Globalization & Populism: Economic Shocks, Cleavages & Political Mobilization | Apuntes de Economía Política

Introduction

Today populism has been expressed through many different ways (anti-euro and

anti-migrants movements in Europe, the economic populism of Chavez…) What all these

share is an antiestablishment orientation, a claim to speak for the people against the elites,

opposition to liberal economics and globalization, and often (but not always) a penchant for

authoritarian governance.

Changes in technology, rise of winner-take-all markets, erosion of labor-market protections,

and decline of norms restricting pay differentials all have played their part. These are

elements of economic globalization that have contributed to populism.

The author's thesis is that different populist reactions are related to the forms in which

globalization shocks make themselves felt in society. It is easier for populist politicians to

mobilize along ethno-national/cultural cleavages when the globalization shock becomes

salient in the form of immigration and refugees. That is largely the story of advanced

countries in Europe. On the other hand, it is easier to mobilize along income/social class

lines when the globalization shock takes the form mainly of trade, finance, and foreign

investment. That in turn is the case with southern Europe and Latin America.

In summary, the relative importance of available cleavages (which cleavage matters and

angers the population more) and the narratives provided by populist leaders is what provides

direction and content to the grievances.

Trade and redistribution (how trade distributes income)

The Stolper-Samuelson theorem derives serious competences to the owners of the factors

of production used primarily in import-competing industries. Applying SS economic theory,

what we can conclude is that basically after trade openness the return of one of the factors

of production (the one that is harmed by liberalization) is going to decline (negative

porcentual change) whereas the price of the good that is exported is above just 0 (thus, a

positive porcentual change).

Another implication is that they keep an uncomfortable truth. In relative terms, the

redistributive effects of liberalization get larger and tend to swamp the net gains as the trade

barriers in question become smaller because the lower the tax reduction, the smaller the

efficiency gain. However, as the rate at which the tariff is reduced decreases, the wage

reduction of the worker is not as low as expected. In other words, the smaller is the trade

barrier removal, the higher is the effect is for workers relative to the net gains of the

economy. (The economy will gain little and worker will see their wages reduced but much

more in comparison with the efficiency gain so it does not pay off).

As countries develop, the discussions in trade agreements is not about how to expand the

pie but about how to divide it. Evidence supports these claims, in regions where there was

protection before the trade liberalization the wage growth was lower than in regions that

were initially unprotected, the same logic applied to protected and non-protected industries.

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Introduction Today populism has been expressed through many different ways (anti-euro and anti-migrants movements in Europe, the economic populism of Chavez…) What all these share is an antiestablishment orientation, a claim to speak for the people against the elites, opposition to liberal economics and globalization, and often (but not always) a penchant for authoritarian governance. Changes in technology, rise of winner-take-all markets, erosion of labor-market protections, and decline of norms restricting pay differentials all have played their part. These are elements of economic globalization that have contributed to populism. The author's thesis is that different populist reactions are related to the forms in which globalization shocks make themselves felt in society. It is easier for populist politicians to mobilize along ethno-national/cultural cleavages when the globalization shock becomes salient in the form of immigration and refugees. That is largely the story of advanced countries in Europe. On the other hand, it is easier to mobilize along income/social class lines when the globalization shock takes the form mainly of trade, finance, and foreign investment. That in turn is the case with southern Europe and Latin America. In summary, the relative importance of available cleavages (which cleavage matters and angers the population more) and the narratives provided by populist leaders is what provides direction and content to the grievances. Trade and redistribution (how trade distributes income) The Stolper-Samuelson theorem derives serious competences to the owners of the factors of production used primarily in import-competing industries. Applying SS economic theory, what we can conclude is that basically after trade openness the return of one of the factors of production (the one that is harmed by liberalization) is going to decline (negative porcentual change) whereas the price of the good that is exported is above just 0 (thus, a positive porcentual change). Another implication is that they keep an uncomfortable truth. In relative terms, the redistributive effects of liberalization get larger and tend to swamp the net gains as the trade barriers in question become smaller because the lower the tax reduction, the smaller the efficiency gain. However, as the rate at which the tariff is reduced decreases, the wage reduction of the worker is not as low as expected. In other words, the smaller is the trade barrier removal, the higher is the effect is for workers relative to the net gains of the economy. (The economy will gain little and worker will see their wages reduced but much more in comparison with the efficiency gain so it does not pay off). As countries develop, the discussions in trade agreements is not about how to expand the pie but about how to divide it. Evidence supports these claims, in regions where there was protection before the trade liberalization the wage growth was lower than in regions that were initially unprotected, the same logic applied to protected and non-protected industries.

