We must protect the poor as we rush to globalisation

SUPERSTITIONS supposedly developed when people noticed coincidences and interpreted them as meaningfully connected. An eclipse of the sun followed by plague? The gods must be angry; future eclipses must be accompanied by propitiatory offerings.

Is something similar happening with trade liberalisation?
It’s a force many westerners have come to associate with high unemployment, rural and regional decline and wages stagnation (for workers, that is). But it has become impossible to disentangle the consequences of trade liberalisation from those of an accompanying factor: the flight of government from its obligation to minimise the collateral damage, that is, the cost to human beings.

Easing the social harm caused by pursuing otherwise desirable goals is not a freakish concept even in business circles, where it’s called “managing change”. But according to a recent assessment by the International Labor Organisation, governments world-wide are struggling to adequately manage the changes wrought by lowered protection and globalisation because tax cuts have limited their ability to do so.

A recent untitled report, prepared for the ILO’s governing body by its working party on the social dimensions of international trade, found that, between the years 1986 and 1998, 67 out of 69 countries examined had cut the top tax rate of high-income

This near-universal trend towards lower taxation suggested that tax systems were becoming less redistributive, the report said. Those making pots of money from the new economic order are not having to share as much of their winnings with those who are being displaced by it.

The report was not written by “Seattle men”. In fact, it concluded that trade liberalisation was good because it stimulated economic activity, boosted productivity, and held out a prospect of raising standards of living, although “the process is neither instantaneous nor painless”. Neither the ILO nor any of the 69 countries it surveyed saw a return to protection as an option.

But the researchers found that, to date, globalisation had deepened the divide between winners and losers, as income gaps widened and states’ ability to improve the lot of their poorest citizens diminished. The report concluded that trade liberalisation alone did nothing to eliminate inequalities or promote social progress within individual nations. The rich are still getting richer and the poor are still getting poorer.

Is anyone surprised?

The ILO director-general, Juan Somavia, warned that “the world cannot divorce social and employment issues from other developments in the global economy if the processes of globalisation are to prove sustainable”. In other words, people won’t cop this indefinitely.

He’s right. Other surveys have found that the nations with the highest violent crime rates tend not to be the poorest but those in which the gap between rich and poor is widest. The fuel for social instability is not poverty alone but a mixture of poverty and resentment.

At this week’s World Economic Forum in Davos, Bill Clinton and Tony Blair tugged their forelocks in the general direction of this problem. Both argued that the new order must take better account of social justice issues and the concerns of “little guys”. Clinton suggested the World Trade Organisation system should be reformed to give more weight to labor standards and the environment.

In this he echoed the ILO report. It advocates strengthening globalisation’s “social pillar”: improved education and training, secure social safety nets, and the adoption of labor laws that both encourage economic adaptability and protect vulnerable groups and core international labor standards.

The difficulty is that such measures require government funding and commitment, but governments worldwide are lowering taxes and winding back employment protections because they fear capital might otherwise flee to more accommodating climes.

If there can be international consensus on lowering trade barriers, there should be efforts to develop consensus on how to buffer those who will suffer from it. Pro-globalisers always try to dismiss this argument by pointing out that the current changes are helping the Third World. They see calls for buffers as self-interested attempts to shore up the unfair advantages of First World economies.

But if the ILO report is correct, the issue is not trade liberalisation itself but the way First World governments have failed to protect their own poor – in particular, unskilled workers – from bearing an unfair part of the burden of change.

Globalisation has an image problem. Opponents vilify it as multinationals using the club of capital to bend governments to their will. If governments continue to retreat from their role as protectors of the common good, they face losing more than just the propaganda war.

Seattle showed that people are becoming angry enough for violence. Future trade concessions should be accompanied by propitiatory offerings on social justice.

First published in The Age.