Economic Sanctions: A Reality Check [feedly]

Economic Sanctions: A Reality Check
https://conversableeconomist.wpcomstaging.com/2021/09/22/economic-sanctions-a-reality-check/

Economic sanctions is an attempt to carry out foreign policy using economic terms. It is a deliberately broad term. It includes decisions about not trading certain products with certain countries or companies, or seeking to freeze the bank accounts of countries, companies, or individuals. In political terms, one main attraction of economic sanctions is that it addresses a demand to "do something" in foreign policy in a way that doesn't involve ordering soldiers into harms or imposing large budgetary costs. Thus, it's no surprise that sanctions are quite popular. What's less clear is whether they are effective.

Daniel W. Drezner makes a case for a degree of skepticism in an essay in the latest issue of Foreign Affairs, "The United States of Sanctions: The Use and Abuse of Economic Coercion" (September/October 2021). He writes:

Sanctions—measures taken by one country to disrupt economic exchange with another—have become the go-to solution for nearly every foreign policy problem. During President Barack Obama's first term, the United States designated an average of 500 entities for sanctions per year for reasons ranging from human rights abuses to nuclear proliferation to violations of territorial sovereignty. That figure nearly doubled over the course of Donald Trump's presidency. President Joe Biden, in his first few months in office, imposed new sanctions against Myanmar (for its coup), Nicaragua (for its crackdown), and Russia (for its hacking). He has not fundamentally altered any of the Trump administration's sanctions programs beyond lifting those against the International Criminal Court. To punish Saudi Arabia for the murder of the dissident Jamal Khashoggi, the Biden administration sanctioned certain Saudi officials, and yet human rights activists wanted more. Activists have also clamored for sanctions on China for its persecution of the Uyghurs, on Hungary for its democratic backsliding, and on Israel for its treatment of the Palestinians. 

We don't know much about how well these sanctions actually achieve a foreign goal. The limited studies on the subject suggest they are effective less than half the time. Moreover, the government actors who impose sanctions often don't seem to pay much attention to whether they work or not. Drezner writes:

A 2019 Government Accountability Office study concluded that not even the federal government was necessarily aware when sanctions were working. Officials at the Treasury, State, and Commerce Departments, the report noted, "stated they do not conduct agency assessments of the effectiveness of sanctions in achieving broader U.S. policy goals." 

Drezner argues that the promiscuous overuse of sanctions by the United States results from two factors: weakness and lack of imagination, which seem interrelated. The weakness is is that US dominance in world economic and military affairs is diminishing. For a number of foreign policy priorities, we want to do more than just give a speech, but less than order a military sortie. We settle on economic sanctions because we lack an ability to envision how foreign policy goals might be pursued in other ways.

There seem to be several conditions for economic sanctions to be effective: precise targeting, a realistic goal, and a degree of international cooperation. As an example, Drezner points out: "In 2005, when the United States designated the Macao-based bank Banco Delta Asia as a money-laundering concern working on behalf of North Korea, even Chinese banks responded with alacrity to limit their exposure." Some of the efforts to limit flows of funds to terrorist groups seem to have been effective, at least over the short- and medium-mterm.

But when the US, standing mostly alone, imposes sanctions for general purposes on large economies, the main effect is often to cause suffering to the people of the country, rather than actually to achieve a foreign policy goal. The international sanctions against South Africa may be the best example of a success story in assisting regime change. But economic sanctions that require a country to dismantle its existing political/economic arrangements are not likely to work well.

The United States has imposed decades-long sanctions on Belarus, Cuba, Russia, Syria, and Zimbabwe with little to show in the way of tangible results. The Trump administration ratcheted up U.S. economic pressure against Iran, North Korea, and Venezuela as part of its "maximum pressure" campaigns to block even minor evasions of economic restrictions. The efforts also relied on what are known as "secondary sanctions," whereby third-party countries and companies are threatened with economic coercion if they do not agree to participate in sanctioning the initial target. In every case, the target suffered severe economic costs yet made no concessions. Not even Venezuela, a bankrupt socialist state experiencing hyperinflation in the United States' backyard, acquiesced.

