The modern, interconnected world does not render them powerlessby Simon Tilford / January 30, 2018 / Leave a comment
Donald Trump, Brexit, populist pressures across the EU: are we entering a full-blown crisis of international liberal capitalism? There is no doubt that globalisation poses policy challenges for governments. But globalisation by itself did not force governments to adopt policies that have divided their countries, exacerbated inequality and hit social mobility. Many of them did that by choice.
The problem is not that we have opened the way for an increased role for markets, as many on the left (and on the populist right) argue. Markets remain the best way of generating wealth and opportunities, of challenging vested interests and of expanding people’s freedom. We are in this mess because we’ve forgotten the lessons of the post-war period. Basically, we have a crisis of distribution and opportunity.
Globalisation has played a crucial role in reducing poverty globally over the last 30 or so years. But there are winners and losers from increased trade and capital movement, as there are from technological change, and many governments, notably the US and the UK ones, have failed to take the necessary corrective action. Contrary to the anti-globalisation proselytising of the left, the US and UK governments could have acted; they were not prevented from doing so by the “forces of globalisation.” And, globalisation does not, as the liberal economic right tends to argue, require governments to reduce social spending, emasculate unions and cut taxes on the wealthy.
Successive American and British governments were not forced by “globalisation” to allow executive pay to balloon. While most developed economies have experienced rapid pay growth at the top, nowhere has the boom in boardroom pay been as big as in the Anglo-Saxon countries.
Similarly, the US choice to slash taxes for the wealthy over the last 35-odd years was a domestic one, ostensibly aimed at releasing animal spirits and driving entrepreneurship. The recently passed Republican “tax reform” is the latest in a long line of tax cuts for the rich and the corporate sector that have failed to stimulate investment and productivity growth, but which have contributed to alarming levels of US inequality. American governments were not compelled to do this in order to retain the confidence of international investors. After all, other developed countries opted…