Trade can make everybody better off – or not?

A commentary by Johannes Hausmann (YGC, 2019)
With contributions of Edward O’Loughlin, Bashar Algharabeh, Idil Ires (YGCs, 2019)

The broad generalization often made about trade is that it can make everybody better off. This economic principle is popularly proclaimed in the introduction to an economics textbook by Mankiw and Taylor, and therefore taught to many, if not all, students attending introductory courses in economics.

When looking at the economic progress that the world experienced during the last century it is hard to argue that globalization and especially worldwide trade did not have a positive effect on the global well-being of people. The economic progress was accompanied by enormous social improvements like the average life expectancy, which increased by nearly twenty years between 1960 and 2016. It is tempting to take these massive, positive developments, based on averages, and sell them as improvements for everyone.

However, this narrative is starting to change. People no longer believe that by making the global pie even larger, they too will receive a bigger share. During the Global Solutions Summit in Berlin, it became more and more obvious that international trade in the context of globalization is producing winners and losers. On a macro level, these inequalities are manifesting in a gap between high-income and low-income countries. On a micro level, the wealth of a whole society is largely concentrated in a few hands.

People who used to work in German textile industries, for example, may feel like losers on a global scale as their jobs were transferred overseas to places like China and Southeast Asia. The same was seen in Ireland, where jobs in call centers, were outsourced to countries with lower labor costs.

Picture: hectorgalarza, Pixabay

The general narrative, which says that globalization leads to benefits, is often seen in media, politics and research. However, on a personal level many individuals experience globalization differently. This contradiction, between what is seen and what is experienced, is arguably one of the reasons why populist and right-wing movements are gaining momentum across Europe and worldwide.

Some populists have identified globalization and global trade as the root cause of the problems for many communities and are molding their rhetoric around the fears and concerns of what further globalization could bring.

The need for recoupling

The recoupling process promoted by the Global Solutions Initiative President, Prof. Dennis J. Snower, aims to align the purpose of businesses to the needs of society. Within this context, the Global Solutions Summit provides ideas for solving the urgent issues of society. But even the best solution is worth nothing, if it is not implemented due to the impossibility of achieving a political majority for the proposed solution. Therefore, it is of utmost importance that the process includes a recoupling of people and politics.

In her keynote speech, German Chancellor Angela Merkel highlighted that positive and negative impacts of policies need to be weighed against each other during political discourse to create a basis for decision-making. I would like to add and emphasize that this evaluation of positive and negative effects must be communicated by top-level policymakers to ensure people understand the reasoning behind statements like “trade can make everybody better off.”

More sensitive communication by top-level politicians can only be a first step to achieve recoupling. In addition, local politics within a strengthened multi-level political system need to address legitimate concerns and fears on a more personal level. Action needs to be taken to mitigate communities’ frustrating experiences and furthermore, a constructive dialogue must be started with those most negatively impacted.

Only by engaging with the voiceless can democracy move beyond populist rhetoric and instead focus on solving the urgent problems discussed at the Global Solutions Summit.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of the Global Solutions Initiative.

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