The Trump administration was quite aggressive in using economic sanctions to pressure China for economic and foreign policy goals. That policy does not seem to have been effective.

Similarly, the myriad tariffs and other restrictive measures that the Trump administration imposed on China in 2018 failed to generate any concessions of substance. A trade war launched to transform China's economy from state capitalism to a more market-friendly model wound up yielding something much less exciting: a quantitative purchasing agreement for U.S. agricultural goods that China has failed to honor. If anything, the sanctions backfired, harming the United States' agricultural and high-tech sectors. According to Moody's Investors Service, just eight percent of the added costs of the tariffs were borne by China; 93 percent were paid for by U.S. importers and ultimately passed on to consumers in the form of higher prices.

Indeed, it seems to me that we have often developed an odd vocabulary in talking about economic sanctions, where we refer to them as "success" when they cause disruption or stress, not when they actually succeed in accomplishing the foreign policy goal that they were purportedly enacted to address.

I'm reluctant to opine much on foreign policy. It's not my area of expertise. But even I understand that building and projecting America's interests needs to be a broad-based project that involves more than just imposing economic and military costs on others, but also includes building connections and offering carrots. Thus, foreign policy can work with economic policy on issues of building trade relations, encouraging investment flows, and providing loans or aid. Building the connections between nations that offer a degree of leverage in foreign policy can also use other tools: cultural exchanges, travel between countries, communication and consultation between governments, helping with training and expertise, and a range of treaty alliances on smaller issues. Individually, many of these are small steps. But together, they build up a reservoir of understanding and connectedness, so that when the tougher and bigger issues come up, US foriegn policy goals have a greater chance to succeed.

Drezner reports that Treasury Secretary Janet Yellen has promised to carry out a review of the US use of economic sanctions, which seems overdue. Acting as if economic sanctions are an appropriate part of almost every foreign policy goal, and then watching as other countries do the same in pursuit of all of their own foreign policy goals, doesn't seem like a pathway to make the world a safer or more flourishing place.

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Millions Still Months Behind on Rent After Eviction Moratorium Ends [feedly]

Millions Still Months Behind on Rent After Eviction Moratorium Ends
https://www.cbpp.org/blog/millions-still-months-behind-on-rent-after-eviction-moratorium-ends

Weeks after the federal eviction moratorium ended, the latest Census data show an estimated 9.9 million adult renters are living in households at least one month behind on rent, and over 4 in 10 adults behind on rent believe eviction is at least somewhat likely in the next two months. States and localities must act swiftly to protect millions of these renters from losing their homes by employing eviction diversion programs that provide legal representation and help emergency aid reach households struggling to pay rent. And Congress can help prevent future eviction crises by including a major expansion of the Housing Choice Voucher program in recovery legislation to make housing safe and affordable for people most at risk of eviction.

The Supreme Court in late August rejected the last in a series of eviction moratorium extensions by the Centers for Disease Control and Prevention (CDC). And in the two weeks ending September 13, nearly 3.7 million adult renters reported being in a household that was one month behind on rent, data from the Census Bureau's Household Pulse Survey show. Over 2.8 million were two months behind, another 1.2 million were three months behind, and, representing the most severe cases, 2.2 million adult renters reported that their household was four or more months behind on rent. (See graph.)

The number of adults behind on rent has fallen from a January 2021 peak of 15 million people but has remained above 10 million people since the end of March. An estimated 11.9 million adults living in rental housing were still not caught up on rent in early September, and the vast majority of them (9.9 million) were in households one or more months behind. Over 4 in 10 of those behind on rent, 5 million, believe eviction is somewhat or very likely in the next two months.

