The Limits of Globalized Solutions?

In a piece over at Foreign Affairs’ revamped Website, Rawi Abdelal and Adam Segal echo what I’ve been saying about the impact of the global financial crisis on this round of globalization. Namely, that as big as the economic challenges of the crisis are, the political challenge it presents might be bigger:

The current crisis has caused the destruction of value, the contractionof capital, a decline in consumption, and an increase in unemployment.But its ultimate impact may be even more pervasive, because the crisishas further undermined the political legitimacy of the free movement ofcapital, goods, and services.

The legitimacy problem existed beforehand, of course, but the currentdownturn is making it much, much worse. When we wrote our article in2007, for example, the U.S. public was wondering about how muchglobalization benefited them and whether some Americans — say, bankersand CEOs of large corporations — had benefited too much. Try askingthe question now.

Like most articles regarding the threat of protectionism, this one describes why the politics of the crisis might overtake the economic fundamentals of how to solve it, but then offers those economic fundamentals anyway, with a new twist:

Individual governments need to tackle the downturn throughmacroeconomic and financial policies; unemployment and workerretraining should be addressed through expanding and strengthening thesocial safety net. The United States in particular needs to absorb one of the mostimportant lessons of European social democracy — that a generous,well-designed welfare state is not the antithesis of capitalistglobalization but rather its savior.

This is the first time I’ve seen such a strong emphasis on expanding the social safety net as a necessary response to the crisis. It curiously leaves out of the discussion those regions of the global economy where there is no safety net to expand, and how to address either problem in the midst of massive deficit spending. That, too, promises to be a major political faultline of the crisis.

Now, I think it’s obvious that the growing political wave of protectionism is more a panic reaction to the downturn than a crystallization of the pre-crisis misgivings with globalization, real as they were. Which means a return to growth and prosperity will likely render these tensions moot, or at least far less ominous than they now appear.

But what caught my eye in the article above was the mention of worker retraining. That was a watchword of the first wave of the economic transformations that set the stage for globalization in the early Eighties. Back then the talk was dominated by how to reconfigure the American workforce from an industrial footing to the needs of the service economy.

Thirty years later, we seemed to have solved the problem of scarcity in advanced economies. But the solution depended on the availability of cheap labor on the supply side (i.e. a global reservoir of impoverished producers), and an increasingly superfluous workforce on the demand side (i.e. a global reservoir of subsidized consumers). Now we find that there’s neither sufficient domestic demand in the emerging productive economies, nor sufficient real wealth production in the advanced consuming economies, to support the arrangement sustainably.

Questions: How can worker retraining address this fundamental tension? What service sector jobs are immune to outsourcing without restrictive barriers to protect them? And what service sector jobs are immune to the devaluation effects of the Information Technology & Communications Technology revolutions?

I wonder whether the current crisis doesn’t expose the limits of globalized macroeconomic solutions, in that they take for granted that there will always be new economic frontiers to add real wealth to the equation, and as importantly, that we will not only find them, but domesticate them. In other words, if the answer is to “Go West, young man,” where’s West these days?