The Independent Uganda: You get the Truth we Pay the Price
When the U.S. began opening itself up to imports from Mexico, China, and other developing countries in the 1980s, one might have expected it to go the European route. Instead, under the sway of Reaganite and market-fundamentalist ideas, the U.S. went in an opposite direction. As Larry Mishel, president of the Economic Policy Institute, puts it, “ignoring the losers was deliberate.” In 1981, the “trade adjustment assistance (TAA) program was one of the first things Reagan attacked, cutting its weekly compensation payments.”
The damage continued under subsequent, Democratic administrations. In Mishel’s words, “if free-traders had actually cared about the working class, they could have supported a full range of policies to support robust wage growth: full employment, collective bargaining, high labour standards, a robust minimum wage, and so on.” And all of this could have been done “before administering ‘shocks’ by expanding trade with low-wage countries.”
Could the U.S. now reverse course, and follow the newly emergent conventional wisdom? Back in 2007, political scientist Ken Scheve and economist Matt Slaughter called for “a New Deal for globalisation” in the US, one that would link “engagement with the world economy to a substantial redistribution of income.” In the U.S., they argued, this would mean adopting a much more progressive federal tax system.
Slaughter had served in a Republican administration, under President George W. Bush. It is an indication of how polarised the U.S. political climate has become that it is impossible to imagine similar proposals coming out of Republican circles these days. The effort by Trump and his Congressional allies to emasculate former President Barack Obama’s signature health-insurance program reflected Republicans’ commitment to scaling back, not expanding, social protections.
Today’s consensus concerning the need to compensate globalisation’s losers presumes that the winners are motivated by enlightened self-interest – that they believe buy-in from the losers is essential to maintain economic openness. Trump’s presidency has revealed an alternative perspective: globalisation, at least as currently construed, tilts the balance of political power toward those with the skills and assets to benefit from openness, undermining whatever organised influence the losers might have had in the first place. Inchoate discontent about globalisation, Trump has shown, can easily be channeled to serve an altogether different agenda, more in line with elites’ interests.
The politics of compensation is always subject to a problem that economists call “time inconsistency.” Before a new policy – say, a trade agreement – is adopted, beneficiaries have an incentive to promise compensation. Once the policy is in place, they have little interest in following through, either because reversal is costly all around or because the underlying balance of power shifts toward them.
The time for compensation has come and gone. Even if compensation was a viable approach two decades ago, it no longer serves as a practical response to globalisation’s adverse effects. To bring the losers along, we will need to consider changing the rules of globalisation itself.
****
Dani Rodrik, Professor of International Political Economy at Harvard University’s John F. Kennedy School of Government, is the author of Economics Rules: The Rights and Wrongs of the Dismal Science.
****
Copyright: Project Syndicate, 2017.
www.project-syndicate.org
