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Memo for US: Protect & perish

By Peter Mandelson (China Daily)
Updated: 2008-06-17 07:45

And then there were two. We now know that either Barack Obama or John McCain will be the first US president of the next phase of globalization.

Whichever it is, they will be the first US president whose foreign economic policy will be dominated from day one by a fundamental transfer of economic power from West to East and South.

The Atlantic world is no longer the center of the economic world, because the economic world no longer has a center. How Senators McCain and Obama interpret that fact matters to all of us.

The protectionist and anti-trade rhetoric in the US presidential primaries suggests that many Americans see global economic change in zero-sum terms. Asia rises, we decline. Economic inequality is reduced between countries, but widens within our own societies.

Globalization is no longer something we do, it is something that others do to us. An increasing number of Europeans feel the same way.

Nobody would disagree that globalization has its dark side. But the open markets and economic integration that drive globalization are still by far the best tool we have for increasing global economic welfare.

That in turn is an essential contribution to global stability. Only stable, cooperating states can manage the coming squeeze on resources like energy, food and water.

For sixty years, the US has underwritten economic internationalism with openness of its own. A crisis of American confidence in globalization could knock it off course.

The rise of India and China is not against American and European interests, so long as we continue to invest in economic competitiveness and focus on our comparative advantages.

In fact, growth in these economies is now a crucial source of global demand, not least for us. They are the fastest growing market for the goods we make and sell. The competitively priced goods we import from them have held down prices and inflation for ordinary Europeans and Americans for a decade.

In reality we should worry more about the possible failure of the developing world than its success. A stalling of growth in the developing world - especially in China - would make the world poorer and less stable. Attempts to counter the rise of the developing world would harm our own economic and political interests.

Rather than worry about a relative decline in their economic weight, or retreat from international engagement, the US and Europe should focus on renewing the global institutions needed to hold this complex new mix of states together through difficult debates on climate change, energy security and trade.

We have to adapt these institutions - the UN, the WTO, the IMF - to give the emerging economies a chance not just to exercise their rights, but to assume their responsibilities.

The problem is that at the moment when we most need the tools of economic internationalism, our own politics has begun pushing in the other direction. Economic nationalism is the symptom of a deeper problem.

We cannot shape globalization without tackling the root causes of protectionism. That means tackling economic insecurity and inequality in our own societies.

Protectionism starts in your pocket. Americans and Europeans might welcome the fact that globalization is narrowing inequality between countries, but they are more worried by the risk that it is widening the gap within their own.

If we want to preserve our open economies, we need to build a social contract that guards against economic insecurity and inequality in our own societies.

It's a deeply entrenched political myth - especially in the US - that globalization and active welfare states are incompatible. Look at OECD data for the last 20 years and it is clear that where they have encouraged labor market flexibility, high levels of education and retraining and helped women and older people stay in the workforce, strong welfare states have equipped countries for globalization much better than weak ones.

The most competitive OECD states also have high levels of spending on public goods and help individuals deal with the biggest economic risks in life - especially unemployment and health care - without fear.

Scandinavia and the US have drawn similar benefits from globalization in terms of wealth and competitiveness, but they have distributed those benefits very differently. In which political culture is globalization more sustainable? One in ten Swedes think globalization is bad for their society. Five in 10 Americans do.

This is not just a challenge for the US: many European social models still do not pass these tests. Progressives in the US and Europe need to revive the New Deal case for governments that help people engage with open economies, rather than leave them exposed. Protective states do not have to be protectionist ones.

Europe and the US have a far greater capacity to continue to benefit from globalization than we seem to recognize. And far more to lose from a retreat from openness than we sometimes imagine. The world needs to hear this message from President Obama or McCain. Globalization needs America. America needs globalization.

The writer is EU Trade Commissioner

(China Daily 06/17/2008 page9)