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globalization, inequality, protectionism « Previous | |Next »
April 26, 2006

Stephen Roach in this article in Morgan Stanley's Global Economic Forum states a thesis that I hold, namely

Inequalities of the distribution of income have long been the Achilles' heel of economic growth and development. In an era of IT-enabled globalization, that seems more the case than ever. History tells us that the pressures of widening income disparities are often vented in the political arena. The steady drumbeat of protectionism is a very worrisome manifestation of that lesson.

Roach argues this in terms of the relationship between the US and China. He says that as different as the problems are in the US and China, there is no economic issue in either country that hits the political hot button like income disparities. With both countries suffering from relatively high degrees of inequality, neither can be expected to backtrack insofar as the political response is concerned. Given the mounting bilateral trade tensions between the two nations, this poses a worrisome problem.

On the one hand:

America’s increasingly populist politicians have responded to the income distribution problem by turning protectionist -- portraying China as the culprit for the pressures bearing down on middle-income US workers. Even if this view is dead wrong, as I continue to believe is the case, for China, there seems to be no immediate escape from the growing political wrath of Washington

On the other hand China:
continues to cling to an export- and investment-led growth dynamic that not only fuels political resentment in the US but also seems to have a natural bias toward widening disparities in its income distribution. Yet this same approach drives the vigorous employment growth that is absolutely vital in order to provide China with the scope to keep dismantling its inefficient state-owned economy. The Chinese leadership knows full well that this is not a sustainable growth formula.... In response, the Chinese leadership is turning to the micro management techniques of market-based socialism for answers -- namely, a gradual shift in its currency policy to diffuse external pressures and targeted income support measures to counter internal pressures.

We have a political standoff on this account.

Yet the same pressures apply to Australia: the effects of globalization are brutal wage compression. The rich are, indeed, getting richer but the rest of the workforce is not. The mounting disparities in the income distribution lead to political pressure for protectionist measures.

| Posted by Gary Sauer-Thompson at 1:44 PM | | Comments (0)