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The Impact of Globalization

Dani Rodrik is a Professor of International Political Economy at the John F Kennedy School of Government at Harvard University, writes “the revolutions in transportation, communications and information technologies have considerably increased the speed with which global markets react to changing realities and procedures. But the flows of goods, services, and capital across national boundaries are not significantly larger today- in relation to national product - than they were during the classical gold standard.” There are 3 potential sources of tension between global markets and social stability. First, globalization makes large segments of the working population more easily substitutable across national boundaries, and, therefore, it fundamentally transforms the employment relationship. The post-World War II social bargain between workers and employers, under which the former received a steady increase in wages and benefits and a degree of job security in return for labor complacency is thereby undermined. The result is a widening rift between groups that have the skills and mobility to flourish in global markets and those who do not have these advantages. Second, globalization creates strains both within and among countries by engendering conflicts over domestic norms and the social institutions that embody them. … (What happens when) child labor in Honduras replaces workers in South Carolina or when French pension benefits are called in response to the requirements of the Maastricht Treaty. (This is what the calls for Fair Trade are all about). Third, globalization makes it more difficult for governments to accomplish one of its central functions: the provision of social insurance that served throughout the post-World War II period to maintain social cohesion and domestic political support for ongoing liberalization. International trade may be a major contributor to prosperity in the advanced industrial countries but it is also responsible for some of the social and distributional costs. International trade can generate sizeable economic benefits only be restructuring economies and when doing so, some people are hurt – someone bears the costs. Capital is mobile; labor is not. What Rodrik reminds us is that global economic integration needs an infrastructure of popular support and legitimacy in order to survive. The inherent tensions between markets and democracy must be recognized. Democracy follows an egalitarian logic while markets follow an inegalitarian one. Global capitalism must be complemented by domestic social policies if we want to maintain political legitimacy – that means investments in safety nets, education and training, and social programs.

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