Upside, Downside

• Author: Alan S. Blinder

Upside, Downside Finance & Development, December 2016, Vol. 53, No. 4

Alan S. Blinder

U.S. policy should carry the ball for globalization by turning trade’s gross losers into net winners

Are you for or against globalization? It’s a silly question, really, rather like asking whether you favor or oppose the daily sunrise. It will happen anyway. Your choice is whether to make the most of it, enjoying the sunshine and greenery, or emphasize the downsides, like sunburn and poison ivy. Or you can create your own fantasy by shutting yourself indoors, pulling the curtains, and pretending the sun didn’t rise at all.

Some people seem to favor the last option. But nation-states don’t have that choice. Historical and technological forces have been advancing globalization for decades—ever since the Great Depression and World War II temporarily but decisively reversed it. And these forces will continue, meaning that each country must decide how to maximize the upside of globaliza- tion while minimizing the downside—for there are both.

This, too, is nothing new. Economists since David Ricardo in the early 19th century have understood that international trade—perhaps the quintessence of globalization—creates winners and losers. And those who lose have been fighting globalization since before it had a name. They still are, but it’s well past time that economists—much as we love the gains from trade—pay more attention to their complaints. They may be special pleaders, but losing your job is something special to plead about. They may want to stack the deck in their own favor, but if they don’t, technology and trade will stack it against them.

Increasingly, the world seems to be split into two groups: those with the talent, proclivity, and perhaps plain luck to reap the benefits of globalization and those left behind. Bridging—really, mitigating—that gap may be the eco- nomic problem of our age.

Economists emphasize that trade is a positive-sum game: the winners’ gains exceed the losers’ losses. That’s basically why we all favor freer trade. Net gains to the nation (indeed, to all nations) permit compensation: transfers from win- ners to losers. Arithmetic makes it possible, in principle, for everyone to come out a net winner. But that doesn’t happen in practice. Transfers and other cushions are rarely large enough to turn trade’s gross losers into net winners—even in western European countries with generous social safety nets. The United States barely tries.

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