 

Chart

The Supreme Court's ruling creates a particular risk of eviction for families still recovering from the pandemic's economic fallout. Renter households with a COVID-related job loss owe an average $8,200 in back rent, the Federal Reserve Bank of Philadelphia estimates. While a patchwork of state and local moratoriums remains in parts of the country, most people behind on rent now have no protection against being forced from their homes. Some 53 percent of renter households live in states and localities without any form of eviction moratorium, according to the Urban Institute.

While in place, the CDC moratorium provided critical protections for renters accruing debt from back rent and late fees due to COVID-19, effectively averting a surge in evictions. Princeton's Eviction Lab estimates that the CDC moratorium helped prevent 1.55 million evictions nationwide over the past 11 months. As national protections lapse, the imminent wave of evictions will disproportionately displace Black and Latino renters, reflecting unequal access to stable housing due to longstanding racial disparities in education, employment, and housing opportunities.

The December relief package and the American Rescue Plan included over $46 billion in emergency rental assistance, but only a fraction of the funds has reached households struggling to pay rent. Many states and localities didn't have systems in place to distribute these funds, preventing much of the aid from quickly reaching renters in need. As of August, 30 percent of the initial $25 billion tranche of funding has been spent, latest Treasury data show. Over 1.4 million households received emergency rental assistance between January and August 2021, leaving millions of renters behind on rent still at risk of eviction. Adopting emerging best practices, such as simplifying application processes by increasing documentation flexibility and engaging landlords to boost program participation, would accelerate distribution of emergency aid to at-risk renters.

Protecting households from the immediate eviction crisis requires swift action, including rapid distribution of remaining emergency aid along with the implementation of broader eviction diversion programs. Beyond that, a major expansion of the Housing Choice Voucher program is the single most important way to help people with low incomes afford housing on an ongoing basis and to prevent future eviction spikes following economic and public health crises. Congress has an opportunity to sharply expand the voucher program and other needed housing assistance through Build Back Better legislation, a step that would reduce housing instability and homelessness while also strengthening other recovery agenda investments. Doing so is imperative to ensuring all people have safe and affordable housing.

TOPICS: 

POVERTY AND INEQUALITY, HOUSING

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Two-thirds of low-wage workers still lack access to paid sick days during an ongoing pandemic [feedly]

Two-thirds of low-wage workers still lack access to paid sick days during an ongoing pandemic
https://www.epi.org/blog/two-thirds-of-low-wage-workers-still-lack-access-to-paid-sick-days-during-an-ongoing-pandemic/

According to a new report released yesterday from the Bureau of Labor Statistics (BLS), just over three-quarters (77%) of private-sector workers in the United States have the ability to earn paid sick time at work. But, as shown in Figure A below, access to paid sick days is vastly unequal, disproportionately denying workers at the bottom this important security. The highest wage workers (top 10%) are nearly three times as likely to have access to paid sick leave as the lowest paid workers (bottom 10%). Whereas 95% of the highest wage workers had access to paid sick days, only 33% of the lowest paid workers are able to earn paid sick days.

Low-wage workers are also more likely to be found in occupations where they have contact with the public—think early care and education workers, home health aides, restaurant workers, and food processors. Workers shouldn't have to decide between staying home from work to care for themselves or their dependents and paying rent or putting food on the table. But that is the situation our policymakers have put workers in. Meaningful paid sick leave legislation is incredibly important for low-wage workers and their families and important to reduce the spread of illness. At the same time, access to paid sick days has positive benefits to employers as it reduces employee turnover with no impact on employment. 

Figure A

The ability for workers to earn paid sick days varies greatly across the country. In lieu of federal action, many states have passed legislation to guarantee paid sick days, but many workers have been left behind. Figure B shows vast differences across Census divisions in workers' ability to use paid sick time to take care of themselves or their family members. The share with access to paid sick days ranges from only 67% in East South Central states (composed of Alabama, Mississippi, Kentucky, and Tennessee) up to 95% in the Pacific states (California, Oregon, and Washington). Notably, many local municipalities in the East South Central region have been preempted by their state governments from passing paid leave and sick day policies.

