New threats to globalisation

The second aspect of the distributional question is that, in the United States at least, the distribution of income among households has become considerably more skewed (in favour of the highest income households). According to the US Census Bureau, the top quintile of the income distribution has received over 50 per cent of total household income in three of the past five years. The share of household income going to the top 5 per cent of the income distribution topped 22 per cent in 2005 for the first time.

As was the case in the late 19th and early 20th centuries, increasing inequality in the distribution of income provides a fertile soil for those seeking to sow the seeds of protectionism and other “anti-globalisation” policies. In that earlier era, the “anti-globalisation” backlash was initially led by populists such as William Jennings Bryan, but was quickly taken up by the Republicans under Theodore Roosevelt and continued under the Harding, Coolidge and Hoover Administrations in the 1920s and early 1930s.

Today, the protectionist charge may be being led by Democrats such as Charles Rangel, Charles Schumer and the recently-elected James Webb; but according to Republican Senator Lindsey Graham, “this is one issue where Republicans and Democrats are together”.

Once again, it has hardly assisted the cause of those who wish to argue against the proposition that globalisation primarily or even only benefits the rich that taxes on upper-income earners in the United States have been explicitly reduced by the current Administration.

The more redistributive nature of Australia’s tax-transfer system, by contrast, appears to have prevented a similar trend emerging in this country, at least as regards the distribution of income (although I am not as confident that this also applies to the distribution of wealth).

Ironically, the distribution of income is also becoming more unequal in China. By one account, the richest 10 per cent of Chinese households now account for more than 40 per cent of China’s wealth, and the poorest 10 per cent for only 2 per cent. However there is as yet no sign that these trends have contributed to rising anti-globalisation sentiment in China, as they evidently have in the United States. That may be because the poor (at least in urban areas) and the middle classes are getting richer, and believe that they will continue to do so, even if they aren’t getting as rich as quickly as the highest-income groups.

A new emerging threat to globalisation is the possibility that quite legitimate concerns about the environment may be used by protectionists as a cover to advance their cause.

With the growing acceptance by governments and businesses of the threat posed by climate change comes a danger that some will seek to use the contribution to greenhouse gas emissions made by the transportation of goods, services and people to advance their urging of greater restrictions on the movement of goods, services and people across international borders.

It would not be surprising if industries which have traditionally enjoyed (and continue to seek) high levels of “protection”, and those who now purport to see something inherently noble in “self-sufficiency” in food (a trend highlighted by the emerging practice of including “food distances” on restaurant menus) sought to make common cause with those urging practical ways of ameliorating global warming. The European Union, in particular, has been seeking to have WTO rules altered to allow it to restrict trade on what it regards as “environmental grounds”.

As Austrade’s prolific Chief Economist Tim Harcourt points out, exports benefit economies and nations in many ways: they under-write economic growth; they encourage innovation and the transfer of knowledge; they generally achieve higher levels of productivity; they provide safer working environments and invest more in the training of their work forces; and they create personal as well as business relationships between nations.

But as Tim Harcourt also says, “we can’t have exports without imports”. Export promotion agencies need to be at the forefront of efforts to persuade people of the broader benefits of trade and investment liberalisation, to ensure that those benefits are widely and fairly distributed (and seen to be so), and thereby help to counter the siren song of protectionism which once again threatens to grow in intensity to the detriment of us all.