Unpopular Globalization: Why So Many Are Opposed - By David Dapic
The world economy has performed well in recent years - but the mood in rich nations is uneasy. The reason: While globalization fuels economies, citizens see little gain. They tend to blame globalization rather than specific policies for economic stagnation and growing retirement and health crises. And for politicians seeking to avoid necessary but unpopular policy changes, that is just as well.
Western economies recovered from the burst of the technology bubble and the fallout from the "war on terror." Unemployment is falling in the US, EU and Japan while inflation remains muted. Gross Domestic Product (GDP) growth rates, corporate profits and stock prices are up. Yet a recent survey conducted for the World Economic Forum reports that over half of those responding in the EU and nearly two out of five in the US anticipate a bleak economic future. Most economists see growth, trade and global economic integration as threatening some special interests but, on the whole, helping everyone. Still, what if the sum of "special interests" represents the majority?
The attitudes in the US – historically an optimistic society, fluid and adaptable – are most surprising. Yet real wages, with all data in constant prices, have fallen from $9 an hour in 1973 to $7.50 in 1993, before rising to $8.25 in 2002 and falling gently since then. Real compensation, which includes fringes such as health insurance, did rise 20% from 1992 to 2005 – but that is only half of the growth in labor productivity, the measure economists use to assess efficiency shown by output per person-hour. Productivity growth has fattened corporate profits, which rose, after taxes, from 5.2% of GDP in 1992 to 7.5% in 2005, tying an all-time record. Corporate profits and executive compensation have also soared. Pundits commonly link these trends with economic integration and free trade agreements. Yet, the trends have more to do with automation, immigration, and the US trade deficit than with globalization per se. The low saving rate in the US workers has created the trade deficit, not free trade.
Likewise, US worries about soaring health care costs are not linked to free trade. Rather, the US health care system is exquisitely inefficient. The US government does not provide universal health care, but ends up spending more per capita on health care than total per capita spending by Canada on its federal health care. Yet 15% of the US population, or more than 45 million, are uninsured, and tens of millions more have inadequate insurance. In Europe, the health care system is cheaper and produces better outcomes. But the Europeans still worry as jobs go offshore and the graying population complicates the financing of a comprehensive social safety net, thus leading to budgetary pressures for less generous treatment and pessimism about future access. The mood would remain glum even if unemployment rates in Europe fell and private job growth, now weak, improved. Governments promise generous pensions, but with the baby boom-generation retiring, these are becoming less affordable. As with health care, financing these benefits will become unbearable unless older people work longer and pensions are delayed or reduced. Most wealth outside of housing is concentrated in the top 10% of the population, and a disproportionate share of the growth in disposable income is due to growing non-wage payments such stock sale and dividends. In other words, buoyed by globalization, corporate income surged while the average citizen had little gain. Indeed, from 1999 to 2004, the share of US households making less than $35,000 a year, in constant prices, rose while those making more than $75,000 fell.
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