Blog Post

The rebellion of globalisation’s losers

What’s at stake: The prevailing narrative for the rise of anti-establishment politicians is that advocates of integration vastly underestimated the plight of globalization’s losers.

By: and Date: May 9, 2016 Topic: Global economy and trade

A narrative for the rise of populism

Daniel Gros writes that the prevailing explanation on both sides of the Atlantic is that rising populism amounts to a rebellion by “globalisation’s losers.” By pursuing successive rounds of trade liberalization, the logic goes, leaders in the US and Europe “hollowed out” the domestic manufacturing base, reducing the availability of high-paying jobs for low-skill workers, who now have to choose between protracted unemployment and menial service-sector jobs. Fed up, those workers are now supposedly rejecting establishment parties for having spearheaded this “elite project.”

Kevin O’Rourke writes that globalisation’s losers are becoming increasingly hostile to trade (and immigration). Over the past decade, political scientists and economists have amassed a considerable body of survey evidence, which shows that ordinary people’s attitudes towards globalisation are exactly what Heckscher-Ohlin economics would predict. Standard international trade theory teaches us that trade increases overall incomes, but that not everyone benefits: instead, trade helps some groups in society, and hurts others. The textbooks then make the point that, since overall incomes have increased, the losers could be compensated by the winners, leaving everyone better off.

Wolfgang Munchau writes that what advocates of global market liberalization should recognize is that both globalisation and European integration have produced losers. Both were supposed to produce a situation in which nobody should be worse off, while some might be better off. That did not happen. We are close to the point where globalisation and membership of the eurozone in particular have damaged not only certain groups in society but entire nations. If the policymakers do not react to this, the voters surely will.

Kevin O’Rourke writes that economists can tut-tut all they want about working-class people refusing to buy into the benefits of globalisation, but too much globalisation, without domestic safety nets and other policies that can adequately protect globalisation’s losers, will inevitably invite a political backlash. Wolfgang Munchau writes that 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 liberalization, may not be right now.

Brad DeLong writes that ideologies – either Friedmanesque rants that globalisation is always good or Trumpist rants that “we” are always outmaneuvered in trade deals by shifty foreigners – seem profoundly unhelpful here. And so the word “globalisation” becomes an obstacle rather than an aid to thought

Dean Baker writes that the rules of trade liberalization were written to redistribute upward. The fact that manufacturing workers paid the price, and not doctors, lawyers, and other highly paid professionals, was by design. There are tens of millions of very bright and ambitious people in places like India and China who would be happy to train to U.S. standards and work as professionals in the United States at a fraction of the wages of our professionals, just like their manufacturing workers were happy to work for lower wages. While our trade deals were designed to encourage competition for our manufacturing workers, they did little or nothing to open the door for competition for professionals. There was nothing inevitable here, the issue was the class of people who were writing the trade agreements. We also made patent and copyright protection longer and stronger. This transfers hundreds of billions of dollars every year from the rest of us to folks like Bill Gates and Pfizer. There is also nothing inevitable about this story, the rules were written to redistribute upward.

Alternative narratives on the rise of populism

Daniel Gros writes that if these factors account for the rise of populism, they must have somehow intensified in the last few years, with low-skill workers’ circumstances and prospects deteriorating faster vis-à-vis their high-skill counterparts. And that simply is not the case, especially in Europe. The “wage premium” for workers in occupations that require high levels of education has been roughly constant in Europe over the last decade. The difference in employment rates of the highly educated and the less educated has also remained relatively constant, with the less educated actually closing the gap slightly in recent years.

Daniel Gros writes grievances about the economic impacts of economic globalisation are simply not that powerful. Instead, right-wing populist parties like the FPÖ, Finland’s True Finns, and Germany’s Alternative für Deutschland are embracing identity politics, playing on popular fears and frustrations – from “dangerous” immigration to the “loss of sovereignty” to the European Union – to fuel nationalist sentiment.

Wolfgang Munchau writes that the establishment view as to why globalisation has failed is that states have neglected to forge the economic reforms necessary to make us more competitive globally. There is no factual evidence that countries that have reformed are performing better or are more able to cope with a populist insurrection. The US and the UK have more liberal market structures than most of continental Europe. Yet the UK may be about to exit the EU; in the US the Republicans may be about to nominate an extreme populist as their presidential candidate. Finland leads all the competitiveness rankings but the economy is a non-recovering basket case — and it has a strong populist party.

