Thursday, January 28, 2016

Cushioning the victims of global trends

There are atleast three drivers of displacement of people from the labor market - technology, free trade and globalization, and immigration. All three also have the effect of depressing wages, widening inequality, and fostering social and political discontent. 

But conventional wisdom and orthodoxy advocate unambiguous support for such policies. Their arguments are based on the view that the aggregate effect of these forces are a net positive. While this may be so, it cannot be denied that all of them creates losers in addition to winners. In the circumstances, it is facile, even disingenuous, to argue in favor of free-trade without complementary policies that compensate the losers or at the least mitigate their suffering. A generous and robust social safety net is one of the primary requirements to cushion the losers against these trends and proceed ahead with them. 

It is in this context that Steve Rattner makes the moral and political case for compensating the losers of globalization. While the US loses manufacturing jobs, its consumers benefit by way of cheaper imports and greater disposable incomes. 
A similar challenge is faced by European countries as they grapple with hordes of immigrants fleeing the civil war in the Middle East. The spectre of immigrants displacing locals, especially in lower skilled jobs, looms large.
Much the same applies to embrace of technology. In all these cases, the concerns of those likely losers cannot be simply brushed aside on ideological and humanitarian (to refugees) grounds. Unfortunately, as Martin Wolf writes, the politics of the elites on both sides of the spectrum miss this 
The projects of the rightwing elite have long been low marginal tax rates, liberal immigration, globalisation, curbs on costly “entitlement programmes”, deregulated labour markets and maximisation of shareholder value. The projects of the leftwing elite have been liberal immigration (again), multiculturalism, secularism, diversity, choice on abortion, and racial and gender equality. 
I am inclined to the opinion that the political leaders have been ill-served by thought leaders and opinion makers in addressing such challenges. The latter have let their ideological predilections cloud their judgements. Instead, a prudent appraisal of the outcomes of these trends would have led to the advocacy of a more nuanced approach towards them. In its absence, the ideological space has been occupied by extremist political ideologues who peddle protectionist, anti-immigrat, and neo-Luddite policies, all of which corrode the country's social and political fabric. 

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