Safety nets and transatlantic answers to globalization: Lessons from Europe
On October 22, GMF, together with the Brussels-based thinktank Bruegel, hosted an event on "Safety nets and transatlantic answers to globalization: Lessons from Europe." This was the second gathering in a series of GMF-Bruegel roundtables hosted in Brussels and Washington, DC, seeking to advance policy discussions around transatlantic comparative responses to globalization.
The keynote speaker at the event was Robert Kuttner, founding co-editor of The American Prospect. He conducted six weeks of interviews in Europe on globalization adjustment policies this past May and June as a journalism fellow of the German Marshall Fund.
Mr. Kuttner began his presentation noting that Europe has more trade relative to GDP, but sees less political opposition to trade than the United States, because the EU has put policies in place that buffer citizens from economic dislocation and because the public is aware of the fact that small European economies need exports. Some of these European buffers are purely palliative, such as unemployment insurance, and some are criticized as protectionist such as subsidies, quotas, and non-tariff-barriers. Others are truly dynamic, such as active labor market policies.
In the case of the EU, Mr. Kuttner also addressed the fact that the outsourcing of jobs to lower wage countries and competition from new EU member states increases the general sense of economic insecurity. He believes that a blend of targeted trade adjustment policies and broader labor market policies could best meet the triple goal of reinforcing the political consent for open trade, increasing the competitiveness of workforces and economies, and using economic transitions as opportunities rather than as downward dislocations for workers. According to his research, efficient but socially balanced models of capitalism like the Danish "flexicurity" model have proven to be most successful in buffering potentially negative effects of globalization. Despite high tax levels and generous social spending, the Danish labor force is highly competitive, embraces labor movement, and supports increased international trade.
In regard to U.S. labor policies and upcoming Trade Adjustment Authority legislation, Mr. Kuttner believes that the current U.S. system demands flexibility without providing enough employment or compensatory security. He argued that trade assistance programs are a good start but do not provide the funds that are needed to achieve active labor market policies that would lead to a more competitive workforce.
In his response, Jakob von Weizsäcker, research fellow at Bruegel, added that the United States has the advantage of a fairly flexible labor market, while some countries, such as Germany, have been undergoing painful transition to more labor market flexibility in order to achieve reform. He re-emphasized that embracing trade was the only way to adjust to increased globalization. While globalization adjustment might lead to transitional losses in job or income security, the losses of not trading would be much bigger.
The introductory remarks were followed by an engaged discussion about the most suitable way to strike a balance between the flexibility and security components of different labor market policies, the future of low wage labor in the United States and Europe, and the role that education and training could play. Arguments in favor of a more robust U.S. expansion of the social safety net, which could take years to pay off, led to a debate over whether such an investment would depress near term economic productivity. When questioned about whether there is any real political opportunity for a more expansive U.S. adjustment system, Kuttner acknowledged that the U.S. climate is not very conducive to increasing taxes that would pay for more employment benefits. But Kuttner also pointed out that if the debate on worker adjustment shifted from a focus on job protection to protecting worker employability, such a system would appeal more broadly.
The event was attended by a group of distinguished labor and trade adjustment policy experts, including representatives from the U.S. Department of Labor, the Governmental Accountability Office, Heritage Foundation, Peterson Institute for International Economics, Center for Strategic and International Studies, International Labor Organization, and AFL-CIO, among others.