Globalisation needs equality

There’s a great piece today on one of the economist’s blogs, arguing that more redistribution is needed to make globalisation work.

It’s coming in response to a recent line of attack on anti-inequality arguments: the idea that, because poorer countries are catching up to richer ones, and therefore global inequality is declining, we shouldn’t worry about inequality within rich countries.

As the blog points out, this doesn’t stand up to scrutiny. There is every reason to be concerned about inequality within a rich country, including issues such as

shady financial practices, implicit or explicit subsidies to big banks, tax systems that enable the very rich to pay shockingly low effective rates, and the perception—not entirely inaccurate—that the very rich are using their resources to rig the political system in their favour

And, in fact, inequality within rich countries is important to fostering the kind of openness of global trade that people want to see.

Reducing barriers to trade generates net gains, but those gains will occasionally be distributed in highly unequal fashion. If gains are concentrated and no provision is made for redistribution, then a voting majority might well conclude that openness is a losing proposition…

A generation of global integration has been very good for the world’s developing economies. In light of that, the most important question, to me, is how best to maintain broad public support for openness and integration. I tend to think the best hope lies in governments which ensure that the gains from openness are broadly shared and which are responsive to the economic discomfort of typical workers.

This is the argument that one of the leading globalisation thinkers, Dani Rodrik, has been making for a long time. The more integrated the world economy, and the more exposed that workers in any one country are to sudden changes in the global economy, the larger the welfare state needed to support them through the adjustment to those effects.

(Of course, governments also need to be able to accept or reject parts of the globalisation agenda, and do what is in the interests of their own economies and societies, which may not always be to immediately increase openness to trade; but that’s another argument for another day.)