Figure B

The latest BLS data also show that full-time workers are more likely to have access to paid sick days than part-time workers (87% versus 48%). Workers in larger establishments are more like to have paid sick days than workers in smaller establishments; 91% of workers in establishments of 500 workers or more have paid sick days compared with 68% of workers in establishments with fewer than 50 workers.

Union workers are also more likely to be able to stay home when they are sick because they are more likely to have access to paid sick leave: 87% of unionized workers can take paid sick days to care for themselves or family members, while only 76% of nonunion workers can.

Policymakers can choose to act to eliminate the disparity in access to paid sick days. Federal legislators can require employers to give workers the opportunity to earn paid sick days to stay home to care for themselves or families members when they are sick, which will increase their economic security and reduce the spread of illness at work and at school, particularly important during an ongoing pandemic.

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PK: Why the Child Tax Credit Should Be Permanent [feedly]

Why the Child Tax Credit Should Be Permanent

Paul Krugman

text only
https://www.nytimes.com/2021/09/21/opinion/child-tax-credit-poverty.html

Americans love rags-to-riches stories, tales of people who transcended childhood poverty to achieve adult success. Unless you're totally oblivious to reality, however, you surely realize that such stories are the exceptions, not the rule. The disadvantages of growing up in poverty — poor nutrition, poor health care, an impoverished environment, the cognitive burden that goes along with never having enough money — can and often do hobble children for the rest of their lives.

That much is or should be obvious. What you may not know is that economists have actually quantified the damage from childhood poverty.

You see, America's anti-poverty programs, such as they are — notably food stamps and Medicaid — weren't rolled out all at once. Food stamps became available in some parts of the country earlier than in other parts; so did Medicaid, which was also expanded in a series of discrete jumps. This stuttering, haphazard approach to helping poor children amounted to an unintentional form of human experimentation: We can compare the life trajectories of Americans who received crucial aid as children with those of their contemporaries or near-contemporaries who didn't.

And a number of researchers, notably Hilary Hoynes and Diane Whitmore Schanzenbach, have used this evidence to show that childhood poverty has huge adverse effects.



Last week almost 450 economists, led by Hoynes and Schanzenbach, released an open letter to congressional leaders making this point. "Children growing up in poverty," the letter declares, "begin life at a disadvantage: on average they attain less education, face greater health challenges, and are more likely to have difficulty obtaining steady, well-paying employment in adulthood."

In response, the letter calls on Congress to lift millions of children out of poverty by making permanent the 2021 expansion of the Child Tax Credit, which gives most parents $300 a month for every child under 6 and $250 a month for each child aged 6 to 17.

This is a really good idea. In fact, it's such a good idea that those trying to find arguments against it have really been scraping the bottom of the barrel.

Are you concerned about the cost? Right now, with interest rates near record lows, is a time when America should be investing in its future — and lifting children out of poverty is every bit as real an investment as repairing roads and bridges. Indeed, the evidence for a big economic payoff to spending on children is a lot stronger than the evidence for high returns to spending on physical infrastructure (although we should be doing that too).

In fact, the returns to aiding children are so high that the cost would probably be minimal even in narrowly fiscal terms — because helping children grow up into more productive, healthier adults would eventually mean higher tax receipts and lower medical outlays. Unlike tax cuts for the rich, aid to poor children would largely pay for itself.

E

Are you worried about work incentives? Unlike many anti-poverty programs, which fade out quickly as income rises — and therefore have some negative effect on work effort (although this effect is probably exaggerated) — the Child Tax Credit would still be available to middle-class families. So the disincentive effects would be minimal.

Oh, and the suggestion that the tax credit be tied to a work requirement is a really terrible idea, both morally and practically. The goal here is to help children get a fair chance in life; do we really want to punish them for the sins, if any, of their parents? And adding work requirements would mean placing an onerous paperwork burden on precisely the people least able to deal with it; remember, one of the major costs of poverty is the cognitive burden it places on the poor.

