paid by the world community as a whole, and not by individual countries; and rich countries should be investing much more of their wealth on them.
  4. Give more aid.  We know that aid works, on average.  There is remarkable consensus about how much aid is needed to meet the Millennium Development Goals, and it isn’t very much.  A doubling of aid would have a huge impact on developing countries, and the cost to rich countries would be negligible within the context of public spending.
  5. Increase knowledge sharing.  I am concerned that the gradual extenson of copyright and patents into more and more of commercial life makes it hard for poor countries to appropriate technology from rich countries and close the gap. This has been a mechanism through the ages by which the poorest have been able to catch up with the richest: my sense is that we are making it harder than ever for this to happen.  I think we have to find ways to ensure that poor countries have access to knowledge itself, and to knowledge-intensive products (eg computer software, pharmaceuticals, complex machinery) at tiered prices – the R&D costs should be paid by rich consumers, and poor countries should get access to these products at marginal cost (ie almost nothing).  It harms us not in the slightest for them to do so.

There is a separate question of how to pay for the measures with a fiscal cost (namely, more aid, more investment in global public goods). Paul’s comment is, I think, aimed at those who advocate new taxes (eg a Tobin Tax, departure tax).  He says If you are seeking to dictate to democratically elected governments how to run their economies I don’t think you are right. I basically agree with him on that. The costs are so trivially small that governments can absorb them within their normal budget process. The cost to the UK would be about a fifth of what David Davies proposes to save with his fiscal rule – it would mean very slightly smaller reductions in income tax.  Governments should decide on the case for new or different taxes on the economic advantages and disadvantages of the tax, not on the basis of the merits of the cause for which the revenues would be hypothecated. As it happens, I am not persuaded by the case for taxing foreign exchange transactions (a Tobin Tax); but I am in favour of taxing aviation fuel; both for microeconomic reasons, not because of how the money might be spent.

So that is my agenda for how we might ensure that we continue to deepen and extend globalisation and at the same time ensure that the poor secure the majority of the benefits.  I’d welcome comments or other suggestions in the comments below. 

Update 11 November: See Chris Dillow at Stumbling and Mumbling, who adds asset redistribution to the list of possible measures.

13 thoughts on “How to share the benefits of globalisation”

  1. Pingback: New Economist

  2. Well, I’d argue with several of these but one positive point: We know what the benefit to the UK of moving to truly free trade would be. Patrick Minford calculated it. 30 odd billion a year on GDP. The tax take on such marginal activity would be fairly high, some 7-10 billion at a guess.
    Quite enough to pay for the other things you desire. Rare to actually get a free lunch in economics but they do pop up sometimes….usually when you remove State imposed restrictions upon said economy.

  3. Nice blog, great collection of Links…
    Just started my own multilingual Blog on globalization, European affairs, new ideas, creativity. Perhaps you would like to visit
    http:ideenwerk.blogspot.com
    and post a comment in any language whatsoever…

    Thanks,
    Jannis

  4. Hi Owen,

    One suggestion comes from your colleague at the CGD Nancy Birdsall (I’m sure you’ve seen this already so sorry for that), with IMF economist Arvind Subramanian, in their recent paper “If rich governments really cared about development” –

    As well as suggesting that trade liberalisation by developed countries will provide less benefits for the developing than is often cited by development commentators, and pointing to some of your ideas above (eg increasing labour market mobility),

    under the heading “Actions that do no harm” they say “Provide economic policy-making space” – allow countries to liberalise at their own pace, or retain some protectionism if they wish. They argue that the primary indicator of success, in the various countries they use as examples (South Korea, India, China), has been not so much the degree of protectionism or pace of liberalisation, but “institutional innovations that are country-specific, and that come out of local knowledge and experimentation.” “These innovations are typically targeted on domestic investors and are tailored to domestic realities”.

    So, simply “do no harm” (don’t interfere either bilaterally or through the IMF or World Bank) might be one to add to the list.

    Owen replies: I largely agree with the paper by Nancy Birdsall, Danny Rodrik and Arvind Subramanian (and not only because Nancy is my boss) though I disagree with some of the tone of it. I agree with them, and you, that “do no harm” is a very good start. The question asked here (and which I tried to answer) was not: what should the policy of rich countries be – for which “do no harm” would be near the top of my list – but the narrower question of how can we change the distribution of the benefits of globalization.

  5. the problem is Owen that your wishlist is never going to happen. So instead we get globalisation designed not to increase the living standard of the poor but to benefit MNC. I’d support freetrade if everyone practised it but the likelihood of that happening is nil. And there is no proof or evidence that half-baked globalisation is better than none. Corporations, the standard vehicle for FDI, andswer to the City and the Street not to their conscience. Economists seek to provide perfect markets while corporations seek to monopolies and to distort markets. This isn’t an anti-corporation rant, I work for one and believe in social democracy with capitalism; I just think we are in the thrall of economic extremists who are leaving the majority of the worlds population demonstrably worse off.

  6. What about governance?

    Your points sum up the “fallacy of the victim”. Emerging countries are mostly victims of themselves — and of their appaling record in terms of governance. There is no such thing as judicial independence, checks and balances, stable property rights, etc. THIS is the real challenge of globalization.

  7. Agustin: Emerging countries are mostly victims of themselves — and of their appaling record in terms of governance.

    True of some — Zimbabwe springs to mind — but not of others. For example, Mozambique has had consistent 7% growth rates for a decade, which suggests they must be doing something right.