Kevin O’Rourke writes that the outsourcing activities of multinational firms may be reallocating labor tasks between countries in ways that traditional Heckscher-Ohlin trade theory did not take account of. For example, very low skill service jobs, and high skilled jobs involving abstract tasks, may be difficult to outsource, but middle-ranking routine tasks may be much more easily so. And indeed there seems to have been a ‘hollowing out ’ of the income distribution in recent years: wages at the top have been pulling away from average wages, while in some cases low wages are converging somewhat on the average.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article More on this topic More by this author
 

Opinion

The end of globalisation as we know it

The tension between the unprecedented need for global collective action and a growing aspiration to rebuild political communities behind national borders is a defining challenge for today’s policymakers.

By: Jean Pisani-Ferry Topic: Global economy and trade Date: July 1, 2021
Read article
 

Blog Post

European governance

The Conference on the Future of Europe: vehicle for reform versus forum for reflection?

The approach of the European Union’s institutions to the Conference on the Future of Europe is muddled, with risks for the outcome.

By: Sergio Fabbrini, John Erik Fossum, Magdalena Góra and Guntram B. Wolff Topic: European governance, Macroeconomic policy Date: June 15, 2021
Read article More on this topic More by this author
 

Blog Post

Quo vadis, Swiss-European Union relations?

Switzerland’s decision to abandon talks on a framework agreement with the European Union will have far reaching consequences. The outline of future relations now depends both on the EU’s response and on domestic developments.

By: Stefanie Walter Topic: Macroeconomic policy Date: June 7, 2021
Read article More on this topic More by this author
 

Opinion

Is Bidenomics more than catch-up?

The Biden administration's promises to 'think big' and rebuild the country seem like a major historical departure from decades of policy orthodoxy.

By: Jean Pisani-Ferry Topic: Global economy and trade Date: June 3, 2021
Read article More on this topic More by this author
 

Blog Post

What Swiss voters expect to happen next, after EU talks fail

Proponents and opponents of the Swiss-EU institutional framework agreement have different takes on the impact of a success or failure of the agreement.

By: Stefanie Walter Topic: Macroeconomic policy Date: May 31, 2021
Read article More on this topic
 

Blog Post

Do citizens care about Europe? More than they used to

The level of interest of European citizens in the European Union is increasing, but still lags behind EU economic and policy integration.

By: Enrico Bergamini, Emmanuel Mourlon-Druol, Francesco Papadia and Giuseppe Porcaro Topic: Macroeconomic policy Date: April 26, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

The idea of Europe: more than a feeling?

What can 70 years of news(paper articles) and how we talk about 'Europe' tell us about pan-European identity? Is there even such a thing as a European public sphere?

By: The Sound of Economics Topic: Macroeconomic policy Date: April 16, 2021
Read article More on this topic More by this author
 

Opinion

Letter: ‘Strategic autonomy’ is now an EU catchphrase

Strategic autonomy should not be an illusionary search for independence, but rather a strategic management of interdependence, based on diversification of supply chains.

By: Simone Tagliapietra Topic: Macroeconomic policy Date: March 24, 2021
Read article Download PDF More on this topic
 

Working Paper

Interest in European matters: a glass three-quarters full?

Everything that increases the interest of European citizens in the EU, independently of whether it has a critical or a supportive character, will serve to move the EU closer to its citizens.

By: Francesco Papadia, Enrico Bergamini, Emmanuel Mourlon-Druol and Giuseppe Porcaro Topic: Macroeconomic policy Date: March 23, 2021
Read article Download PDF More on this topic
 

Working Paper

Talking about Europe: exploring 70 years of news archives

This paper aims to contribute to the understanding of Europe as reflected in European media.

By: Enrico Bergamini and Emmanuel Mourlon-Druol Topic: Macroeconomic policy Date: March 2, 2021
Read article More on this topic More by this author
 

Opinion

Résilience : la nouvelle boussole

Pour surmonter le choc de la pandémie de Covid-19, l’économiste écarte, dans sa chronique, l’idée d’un repli protectionniste, mais suggère de passer d’un objectif de réduction des coûts à celui de la réduction des risques.

By: Jean Pisani-Ferry Topic: Global economy and trade Date: January 18, 2021
Read article Download PDF
 

Policy Contribution

The productivity paradox: policy lessons from MICROPROD

The objective of MICROPROD, an EU-wide research project that runs until the end of 2021, is to understand what is driving the current productivity slowdown and what the potential consequences are for Europe's economic model and its citizens’ welfare. This Policy Contribution summarises the main, policy-relevant conclusions of the 20 MICROPROD papers delivered so far.

By: Grégory Claeys and Maria Demertzis Topic: Digital economy and innovation, Macroeconomic policy Date: January 6, 2021
Load more posts