Basically, there are no good arguments against making the expanded Child Tax Credit permanent. Opposition comes down either to a visceral dislike for any government program that helps the poor or to a desire to perpetuate a system that not only keeps the poor poor but condemns their children to the same fate. And America is supposed to be better than that.


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All pain and no gain: Unemployment benefit cuts will lower annual incomes by $144.3 billion and consumer spending by $79.2 billion [feedly]

All pain and no gain: Unemployment benefit cuts will lower annual incomes by $144.3 billion and consumer spending by $79.2 billion
https://www.epi.org/blog/all-pain-and-no-gain-unemployment-benefit-cuts-will-lower-incomes-and-consumer-spending/

Congress and the Biden-Harris White House have let expanded unemployment benefits expire in the middle of the ongoing COVID-19 pandemic, even while employment is still well below pre-pandemic levels. As a result, annual incomes across the U.S. will fall by $144.3 billion and annualized consumer spending will drop by $79.2 billion, according to the best available evidence on the effects of recent unemployment benefit cuts.

In March 2020, as the economic impact of the pandemic spread quickly, Congress critically expanded unemployment insurance (UI) benefits by providing $600 (and later, $300) monthly supplements, extending benefit periods, and making previously excluded workers—such as independent contractors and those with low incomes—eligible for UI.

However, about half of states prematurely terminated these programs between June and late July 2021, and then, by letting the federal law expire in September, Congress and the White House cut off pandemic UI entirely. In total, more than 10 million workers lost all of their unemployment benefits because of either the state-level program terminations or the September program expiration.

Claims that the pandemic unemployment benefits have slowed economy-wide job growth—which fueled the state-level terminations—are false. Instead, any potential gain to job growth driven by lower benefits chasing people into the labor market seems to have been offset by two counterweights: first, a consumer demand effect, in which there is a drag on growth stemming from reduced household spending when UI benefits are lost; and second, a "congestion" effect, in which job gains among former UI recipients crowd out other job seekers.

In fact, new research from a team of economists shows that the early, state-level UI terminations significantly reduced total incomes and consumer spending. The study found the benefit losses following these early terminations led to only the smallest boost in job-finding: Earnings from work rose by only $14 per UI recipient per week in states that cut off benefits, but weekly UI income fell by $278, for an average weekly net income loss of $264 per recipient. Because of lower total incomes, UI recipients spent $145 less weekly. On an annualized basis, the average person losing UI saw their annual income drop by $13,728, leading to an annual spending reduction of $7,450.

Figure A extrapolates the annualized findings to both the June/July and the September UI cuts, which eliminated unemployment benefits for over 10 million workers nationally. Total annualized incomes of those previously receiving pandemic UI benefits will fall by $144.3 billion as a result of these cuts. And, as a result of falling incomes, annualized consumer spending will fall by $79.2 billion. Figure B shows the income and consumer spending losses in each state.

Figure A

Figure B

Unemployment benefit expansions provided a critical lifeline to workers and their families during the pandemic. The extended benefits were a significant reason why the number of people in poverty actually fell in 2020 despite record-level job losses. Removing those income supports will increase poverty and will disportionately harm people of color, as Census data for late June indicated that Asian, Black, and Hispanic workers were much more likely to be receiving unemployment benefits than white workers. People of color are also more likely to live in states that normally have more restrictive unemployment benefits in the absence of the pandemic UI extensions.

Overall, the resulting income and consumer spending losses of the most recent unemployment benefit cuts will be devastating to families struggling during the COVID-19 pandemic. Congress should immediately restore the pandemic unemployment benefits and begin work on long-run reform of the UI system.

