Sunday, August 07, 2016

We have met the enemy. It is us!

A few weeks ago, I wrote here--yet again!--about how reworking the social contract years ago could have helped in many ways. It is darn frustrating that something that has been so obvious was never the majority view, and continues to be marginalized. All I can do is keep talking/writing about it by pointing out that there are others with real influence--unlike my irrelevant status at work in life.

Enough about me.  Let us get to the issues, right?

Joseph Stiglitz, who is a recipient of the Nobel Prize in economics and whose heart has always been in the correct place, writes:
Under the assumption of perfect markets (which underlies most neoliberal economic analyses) free trade equalizes the wages of unskilled workers around the world. Trade in goods is a substitute for the movement of people. Importing goods from China – goods that require a lot of unskilled workers to produce – reduces the demand for unskilled workers in Europe and the US.
This force is so strong that if there were no transportation costs, and if the US and Europe had no other source of competitive advantage, such as in technology, eventually it would be as if Chinese workers continued to migrate to the US and Europe until wage differences had been eliminated entirely. Not surprisingly, the neoliberals never advertised this consequence of trade liberalization, as they claimed – one could say lied – that all would benefit.
Way back in graduate school, which is when I was getting introduced to various political economic thoughts that I had to quickly understand after years spent in science and technology,  And that was also when I got to understand some of the discussions on fairness and social contract.  I have loved that idea of "social contract" since then.  Stiglitz writes about the social contract:
But they can’t have it both ways: if globalization is to benefit most members of society, strong social-protection measures must be in place. The Scandinavians figured this out long ago; it was part of the social contract that maintained an open society – open to globalization and changes in technology. Neoliberals elsewhere have not – and now, in elections in the US and Europe, they are having their comeuppance.
Globalization is, of course, only one part of what is going on; technological innovation is another part. But all of this openness and disruption were supposed to make us richer, and the advanced countries could have introduced policies to ensure that the gains were widely shared.
Instead, they pushed for policies that restructured markets in ways that increased inequality and undermined overall economic performance
If I--a nobody--am pissed off that nobody listened to me, think about Stiglitz who has been very much a part of the domestic and international political institutions and, yet, has not been able to bend the political will on this.  I wonder how angry he is!

Stiglitz writes that "the problem was not globalization, but how the process was being managed."  And that is also the point in this NY Times editorial.

Trade and globalization have been miraculous for hundreds of millions all around the world.  Without that economic dynamic, we would not have had the flourishing middle class populations in China and India, for instance.  When talking with my parents yesterday, my father remarked that a couple of decades ago, he could not afford to even pay for the autorickshaws and, instead, he and my mother used the public transport buses if they wanted to visit with people,  which they loved doing.  Two decades of trade later, there are now Chinese and Indian tourists traveling all over the world--the kind of travel that not too long ago was almost exclusively an American possibility because only Americans were rich enough for that.  

If only we would recognize that the world is much better off now.  The problem is not globalization but our collective failure to understand the urgency, the importance, of rewriting the social contract in which those who are losing out will be compensated.  

3 comments:

Ramesh said...

Stiglitz is in the same camp as Krugman and therefore I have to take many a gulp before I write this comment - lest Trumpesque unparliamentary language creeps in :)

Thanks for your own para on how globalisation has benefited zillions of people in India and China. Else I would have torn my hair (whatever is left) off) yelling to Stiglitz and co that when they rail against globalisation, they should at least refer to the map of the world and that "global" means other countries too - not just the one they live in.

I am not going to let you off on this topic. Formulate the social contract as you think it best and write a series of posts on it . You can't just criticise the lack of a social contract without producing one. Its not that governments have not been seized of the problem. It is that if they present any new social contract, its not acceptable to a majority. No contract is acceptable and they lose elections - that is the problem.

Sriram Khé said...

Task, task, task ... you are so ideologically opposed to Stiglitz that you are unfairly dissing him.
Stiglitz, you, and I are all on the same side. In his commentary he had included:
"Among the big winners were the global 1%, the world’s plutocrats, but also the middle class in newly emerging economies. Among the big losers – those who gained little or nothing – were those at the bottom and the middle and working classes in the advanced countries"
Stiglitz has never been opposed to trade per se, and neither have I been opposed to trade. I am mighty happy that big names like Stiglitz are in the same intellectual world of mine when we have been harping for a long time that the government's focus ought to be on compensating the losers--NOT on opposing trade/globalization.
Have a strong cup of tea and stop tearing your hair out ;)

I don't need to formulate a social contract at all ... The general principles of my contract will pretty much follow the Rawlsian framework, which is why I had included that short summary-video on the "veil of ignorance" that is an important piece of Rawl's idea on how the contract ought to be written.

The failure to address the concerns of those who lost in the process is why Trump and Bernie happened. The continuing failure to address that means that we will be in even more shit streets when the problems get even more complicated with the rapidly advancing automation. But, we humans are idiots and we will invite more trouble for ourselves by not constructively thinking through .., instead, we will engage in targeting the "others" be they Muslims or Chinese or whoever ...

Sriram Khé said...

ahem ... it was supposed to be "tsk" and not "task" ... tsk, tsk, tsk :( ;)

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