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

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Globalization holds tremendous promise toimprove human welfare but can also cause conflictsand crises as witnessed during 2007–09.How will competition for resources, employment,and growth shape economic policies among developednations as they attempt to maintain productivitygrowth, social protections, and extensivepolitical and cultural freedoms?

The processes associated with economic globalization—such as free trade, business outsourcing,capital mobility, and so on—generate considerablepublic apprehension because of theeconomic uncertainty they portend. But crossnationalproduction supply chains have nowbecome so extensive that the recession-induceddecline in global trade is causing considerable economicdistress in developed countries.

In contrast, emerging countries—especiallyBrazil, Russia, India, China, and South Korea—haveexperienced only modest declines in economicgrowth. As those nations continue to advance economicallyand output growth in developed nationsrecovers, the process of globalization will resume.But with the Doha round of multilateral tradenegotiations stalled, bilateral and regional tradeagreements may come to dominate that process.Regardless of how globalization progresses, policymakersin developed nations remain concernedabout whether domestic output and employmentgrowth can recover as rapidly as after recessionspast. Those concerns are magnified by prospectivepopulation aging in developed countries.

Intensifying foreign competition and employmentuncertainty could provoke calls by industrylobbyists and displaced workers for additionalgovernment protections. And worker migrationtoward developed nations will continue, spurredby wage differentials between developed anddeveloping countries. Younger immigrants mayeventually help developed nations to ease the economicchallenge posed by population aging, butimmigrants are often viewed as competing forjobs, adding to public welfare costs, and reducingsocial cohesion. This paper offers policy recommendationsfor developed nations to reduceglobalization's negative effects and, indeed, harnessit for solving aging-related economic challenges.

Jagadeesh Gokhale

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).