  8. Augustin

    Poor governance is part – but only part – of the explanation of why some countries are poor. There are lots of other contributory factors, including geography, climate, disease, history, conflict, and the role of other countries (either positive or negative) in their progress. For example, low growth in Africa can be explained (statistically) almost entirely by high rates of adult mortality; and those, in turn, are partly explained by the high prevalence of tropical diseases.

    Furthermore, poor governance is not merely a random occurrence. We need to understand better why some countries have been able to develop effective systems of political accountability and others have not. We in the rich countries have contributed, in part, particularly through the Cold War when we supported all sorts of crazy dictators in what we conceived as our strategic interest.

    If I may say so, your point is a classic case of “blame the victim”.

    (Phil: the Mozambique success story is somewhat marred by the fact that the growth is so concentrated on a single steel smelter in Maputo – there has been very little benefit so far for the rural poor. Which is not to say that the growth is a bad thing; just that we have yet to see the kind of broad based growth that Mozambique needs.)

    Owen

  9. Thanks for the answer Owen, but surely (correct me if I’m wrong), allowing countries to reap the benefits of fairer global trade (by being left to protect or liberalise their markets as they see fit) will help the redistribution of the benefits of globalisation in their favour? (because they stop being mere suppliers of primary produce at knockdown prices).
    My knowledge is much less than yours and I do tend to see things in primary colours at the mo, but the above seems intuitively right to me.
    As an aside, from what I’ve read of your views so far, I thought you were not in favour of protectionism by developing countries? When you say you agree above, do you mean you agree with letting them decide their own policies, even if these include ones you don’t think are favourable, such as protectionism?

  10. Hardwin

    The short answer is that I think that countries would benefit from liberalising but I am not in favour of trying to force them to do so.

    You have reminded me that I should write something at more length on this, but in a nutshell:

    a. there is no evidence that conditionality works. Countries are no more likely to introduce unpopular policies because we link our assistance to them doing so.

    b. I believe that many governments are at least a good a judge of the interests of their people as foreign governments, and they are more legitimate. The problem of governance is not a technocratic deficit, it is a lack of political accountability. Aid conditionality tends to reduce, rather than increase, the accountability of a government to its people.

    However, I do think that donors have not only the right but the duty to allocate scarce aid resources to those countries which are likely to make best use of them. And we know empirically that aid is more effective in well-governed countries. So while I do not think we should try to use aid to force change in other countries policies, I do think that, over a longer time frame, we should shift aid resources from countries that generally pursue policies that are not in the interests of the poor to countries that pursue policies that are.

    So in short, yes, I am in favour of letting developing countries decide to pursue policies that I would not recommend, such as protectionism.

    Owen

  11. Owen, thank you very much, wonderful to get some clarity on that. I agree with your points, and again, it’s so good, for me, to get some nuance on how or whether these practises have worked in the past – so cheers.

  12. Given the significance of debt overhang as a drag on economic growth, and debt service as a constraint on governments’ social spending, I’d like to see further action on debt relief in this list too.

    I strongly agree with Jeremy and Hardwin. Recognizing the power imbalances in the current and designing mechanisms to ameliorate them seems to me to be an essential prerequisite for genuinely advancing the proposition that ‘free trade’ will be good for the poor. Otherwise we do simply get a form of globalization that entrenches and extends those imbalances. We can see this clearly in the current WTO negotiations. What was meant to be a ’round for free’ for developing countries is again degenerating into a mercantilist war to take the most territory while ceding the least – particularly on the part of the EU.

    “Policy space” for poor countries has to be part of that correction. As does increased aid for, among other things, infrastructure and trade related capacity building.

  13. Hey Owen,

    I was led here by greenlagirl and love the site already. You obviously have more policy analysis in your past than I, so bear with me.

    1) I’d note that not all farm subsidies are equally harmful to the poor, the worst offenders being U.S. cotton and E.U. sugar subsidies, which are at the heart of the current Doha round. The developing world has made it clear that without major reform, no agreement will be formed. Also: If by “simplification” of phyto-sanitary standards, you mean “harmonization,” that’s being quietly done too, under the Codex Alimentarius in Rome. I’m suspicious that these standards are directed too much by business interests however.

    2) I think you’re right about immigration, however, a more pressing need is the globalization of bargaining power in the union movement. An impossible dream, I know, but one worth thinking about.

    3) Realism: Let’s fight first for cheap and available A.I.D.S. treatments in Africa through an exception in the T.R.I.P.s Agreement. Yes, your ideas are fine above, but a global public health emergency demands immediate action.

    4) I don’t know anything really about foreign aid, however, given the fiscal disaster unfolding before us (large, unsustainable, and growing federal deficits), Congress(wo)men are going to face pressure to cut what little the U.S. gives in aid already. Let’s fight to defend what we have now, first.

    5) Absolutely, but go further. Not only are rich-world innovations sealed off from the poor – a blatant form of hypocrisy and unfairness since the rich-world grew rich from the richer-world – but global capitalism wants to extend its reach to native herbs, plants, seeds, and other lifeforms. Cases of natives having to pay royalties to a corporation for the use of the seed they’ve planted for hundreds of years aren’t rare.

    Why are you opposed to a Tobin Tax? This would seem to “internalize” an externality (macroeconomic instability) just like a gas tax internalizes air pollution?

    Let me take this opportunity to praise land reform too.

Leave a Reply

Your email address will not be published. Required fields are marked *