Discuss whether governments should adopt anti-globalisation policies in view of the negative impacts of globalisation.

Anaemic economic recovery has provided an opening for governments to blame foreign trade and foreign workers for the prolonged malaise. This anti-globalisation view takes different economic forms: trade barriers, reaction against foreign direct investment, policies favouring domestic workers and firms as well as anti-immigration measures.

Adapted from The Guardian, 2 June 2014

Discuss whether governments should adopt anti-globalisation policies in view of the negative impacts of globalisation. [25]

Introduction

The recent developments of Brexit and Trump’s isolationist stance have sparked debates on whether there is a need for anti-globalisation policies given the many detriments of globalisation on economies that is being brought to light.                                                   

ADVERSE CONSEQUENCES OF GLOBALISATION

01 Shut-down of domestic firms

·    Globalisation leads to inflow of FDI, which may include large foreign MNCs setting up shop locally. This may threaten local smaller SMEs that may not be in a position to compete with such large firms especially since they may not have as large a scale of production to compete with in terms of pricing.

·    Other than facing competition from foreign MNCs, the products that local firms produce may face competition from foreign imported goods as well.

02 Structural unemployment

·    Globalisation leads to rapid change in technology and therefore also changes comparative advantage very quickly. Countries are forced to quickly move up the value-added chains and entire industries can get displaced very quickly as they lose their comparative advantage. Workers working in such sunset industries may find their skills becoming obsolete. While jobs in new industries are created, workers who have lower or obsolete skills find themselves unemployed but unable to take up jobs in these new industries.

03 Increased income inequality

·    Globalisation can lead to very quick and massive inflows of cheap low-skilled foreign migrants. The inflow of such cheap low-skilled foreign migrants can depress wages of low-skilled workers locally. This may result in increased income inequality as demand for skilled workers increase (increase in wages) while supply of low-skilled worker increases (decrease in wages).

04 Negative externalities generation

·    Inflows of FDI can sometimes bring about generation of negative externalities. This can come in the form of environmental pollution with the increased economic activity in the absence of regulatory action. 

·     (RWA) In countries like Singapore, the inflow of FDI in the casino industry, while generating jobs and income, also leads to social ills generated from gambling.

GOVERNMENTS SHOULD ADOPT ANTI-GLOBALISATION POLICIES

01 Protectionist measures

·    Imposing a tariff on imported goods will reduce the demand for imported goods and therefore locals will switch to the now cheaper domestically-produced substitute.

·    Firms will face less competition and will see an increase in demand for their goods and services. In turn, jobs will be saved as there is now demand for labour inputs to produce these goods and services.

·    Such a policy is commonly used especially in the protection of infant industries, which due to its lack of scale of production, may not be able to compete with the prices of its foreign counterparts.

02 Anti-immigration policies

·    Legislation to increase the barriers for migrants make it harder for them to enter the countryàprevent inflow of foreign labour

·    Many countries like Australia and Japan have a list of wanted occupations / skills / trades for migrants. To be eligible to work in these countries, they must have certain qualifications that allow them to apply for work visas. These countries can simply reduce this list or reduce the absolute number they are willing to take in to reduce supply of migrant labour.

·     (RWA) A recent example would be Brexit. The trigger of Brexit was partly due to the reported adverse impacts of globalisation, largely related to immigration concerns. In U.K.’s case, upon leaving of the European Union, what may likely happen is increased restrictions on the movement of labour.

GOVERNMENTS SHOULD NOT ADOPT ANTI-GLOBALISATION POLICIES

01 Retaliation and Beggar-thy-neighbour

·    Protectionist measures when used, will almost certainly bring about retaliation by trading partners. If trading partners were to slap back similar protectionist measures such as tariffs onto the country’s goods, the demand for exports would fall, leading to a fall in (X – M).

·    Also, when incomes of trading partners suffer as a result of less exports being sold due to the tariffs being imposed, their ability to purchase goods and services, which will include goods and services from the perpetuator of the tariff itself, is reduced.

·    This would defeat the purpose of imposing such a policy in the first place, since there is no significant improvement in net exports.

02 Bottlenecks in potential growth

·    Foreign migrants contribute to the expansion of the labour force, which increases the productive capacity and therefore increases aggregate supply. In addition, skilled foreign migrants may provide skills transfer, which can benefit local workers who can gain new skills as well, leading to an increase in wages commanded. 

·    Economies that impose restrictions on the inflow of foreign labour, may face a tight labour situation. This happens when the economy is already operating at full or near full employment level, and an increase in AS is required to bring about any increase in real output.

03 Benefits may outweigh costs

There are both costs and benefits from globalisation affecting different economies differently. Countries need to weigh the benefits against the costs to determine whether anti-globalisation policies should be implemented. However, as an alternative to using anti-globalisation policies, it may be more fruitful to use policies to mitigate the costs associated with globalisation.

·    For example, supply side policies such as subsidising and instituting training programmes for workers can help to reduce structural unemployment. 

·    Transfer payments can be given to the lower income to address the problem of income inequality. 

·    Regulatory action can be taken to minimise the impacts of the negative externalities. 

·    Firms can be given support in the form of grants, subsidies or tax incentives to improve their productivity so that they will be able to price their goods more competitively.

Conclusion

It is no doubt that globalisation comes with its flaws. However, governments need not always turn to anti-globalisation policies as their only solution. Depending on the country, they could explore other policies that can effectively help to enhance the benefits brought about by globalisation while mitigating negative impacts to a certain extent.