Must-read: Wolfgang Munchau: “The Revenge of Globalisation’s Losers”

Must-Read: Wolfgang Munchau: The Revenge of Globalisation’s Losers: “A process once hailed for delivering universal benefit now faces a political backlash…

…The establishment view, in Europe at least, is that states have neglected to forge the economic reforms necessary to make us more competitive globally. I would like to offer an alternative view. The failure of globalisation in the west is in fact down to democracies failure to cope with the economic shocks that inevitably result from globalisation, such as the stagnation of real average incomes for two decades. Another shock has been the global financial crisis–a consequence of globalisation–and its permanent impact on long-term economic growth….

Voters’ insurrection is neither shocking nor irrational. Why should French voters cheer labour market reforms if it could result in the loss of their jobs, with no hope of a new one?… Germany’s acclaimed labour market reforms in 2003 succeeded in the short term because they raised the country’s cost competitiveness through lower wages relative to other advanced countries. The reforms produced a state of near full employment only because no other country did the same. If others had followed, there would have been no net gain. The reforms had a big downside. They reduced relative prices in Germany and pushed up net exports in turn generating massive savings outflows, the deep cause of the imbalances that led to the eurozone crisis. Reforms such as these can hardly be the recipe for how advanced nations should address the problem of globalisation….

Globalisation has overwhelmed western societies politically and technically. There is no way we can, or should, hide from it. But we have to manage the change. This means accepting that the optimal moment for the next trade agreement, or market liberalisation, may not be right now.