Representational image: iStock
Representational image: iStock

The G20 2017 took place amid growing concerns about the negative effects of globalization on lower-income groups and developing countries, as well as other global uncertainties that couldn’t have come at a worse time such as climate change. Before touching down in Germany, US President Donald Trump delivered a speech in Warsaw outlining highly nationalistic policies. The G20 meeting saw some tense encounters in relation to free trade, with a particular clash between Trump and the French delegation over protectionism and the overproduction of steel.

The G20 drew to a close on July 8, 2017, with a new emphasis placed on the need for trade deals to be reciprocal and non-discriminatory, calling for adherence to a rules-based regime, respect for the WTO, and resistance to protectionism, including all unfair trade practices. However, the negative effects of globalization remain insufficiently addressed.

The defect of globalizaion

By far the most worrying feature of globalization has been the benefits of growth from trade not having been shared more equally and broadly. The growth in inequality is, bar none, the current issue driving the political discontent and instability in the West. According to the Global Wage Report 2016/17 issued by the International Labor Organization, the top 10% of workers in Europe together earn almost as much as the bottom 50%, with a gender pay gap of more than 50% for chief executives.

What causes rising inequality in relation to free trade? On the one hand, capital has been preferable to labor in the hyper-globalization era where international trading agreements, drawn up with great secrecy, took care of the interests of business instead of unions and citizens. It has boosted rigged markets dominated by plutocratic corporations that are able to gain rental income by virtue of their wealth while wages are stagnating.

On the other hand, big corporations have been encouraged to invest abroad, depriving domestic workers of their jobs. Domestic jobs have also gone to the large-scale immigrants willing to accept less pay, to younger people with better adaptability in a rapidly changing environment, and to machines with unprecedented digital automation. The bargaining power of domestic workers in advanced economies, especially lower-skilled workers, is weakening and their wages have been under downward pressure.

The benefits of globalization

Free trade, however, has been regarded as an engine of economic growth. Two hundred and forty years ago, Adam Smith published one of the most important texts ever written, The Wealth of Nations. Smith advocated the freedom of movement of goods and services with minimal interference of government in a market economy, as a pathway to a harmonious and more equal society of ever-increasing prosperity for all. Smith’s claim underpinned the constitution of a capitalist economic system in the late 18th century and does not necessarily rule out the state’s provision of basic public goods.

In 1944, Friedrich Hayek set out his vision of economic liberalism via his manifesto, The Road to Serfdom, which was praised by John Maynard Keynes and George Orwell. The central doctrine of economic liberalism tends to stave off government intervention and protection. Since at least 1945, by opening borders or giving up narrow self-interest protectionism countries have been on average better off from free trade.

In 1962, Milton Friedman, the pupil of Henry Simons at Chicago University, published Capitalism and Freedom, which marked the break between liberalism and neoliberalism. Neoliberalism refers to extensive economic liberalization policies related to free trade, privatization, deregulation, and fiscal austerity in order to enhance the role of the private sector in the economy (but insufficient attention paid to equality). Since the political rise of Ronald Reagan and Margaret Thatcher from the late 1970s, the world has witnessed an era of global economic neoliberalism. Technological advances dismantling the barriers of time and distance have constituted unprecedented potential to liberalize movements of goods and services globally.

At the global level, globalization has led to tremendous welfare gains in recent decades, with countries becoming increasingly interdependent economically, culturally and politically. At the individual country level, free trade is one of the most powerful tools for promoting national development, especially for those that are underdeveloped. China lifted 700 million people out of poverty due to its policy of opening up to competition.

We should not be in denial about the benefits of globalization but improve the design of the international trading system so as to muscularly defend the benefits of globalization while alleviating the side-effects

We should not be in denial about the benefits of globalization but improve the design of the international trading system so as to muscularly defend the benefits of globalization while alleviating the side-effects.

Capitalaborism – the way forward

To remedy the unintended consequences of globalization, many people argued that governments should provide help for the losers with some genuine compensation programs such as trade adjustment assistance, an expanded earned income tax credit and health insurance. An even better approach would be for governments to improve the terms of trade deals or adjust the mechanism design so that the international trading system can benefit both capital and labour.

This could be described as “capitalaborism.” In comparison to “capitalism,” “capitalaborism,” means that the international trading system should lead to shared prosperity for both capital and labour, not just for capital, by offering both businesses and workers equal opportunities to contribute to and enjoy the benefits of the trading, regardless of gender, age, ethnicity and religion. As part of a concerted backlash against anti-globalization, capitalaborism emphasizes giving immediate priority to generating equitable productive employment and protecting the interests of the working class. This calls for the integration of employment objectives into trade negotiation process.

Domestically, it has to be supported by better national policies addressing inequality and promoting social mobility, fair and accountable public institutions, and an inclusive labour market. Internationally, countries should avoid the myopic pursuit of zero-sum or nationalist policies that would damage all countries and put at risk a recovery in global growth. Policymakers should work within agreed mechanisms and in a coordinated manner so that nations’ policies resonate stronger and last longer.

Yongfu Huang

Yongfu Huang is a macroeconomist, educated in China and the UK. After working at the University of Cambridge, he moved on to the UN system. His research interests lie in global development including sustainable development, finance, trade and poverty. He can be reached via yfhcambridge at

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