Comments on the Distributional Consequences of Globalization

1. Comments on the Distributional Consequences of Globalization Peter Rosendorff, USC Conference on The Political Economy of Globalization, Princeton University, April 2005.

2. Uncertainty, Strategic Interaction and Political Institutions • Specific Factors/ Heckscher-Ohlin models are perfect information models, with no strategic interaction • These models are devoid of political institutions that mediate between preferences and policy outcomes • These variables have proved to be important determinants of the income distributional consequences of “globalization”.

3. Distributional Effects Need to be Qualified. • Attitudes towards globalization are formed with incomplete information about the consequences of policy shifts that potentially expose workers and firms to increased flows of goods, capital and people. • Policy decisions are rarely made absent considerations of the strategic consequences either for domestic politics or the international negotiating arena. • Hence the predictions of the standard models about the income distributional consequences of globalization need to be qualified.

4. Attitudes of Workers to Globalization: Uncertainty 1 • Uncertainty • Trade flows, investment flows add instability • Increase elasticity of labor demand – making workers feel more insecure about their jobs • Opposed. • Social safety nets • Social insurance • Support • Are safety nets and protection alternative types of insurance • merely with different efficiency properties?

5. Attitudes of Workers to Globalization: Uncertainty 2 • International agreements • Complicated documents – voters/workers don’t know how they might be affected • Rely on information providers – endorsers • Who are the key information providers – which endorsers do workers rely on, and does this vary by sector/factor etc. • Could lead to more or less support for globalization

6. Attitudes of Workers to Globalization: Uncertainty 3 • Asset ownership • Scheve and Slaughter • house in a district with a declining industry • opposed • Diversified stock funds / retirement plans • support

7. Attitudes of Workers to Globalization: Strategic Interaction • International Institutions • Cede sovereignty, foreign courts • democratic deficit / lack of accountability • opposed • International organizations generate information • help voters monitor behavior of policymakers • support

8. Attitudes of Legislators to Globalization 1 • Uncertainty and Strategic Interaction play a crucial role • International organizations • Credible commitments • Do policymakers rely on the international organizations to tie their hands • Given rationally anticipated future political pressure to protect? • Schelling Conjecture • Does a hardline/protectionist legislature mean greater bargaining power of the international negotiators? • These influence politicians’ attitudes as to the benefits of “globalization” • in the form of deeper institutionalized integration with other countries.

9. Attitudes of Legislators to Globalization 2 • Domestic politics • Elections • Uncertainty • Makes trade reform more difficult to conclude. • Makes trade agreements likely to be more protectionist. • Divided government • Strategic interaction associated with both domestic and international bargaining • Makes negotiations over globalization policy less likely to succeed. • Party Discipline • Probably makes agreements easier to strike and less protectionist.

10. Attitudes of Firms • What determines whether firms can influence policy either for or against increased economic integration? • Costs of organization • Why are some sectors organized and others not? • Coalition formation • Collective action costs • Majoritarian / PR electoral systems • District size • District marginality • Industry concentration within and across districts

11. Conclusion • Uncertainty, strategic interaction and domestic political institutions affect attitudes of workers, firms and policymakers • In addition to factor mobility

12. “Globalization” • Exogenous – technological phenomenon • Many of the factors mentioned are less important • Because they affect policy decisions. • Policy is responding to the exogenous process. • Partly endogenous • Policy partly drives the process: • Increased economic integration, trade and investment agreements, intellectual property etc. • Then these political and institutional variables are central. • Definition?