In this instalment of the Roadmap 2030 blogpost, we look into the discontents with globalization and how they can be addressed. As we see from surveys, people tend to be concerned about job security and wage developments in the context of globalisation. They feel insufficiently protected against negative side effects of globalisation.
Increased cross-border exchanges of goods, services, labor, capital and technology are changing the scarcity situation within individual economies: If, for example, the production of goods, for the production of which above all low-skilled workers are needed, is outsourced to low-wage countries, this worsens the income and employment opportunities of low-skilled people in an
industrialized country like Germany (cf. Bertelsmann Stiftung 2016b: 12). As a result, crossborder trade generates both winners and losers.
Survey results show that people in Germany are aware of the overall positive results of globalization. But they also make it clear that they are concerned about the divergence of income and social cohesion (cf. Bluth 2018). In our view, there are three starting points for counteracting this and spreading the benefits of globalization more widely:
- 1 Fair distribution of income growth between countries: The studies mentioned above on the growth effects of advancing globalization show, among other things, that the developed industrial nations have so far benefited most from globalization if the absolute level of GDP per capita is used as an indicator. For international trade to benefit emerging and developing countries more from the economic benefits of the international division of labor, it would be helpful, for example, for developed countries to open their markets to processed products from developing countries without requiring developing countries to do the same in return (because developing countries are generally inferior to competition from developed countries).
- Moreover, industrialized countries should reduce or even abolish their subsidies for agricultural products in order to eliminate the distortion of competition vis-à-vis developing countries that are heavily dependent on agriculture.
- Finally, a fair distribution of trade profits could also include rich industrialized countries providing financing opportunities to the less developed economies so that these countries can finance the necessary infrastructure, education and production facilities.
- 2 Fair distribution of income growth within countries: As mentioned at the beginning, as globalization progresses within the participating countries, it produces both winners and losers. To ensure that the social acceptance of an open economy is not lost, the gains from globalization must be widely spread. Many policy areas are therefore called upon to take appropriate measures. Structural and regional policies and the education system need to be adapted and income inequalities compensated by the tax and transfer system (see also section 2.5.). Because the international division of labor increases the material prosperity of all participating economies, the winners of globalization in one country can – at least in principle – more than compensate the losers and still improve their own income situation through global division of labor and global trade.
- 3 Strengthening the welfare state: People want a combination of economic openness and protection against possible negative effects. Here the welfare state plays an important role in maintaining a social consensus in favor of an open economy. However, it can be shown that the welfare state has not grown at the same time as the increase in trade. As a result, the capacity of the welfare state to cushion negative globalization effects is reduced (cf. Bluth 2017). Greater security can be achieved through a more regional and sector-targeted welfare state, without placing a much heavier burden on public budgets.