Methodology

We calculate national and state-level estimates for reduced income and consumer spending due to pandemic UI expiration by extrapolating from the estimates in Coombs et al. 2021, who find that for the average affected UI recipient, the state-led UI terminations around June 2021 reduced weekly UI payments by $278, and raised weekly earnings by $14, for a net weekly income loss of $264. They also find that for the average affected UI recipient, the June 2021 UI terminations reduced weekly spending by $145. We annualize these amounts by multiplying by 52 weeks.1

We then multiply the income and spending reductions by state-specific estimates of the number of Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC) recipients losing benefits in the month before pandemic UI benefits are ended in each state. Conceptually this is similar to the estimates provided in Andrew Stettner's earlier analyses of benefit cuts. As a result, there are two groups of states: (A) states that ended UI programs early, between June and late July, and (B) the remaining states, which saw their programs expire on Labor Day.

We categorize those states that maintained PUA and PEUC but ended the $300 supplement early into group (B). We use average PUA and PEUC continuing claims for the weeks ending May 22 and May 29 for group (A). For group (B), we use average values from the weeks ending August 14 and August 21. We completely omit Florida from the analysis because the state has failed to report PUA and PEUC continuing claims data. For Georgia, we use only PUA continuing claims because the state failed to report PEUC continuing claims. Table 1 lists the resulting income and consumption losses for each state.

Table 1

Note

1. Kyle Coombs et al., "Early Withdrawal of Pandemic Unemployment Insurance: Effects on Earnings, Employment and Consumption," Working Paper, August 2021, https://files.michaelstepner.com/pandemicUIexpiration-paper.pdf.

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Thomas Piketty: Emerging from september 11 [feedly]

Piketty minces some words, but he is a powerful advocate of internationalism.

Emerging from september 11
https://www.lemonde.fr/blog/piketty/2021/09/14/emerging-from-september-11/

Twenty years ago, the World Trade Center towers were struck by aeroplanes. The worst attack in history was to lead the United States and some of its allies into a global war against terrorism and the 'axis of evil'. For the US neo-conservatives, the attack was proof of the theses put forward by Samuel Huntington in 1996: the « clash of civilisations » was becoming the new way of interpreting the world. This publication was their oft-quoted favorite, just as the works published by Milton Friedman in the 1960s and 1970s were those of the Reaganites in the 1980s.

Unfortunately, we now know that the US desire for revenge and the resulting brutalisation of entire regions and societies has only exacerbated identity-based conflicts. The invasion of Iraq in 2003, with its state-sponsored lies about weapons of mass destruction, only served to undermine the credibility of the 'democracies'. With the images of US soldiers holding prisoners on leashes at Abu Ghraib, there was no need for recruiting agents for the jihadists. The unrestrained use of force, the arrogance of the US Army and the enormous civilian losses among the Iraqi population (at least 100,000 deaths acknowledged) did the rest and contributed powerfully to the decomposition of the Iraqi-Syrian territory and to the rise of the Islamic State. The terrible failure in Afghanistan, with the return of the Taliban to power in August 2021, after twenty years of Western occupation, symbolically concludes this sad sequence.

To truly emerge from September 11, a new reading of the world is necessary: it is time to abandon the notion of a « war of civilisations » and replace it with that of co-development and global justice. This requires explicit and verifiable objectives of shared prosperity and the definition of a new economic model, sustainable and equitable, in which each region of the planet can find its place. Everyone now agrees that the military occupation of a country only strengthens the most radical and reactionary segments and can do no good. The risk is that the military-authoritarian vision will be replaced by a form of isolationist withdrawal and economic illusion: the free movement of goods and capital will be enough to spread wealth. This would be to forget the highly hierarchical nature of the global economic system and the fact that each country does not fight on equal terms.

From this point of view, a first opportunity was missed in 2021: the discussions on the reform of the taxation of multinationals essentially boiled down to revenue sharing between rich countries. However, it is urgent that all countries, in the North as well as in the South, receive a share of the revenues from the most prosperous global players (multinationals and billionaires), according to their population. Firstly, because every human being should have an equal minimum right to development, health and education, and secondly, because the prosperity of rich countries would not exist without poor countries. Western enrichment yesterday or Chinese enrichment today has always been based on the international division of labour and the unbridled exploitation of the world's human and natural resources. When refugees appear on the other side of the world, Westerners like to explain that it is up to the neighbouring countries to take care of them, however poor they may be. But when there is uranium or copper to be mined, Western companies are always there first, no matter how far away.

