Policy Analysis No. 659

Globalization: Curse or Cure? Policies to Harness Global Economic Integration to Solve Our Economic Challenge

Globalization holds tremendous promise to improve human welfare but can also cause conflicts and crises as witnessed during 2007–09. How will competition for resources, employment, and growth shape economic policies among developed nations as they attempt to maintain productivity growth, social protections, and extensive political and cultural freedoms?

The processes associated with economic globalization— such as free trade, business outsourcing, capital mobility, and so on—generate considerable public apprehension because of the economic uncertainty they portend. But crossnational production supply chains have now become so extensive that the recession-induced decline in global trade is causing considerable economic distress in developed countries.

In contrast, emerging countries—especially Brazil, Russia, India, China, and South Korea—have experienced only modest declines in economic growth. As those nations continue to advance economically and output growth in developed nations recovers, the process of globalization will resume. But with the Doha round of multilateral trade negotiations stalled, bilateral and regional trade agreements may come to dominate that process. Regardless of how globalization progresses, policymakers in developed nations remain concerned about whether domestic output and employment growth can recover as rapidly as after recessions past. Those concerns are magnified by prospective population aging in developed countries.

Intensifying foreign competition and employment uncertainty could provoke calls by industry lobbyists and displaced workers for additional government protections. And worker migration toward developed nations will continue, spurred by wage differentials between developed and developing countries. Younger immigrants may eventually help developed nations to ease the economic challenge posed by population aging, but immigrants are often viewed as competing for jobs, adding to public welfare costs, and reducing social cohesion. This paper offers policy recommendations for developed nations to reduce globalization’s negative effects and, indeed, harness it for solving aging-related economic challenges.

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Jagadeesh Gokhale is senior fellow at the Cato Institute. His research focuses on entitlement reform, labor productivity and compensation, U.S. fiscal policy, and the impact of fiscal policy on future generations. This paper is a longer version of his article “Globalization, Economic Crisis, and the New 21st Century World Economic Order,” in A New Conservative Agenda for the 21st Century (forthcoming).