Economists have struggled to find significant net gains for the US economy, largely because US tariffs vis-a`-vis Mexico were quite low to begin with and Mexico is so small relative to the US (less than a tenth in size). Compensation and safety nets One of the reasons Europeans populists movements were not against tree is because, historically, the welfare losses that could created with trade were compensated with social security transfers and enlarging, thus, the safety net. However, that safety could produce deadweight losses as it was the case of the transfers in the USA to compensate for the Chinese entry in the WTO so that may be the reason of the USA of not adopting such social policies. Evidence supports this, “gains from trade would have been about 15% larger if redistribution had been carried out via non-distortionary means”. Then, these kind of thoughts have guided USA action when it comes to compensation to workers. Little compensation has practically been targeted to workers as compensation linked to trade agreements although politicians committed themselves to that. And, since in this society there are not as many constitutional mechanisms to regulate workers rights as in Europe, the means workers have to combat firms are very poor. In part, this explains that their reluctance to trade liberalization is larger. Trade, redistribution and fairness (why trade and not automatisation? And which kind of trade?) The usual answer is that trade is a convenient scapegoat, since politicians can point to identifiable foreigners – Chinese, Mexicans, or Germans – as the source of the problem. The problem with trade is that it sometimes forces the performance of “unfair practices/behaviors” against social norms. People understand that unequal abilities, effort, or moral deservingness imply that a fair distribution in society would also be unequal. As long as there is belief in social mobility, high levels of inequality will be tolerated. The notion of fair trade is much derided by economists, but it is already enshrined in trade laws in the form of antidumping and countervailing duties. Finally, the nature of trade nowadays is more divisive than ever because it is more invasive, it aims to harmonize domestic regulations (deep integration) which is a cause of international disagreement. The perils of financial globalization Financial globalization is dangerous in the sense of the volatility of capital (tan rápido se puede ir el dinero como entrar) especially when it comes to the purchase of financial products such as debt instead of direct investment. Thus, capital mobility can reinforce existing market failures (money fleeing the country states enter into default, capital flight) when negative shocks occur at the same time that can boost development when positive ones take place. Thus, it is kind of dangerous. Finally, banking crisis are associated with capital mobility. The more capital is going back and forth, the more likelihood of a banking crisis, systems are more uncertain and stable.

or from advanced European countries (not so distant culturally). In France, by contrast, the largest share (more than 40 percent) of migrants are from Moslem countries (Algeria, Morocco, Tunisia, Turkey) and an additional 10 percent come from Sub-Saharan Africa. A right-wing populist party (i.e., the National Front) has much more fertile ground in France than in Spain. Summary of everything covered so far: the USA case The US presents a mixed case, combining characteristics of both of these paths. Unlike Europe which had opened up to trade and reached a political settlement supporting it long ago – extensive safety nets in exchange for trade openness –the US experienced increased exposure to imports comparatively recently. And it did so without systematic compensation. Therefore, imports (especially from China) and trade agreements (with Mexico, Asian countries) were politically salient issues, around which a large number of voters could be mobilized. The financial crisis and the differing fates of large banks versus low-income homeowners– one bailed out, the other not – engendered anger at the financial elites. At the same time, immigration from Mexico, the threat of radical Muslim terrorism, and lingering racial divides were ripe for political manipulation. In other words, the US presented ample ground for both types of cleavage. Correspondingly, the 2016 presidential elections were contested by major populist movements on both the left and the right, led by Bernie Sanders and Donald Trump, respectively. Conclusion (economic integration has gone too far, need to rebalance this) Today the big challenge facing policy makers is to rebalance globalization so as to maintain a reasonably open world economy while curbing its excesses. We need a rebalancing in three areas in particular: from capital and business to labor and the rest of society, from global governance to national governance, and from areas where overall economic gains are small to where they are large. The benefits of globalization are distributed unevenly because our current model of globalization is built on a fundamental and corrosive asymmetry. Our trade agreements and global regulations are designed largely with the needs of capital in mind. Trade agreements are driven overwhelmingly by a business-led agenda. The implicit economic model is one of trickle-down: make investors happy and the benefits will eventually flow down to the rest of society. The interests of labor – good pay, high labor standards, employment security, voice in the workplace, bargaining rights – get little lip service. To move forward, labor must be given an equal say in setting the rules of globalization. In practical terms, this requires reconsidering which multilateral institutions set the agenda of the global conversation and who sits at the bargaining table when trade agreements are negotiated. With respect to rebalancing governance, we should understand that the world economy does not really need global governance to be managed. appropriately. Most failures in the world economy are rooted in failures of domestic governance. In particular, restrictive trade policies are due either to complications that override the standard Ricardian argument for the gains from trade, or to domestic policy foul-ups.

When the domestic policy process fails, there is a genuine problem. But the problem then lies in domestic politics and not in the absence of proper global rules. Empowering global governance in such circumstances may or may not work. Global rules sometimes can act as counterweight to protectionist interests. But it is a fortiori equally likely that the global rules will be written and administered by the very special interests that dominate domestic policy making as well (so they became protectionists of some industries :( ). Think of the role of big banks in setting global capital standards or pharmaceutical companies in writing global patent rules. Correspondingly, the appropriate role for global institutions is to enhance key democratic norms of representation, participation, deliberation, rule of law, and transparency

without prejudging policy outcomes or requiring harmonization Not absolute trade openness but considering issues of fairness, address concerns of social dumping, and enhance policy space in both developed and developing nations En general, un argumento liberal pero no ortodoxo, esto se puede ver en que no apuesta por full harmonization. I do think that not reaching BEYOND DIRECT BORDER BARRIERS is kind of the key to reaching this balance. Trying to harmonize everything is too bad.

Globalization & Populism: Economic Shocks, Cleavages & Political Mobilization, Apuntes de Economía Política

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