|The shifting power equation of globalization
Jonathan Schmidt and Howard Davies (YaleGlobal)
International Herald Tribune, January 17, 2007
A few short years ago an antiglobalization coalition severely disrupted a World Trade Organization summit meeting in Seattle and began a wave of demonstrations against the institutions seen as being "responsible" for globalization. At the time, most of the protests centered around the perceived inequities between North- South economies. Western corporations were thought to be gaining a disproportionate share of benefits of globalization. That kind of disruption seems less likely in 2007. And full frontal attacks on globalization seem distant memories.
But this relative calm on the streets does not mean that all the arguments have ended they have just changed character. While most people may accept that the trend towards greater interconnectedness between the world's major economies is unlikely to be reversed, there is increasing focus on the resulting winners and losers. In the long run, the economic theory of comparative advantage tells us that globalization should result in a net increase in human welfare; however, it is not likely that all boats will rise at the same time or to the same extent on this incoming tide, and some may be shipwrecked. Indeed, "The Shifting Power Equation" will be the overarching theme of the Annual Meeting of the World Economic Forum in Davos next week. There participants will try to make sense of the various ways that power is being transferred and redistributed in our ever more connected global polity.
One dimension of this debate is geographical. Over the coming decades there could well be a massive transfer of wealth from the industrialized Western economies to the fast-growing countries of South and East Asia in particular. This argument is most loudly advanced in what Donald Rumsfeld used to call "Old Europe."
That is surprising, in a sense, since recent figures show that in fact the European Union has maintained its share of world trade over the last decade. Taking the averages for 1998-2003 over the previous five- year period, the EU marginally increased its share of world trade in goods (from 15.4 percent to 15.5 percent), while America's share fell from 12.8 percent to 12 percent. The big winner was China, up from 2.8 percent to 4.4 percent, with Japan the biggest loser.
But perhaps the bigger question, and the one with increasing political
resonance, concerns the winners and losers within countries. It is increasingly
clear that the rewards of globalization are heavily skewed. That is seen
most sharply in the United States, where in the last five years real incomes
have risen on average by only 1.4 percent a year, only half the rate of
productivity growth. Only the top 10 percent of earners have seen their
rewards rise more rapidly than productivity, while pay to those on Wall
Street, and at the top of major corporations, has escalated dramatically.
Middle and lower incomes have stagnated.
What will the consequences of these changes be?
We are already beginning to see a reaction. Left-wing coalitions have taken power in Spain and Italy. In France Ségolène Royal is developing the theme; in Britain many expect Gordon Brown will be more sympathetic than Tony Blair has been to the claims of organized labor. And we have seen a wave of populist governments elected in Latin America while in the United States trade and economic issues are expected to play a major role in defining the next presidential election.
The distribution of the globalization dividend may turn out to be the biggest item on the economic agenda of the Western democracies in the next few years. There will be pressure for protection and for punitive taxation. There is a perception that the response of the globalizers has so far not been sensitive enough to the concerns of those who are losing out from low-wage competition. It has amounted to little more than an assertion that there is no turning back. More sophisticated means of compensating the casualties of enhanced competition will soon be needed if we are to avoid a trip down the slippery slope of national protectionism.
Jonathan Schmidt is Director, Head of Global Agenda at the World Economic
Forum and responsible for the program of the Annual Meeting in Davos.
Howard Davies is Director of the London School of Economics and Political