Donald Trump’s victory in the American Presidential election has brought into prominence greatly divergent views concerning the merits or demerits of globalisation. Here we set out the criteria that need to be met before globalisation can be regarded as a world welfare improving institutional arrangement.
First, and absolutely fundamental and necessary, is the need for nation states engaged in trade and international borrowing and lending to implement domestic policies that establish sustained full employment of their work forces and normal capacity working of their existing stocks of capital goods and human capital.
Secondly, if the first criterion is met, movements towards freer trade will be beneficial, provided that measures are taken to protect those sectors that will be adversely affected by these moves. Ideally, in order both to protect and to benefit from the social capital that has been built up over generations in the sectors and areas affected, policies that attract capital flows into alternative industries in those areas should be systematically implemented, along with retraining schemes and, if absolutely necessary, generous pensions for displaced, often older, workers. Coupled with these moves is the need to maintain past gains in conditions of work and in the community generally. Such a set of policies would imply far less disruption socially than the alternative that requires displaced labour to be mobile, to be forced to move to other areas in order to obtain employment.
Finally, and especially in a world of floating exchange rates, capital controls and schemes to crack down on destabilising speculation need to be implemented. Especially is this so in small open economies such as Australia that are peculiarly susceptible to destabilising speculative flurries.
Only if ALL these criteria hold is it possible to look with a benign eye on globalisation and its positive effects of helping to raise standards of living worldwide. But merely to state these criteria is to see immediately how far off they are from being met in the modern world.
Geoffrey Harcourt is Honorary Professor, School of Economics, UNSW.