If we accept the principle of revenue sharing between all countries, then we obviously need to talk about the allocation criteria and the rules to be respected in order to be entitled to it. This would be an opportunity to define precise and demanding rules regarding respect for human rights, and in particular the rights of women and minorities, which would apply to the Taliban as well as to all countries wishing to benefit from the windfall. To prevent the money from being misused, the tracking of ill-gotten gains should also be generalised and there should be full transparency on excessive enrichment, whether in the public or private sector, in the South or in the North. The central point is that the criteria must be defined in a neutral and universal way and applied everywhere in the same way, in Afghanistan as in Saudi Arabia and the petro-monarchies, in Paris as in London or Monaco. Western countries must stop using the corruption argument at every turn to deny the South's right to self-governance and development, while at the same time pandering to the despots and oligarchs who benefit them. The time for unconditional free trade is over: further trade must depend on objective social and environmental indicators.

It is certainly understandable that Biden wants to turn the page on the war of civilisations as soon as possible. For the United States, the threat is no longer Islamist: it is Chinese and above all it is internal, with social and racial fractures threatening the country and its institutions with a new quasi-civil war. But the fact is that the Chinese challenge, like the domestic social challenge, can only be solved by transforming the economic model. If nothing is proposed in this sense, then it is increasingly towards Beijing and Moscow that the poor countries and the peripheral and forgotten regions of the planet will turn to finance their development and maintain order. The way out of 9/11 should not lead to a new form of isolationism, but instead to a new climate of internationalism and universalist sovereignty.

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Branko Milanovic: Can Globalization be “Improved”? [feedly]

Branko is a kind of left-wing Eeyore, with a largely pessimistic view on most questions. He asks an important one here. Can workers of better paid nations unite with workers of lesser paid, developing nations?

Can Globalization be "Improved"?
https://www.globalpolicyjournal.com/blog/17/09/2021/can-globalization-be-improved

Branko Milanovic explores a new book that unpicks ways to address globalizations' downsides. 

In an excellent just-published book "Six faces of globalization" Anthea Roberts and Nicolas Lamp, produce six plausible narratives of globalization and what, according to each, went wrong or right with globalization. Their approach is to take a given narrative, present all its points as its defenders would, with rather minimal outside (i.e. their own) interventions, and in the second part of the book discuss overlaps and differences between these various narratives.

Here, I will review the six narratives, saying perhaps little about each of them explicitly both because they are all rather well known by the general public and because I hope that my critique of each narrative will indirectly throw sufficient light on narratives' main points.

The first approach Roberts and Lamp discuss is the establishment view according to which globalization ultimately benefits all participants even if the gains are uneven and in many cases take a long time to materialize. The establishment narrative is often self-serving as when it ignores the fact that the US did not become rich through free trade but rather through Hamiltonian protectionism, or that a number of trade agreements established after World War II were motivated less by some abstract free trade principles or "liberal international order" but rather by the US strategic desire to bind in a strong interdependent framework the nations of the "Free World" (conveniently defined to include everybody, regardless of domestic politics, who is not communist). The biggest advantage of the establishment narrative is that it can quite plausibly point out to the fact that tighter economic links between nations have since 1980 contributed to the doubling of the world per capita output and consumption of goods and services.

The left-wing narrative (under which I combine both what Roberts and Lamp term the "populist" left-wing narrative à la Bernie Sanders and Elizabeth Warren and the "corporate-power" monopolistic narrative) is, in many ways, the most consistent. Its strong points are two: (1) domestic polices have been slanted in favor of capital-rich and high-income individuals, and (2) pro-corporate policies have allowed large companies to become monopsonist in the labor market (the only local employer), and not to pay their fair share of taxes. Not only are both points true, but they correctly direct one's attention toward the political origins of the middle class malaise. The malaise was to a large extent (I will come back to this "large" qualifier) manufactured by the ability of rich companies and individuals to create favorable legal framework for themselves, including most importantly lower taxes. (Reading "The Wall Street Journal" allows one to very simply define the view of the world of that category of people: there are only two variables that matter: how high is the "market" and how low are taxes?)

