Summary:
Second part of Larry Summers' on rising anti-free trade sentiment and strategies to avoid it. Increasingly succesful and integrated global economy at the expense of US workers? Difference between open and closed economy (reasoning similar to that of Gomory and Baumont). US must compete not retreat. Current emphasis on priority of global corporations. Need to focus on interests of working people, too. Need global co-operation in international tax arena and prevention of harmful de-regulation eroding labour rights. (Published: 14/05/2008)
Notes:- Doubts that an increasingly successful, integrated global economy benefits US workers
- appears to be weakening link between success of a nation's workers and the success of both its trading partners and its companies
- success of other countries + greater global integration places more competitive pressure on an individual economy
- workers are likely disproportionally to bear the brunt of this pressure
- opposes the argument that workers and companies benefit due to expanding market for exports
- reasons US/EU/Japan workers enjoy higher wages:
- more highly skilled than most workers in developing world
- more productive because their effort is complemented by 'capital' (ie equipment, managerial expertise, infrastructure and capacity for innovation)
- closed versus open economy
- in closed economy, anything that promotes investment in productive capital necessarily raises workers wages
- corporations have huge stake in quality of national workforce and infrastructure
- in open economy, investments in innovation, brands, strong corporate culture, equipment, ... can be combined with labour from anywhere in the world
- workers no longer have stake in in productive investment by companies as it becomes easier for companies to combine their capital with lower priced labour overseas
- companies have less stake in quality of the workforce and infrastructure in their home country when they can produce anywhere
- business can use threat of relocating as lever to extract concessions regarding tax policy, regulations and specific subsidies
- cost of these concessions ultimately borne by labour
- public policy response of withdrawing from global economy or reducing pace of integration is untenable
- would generate resentment abroad on dangerous scale
- would hurt economy as other countries retaliate
- would make US less competitive as companies in rival countries continue to integrate their production lines with developing countries
- Bill Clinton: "the United States must compete not retreat"
- strategy to promote 'healthy globalisation'
- domestic component: must rely on strengthening efforts to reduce inequality and insecurity
- international component: must focus on interests of working people in all countries
- in addition to the current emphasis on the priority of global corporations
- US should take lead in promoting global co-operation in the international tax arena
- has been race to the bottom in taxation of corporate income as nations lower their rates to entice business to issue more debt and invest in their jurisdications
- problem of tax havens
- "might be inevitable that globalisation leads to increases in inequality, but shouldn't compromise the possibility of progressive taxation"
- international economic diplomacy should focus on prevention of harmful regulatory competition
- also currently race to the bottom, using mantra of needing to be "internationally competitive"
- eg cutting down on financial regulation
- reason why progressive in early part of 20th century sought to have the federal government take over many kinds of regulatory responsibility
- need something like that on a global scale, or global co-operation to raise standards
- labour standards argument has at times been invoked as a cover for protectionism; must be avoided
- but is appropriate that US policymakers seek to ensure that greater global integration does not become an excuse for eroding labour rights
- "To benefit the interest of US citizens and command broad political support, US international economic policy will need to focus on the issues in which the largest number of Americans have the greatest stake; although a decoupling of the interests of businesses and nations may be inevitable, a decoupling of international economic policies and the interests is not"
