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Start Taking the Backlash Against Globalization Seriously

Economic globalization has entered a critical phase.A mounting backlash against its effects, especially in the industrial democracies, is threatening a very disruptive impact on economic activity and social stability in many countries.

The mood in these democracies is one of helplessness and anxiety, which helps explain the rise of a new brand of populist politicians. This can easily turn into revolt, as December's unrest in France showed.

Four basic elements have to be kept in mind.

• The lightning speed at which capital moves across borders, the acceleration of technological changes, the rapid evolution of management and marketing requirements increase the pressure for structural and conceptual readjustments to a breaking point.This is multiplying the human and social costs of the globalization process to a level that tests the social fabric of the democracies in an unprecedented way.

What is striking is our inability, so far, to come up with coherent, effective and sustainable approaches not only to help people cope with these structural adjustments but also to convince them that change will lead to renewed prosperity.

• The globalization process is in essence a tremendous redistribution of economic power at the world level, which will increasingly translate into a redistribution of political power. By the end of this decade we will have fully entered the eraof strategic economic parity among the United States, East Asia and Europe. Any change of this magnitude in the global balance of power is bound to have a profound destabilizing effect.

In the present phase, East Asia is a net beneficiary. Results for Europe look much less certain. The United States has recovered ground lost in the 1980s but at the cost of an actual decline in real wages.

• The globalization process challenges some familiar assumptions. Until now, for instance, it was conventional wisdom that technological change and increases in productivity would translate into more jobs, higher wages. But in the last few years technological changes have eliminated more jobs than they have created.

In the famous process of "creative destruction," only the "destruction" part seems to be operating for the time being. And the services sector is now hit with a vengeance. We have yet to see new job-multiplier activities emerge, as traditional ones are delocalized or streamlined.

It becomes apparent that the head-on mega-competition that is part and parcel of globalization leads to winner-take-all situations; those who come out on top win big, and the losers lose even bigger. The gap between those able to ride the wave of globalization, especially because they are knowledge- and communication-oriented, and those left behind is getting wider at the national, corporate, and individual levels.

• Popular skepticism about the win-win effect of the global economy is compounded by two phenomena.

First, it is becoming harder in the industrial democracies to ask the public to go through the pains and uncertainties of structural adjustment for the sake of benefits yet to come. Public opinion is on the defensive, increasingly anxious about the future. The social impact of these pressures is being felt at the very moment when economic activity has slowed markedly in most industrial democracies.

The second phenomenon is that globalization tends to de-link the fate of the corporation from the fate of its employees. In the past, higher profits meant more job security and better wages.The way transnational corporations have to operate to compete in the global economy means that it is now routine to have corporations announce new profit increases along with a new wave of layoffs.

Some estimates put at 3 million the number of layoffs since the end of the 1980s in the United States, and more are expected.It is no consolation for a laid-off employee to hear analysts explain how the re-engineering of which he is a victim will help his former employer prosper.

For those who keep their jobs, the new sense of insecurity means the demise of corporate loyalty bonds. It is not yet clear that corporations have fully realized the consequences that this will have on their future performance.

All this confronts political and economic leaders with the challenge of demonstrating how the new global capitalism can function to the benefit of the majority and not only for corporate managers and investors.

But if the key issue today is to make apparent the social returns of global capitalism, we have to be equipped to reap these returns.This is where the critical question of setting national priorities comes to the fore.

The effort of focusing on training and education, on the constant overhauling of telecommunication and transportation infrastructures, on entrepreneur-incentive fiscal policies, on recalibrating social policies has to be a central part of a national competitiveness policy going beyond the traditional concept of economic policy.

Meanwhile, the globalized economy must not become synonymous with "free market on the rampage," a brakeless train wreaking havoc. The social responsibilities of corporations (and governments) remain as important as ever. What is on the agenda is the need to redefine and recalibrate them.

Moral considerations aside, there can be no sustainable growth without the public at large seeing itself as the major stakeholder in the successful functioning of the economy.

The globalization process is not a passing aberration. The revolution in information technologies, the emergence of new strategic centers of power such as East Asia, the addition of 2.5 billion people to the world market with the opening up and liberalization of previously closed societies and economies — all that makes it irreversible.

So as globalization goes on deploying its impact, innovative policies that help contain the mounting backlash against it are urgently needed.

True, some reactions reflect an entitlement culture, an impulse to protect acquired advantages or unthinking protest against change. But it would be dangerous to dismiss them as mere rearguard grumbling.

They can make the globalization process even more painful and more socially costly. And they can affect the new opportunities that the globalized economy offers.

Emerging economies are not only new competitors, they are already proving to be new markets and new sources of investment, as shown by recent major Asian investments in Europe. The revolution in the labor market in industrialized democracies, with the recourse to out-sourcing, is spurring a new spirit of individual entrepreneurship. But no individual, corporation or country will be able to seize these new opportunities in a social vacuum.

Public opinion in the industrial democracies will no longer be satisfied with articles of faith about the virtues and future benefits of the global economy. It is pressing for action.

Klaus Schwab is founder and president of the World Economic Forum, which begins its annual meeting in Davos this Thursday. Claude Smadja is a managing director of the forum. They contributed this comment to the International Herald Tribune.

A version of this article appears in print on   in The International Herald Tribune. Order Reprints | Today’s Paper | Subscribe

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