But the qualified "to a large extent" was not there for no reason. The decline both in the size and relative income of the Western middle class is not only the product of domestic policies. It happened also because globalization allows companies to move to cheaper (lower wage) locations, or to replace production of domestic goods by cheaper imports.

The proponents of the left-wing view have hard time acknowledging a tacit coalition of interests which has been created between the capitalists of the rich world and poor people of developing  countries.  They both gain  by replacing more expensive  Western workers. In the chapter on corporate greed narrative, an accurate critique of large Western corporations for avoiding taxes is mixed up with an attempt to show that NAFTA or other similar arrangements have produced worse outcomes for workers in poor countries, and that there is thus an identity of interests between workers in rich and poor countries. This is very difficult to accept. Very low-paying jobs, from the Western point of view, are generally very well-paying jobs from developing country's point of view. Workers from Vietnam, Thailand, Ethiopia, or Peru are not unhappy to be hired by North American or European or Chinese companies. In many cases, their alternative is not having a job at all, or living at the edge of subsistence through self-employment.  The attempts to argue for some kind of international workers' solidarity simply fall flat on the hard grounds of self-interest.

That problem however does not bother what Roberts and Lamb call the "right-wing populists." Right-wing populist do have a consistent view of the world. First, in it, the welfare of foreigners does not matter at all (hence, they are uninterested in whether Mexican workers are better off with trade or not). Second,  national cultural homogeneity –a largely fictitious recreation of the 1950-60s—is the ideal to strive for. Their problem is not lack of intellectual coherence. The problem of right-wing populists is that their supporters like parts of globalization that provide them with cheap goods, but do not like losing high-paying jobs which is a sine qua non for the production of cheap goods they like. In other words, their supporters love buying cheap HD television screens, but they also like having a $50 per hour manufacturing jobs. These two things cannot however exist together. The right-wing politicians therefore can, as Trump did, make lots of moves (and noise) to slant the playing field in favor of their countries, but they cannot disconnect from globalization. Their opposition to globalization will forever remain on a verbal level; they are tied to the mast of globalization by the attractiveness of achieving high real income through consumption of cheaper goods. Thus, the right-wing opposition should not be, in my opinion, taken seriously in matters of policies.

I will mention only briefly the other two narratives. The geoeconomic narrative looks at globalization through the bellicose eyes of national interest. It is not an attractive approach, but it is internally consistent. For its adherents, there is no such a thing as a good or bad globalization. There is only a good globalization for the United States or a bad globalization for the United States (or any other given country). This allows them to shift seamlessly from supporting using power to extract intellectual property rights, to using power to prevent sharing intellectual property rights; from being in favor of higher labor standards to being against them.  Thus its total intellectual inconsistency in detail is explained by full intellectual consistency at the higher level.

The last narrative is of the "we [everybody in the world, regardless of nation, income, class, gender, race etc. ] are in the same boat" type. There is not much to say about it except that, unlike any other narrative, it manages to lack both internal intellectual consistency and to be totally fluid in how things should be improved.

So, is it, taking Roberts and Lamb book's approach, possible to "improve" globalization? The only narrative that shows some promise is what they call (in my opinion, mistakenly) "populist" left-wing. It sees the key problems at the level of national politics, in the national political systems, and it can, at least in theory, focus on these shortcomings and try to mend them. It cannot be, I think, too optimistic on all issues because of the natural propensity of globalization, either through capital movements or trade, to favor cheaper producers, and Western middle class is most often not that producer. But that approach can reduce the political and economic power of the top 1 percent, fund public goods, increase taxes for the rich and large companies, and improve the national political climate.

 -- via my feedly newsfeed