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European
Economic Perspectives 30
For Richer or for Poorer
'Globalization' means many things to many people. There is no commonly accepted definition, yet globalization is at the centre of a starkly polarized debate over the major policy issues in the world today. CEPR now makes an important contribution to this debate by separating what is truth and what is fiction in a new Report which analyses the different aspects of the ongoing process of international integration.
A new CEPR study, CEPR Policy Paper
No.8: Making Sense of Globalization, which was written for the European Commission Group of Policy Advisors, and includes an introduction by the President of the European Commission, Romano Prodi. The authors refer to the arguments that have so far been presented for and against globalization. The critics of globalization say that it increases inequality, pollutes the environment, causes economic instability, exploits workers and undermines the ability of governments to raise the taxes that finance public spending and welfare. Yet the authors find there is a wealth of economic evidence demonstrating that globalization brings great benefits as well as imposing costs. It offers the opportunity for a higher rate of sustainable growth - growth that translates into longer, healthier lives and improved living standards. These gains must be weighed against the adverse effects of globalization, and, in particular, the effects of international liberalization on the world's poorest countries. The Report's main conclusion is that the true benefits of globalization strongly outweigh the costs.
In addition, the Report finds that many of the charges levelled against the globalization process are misguided. An important result presented in the study is that the increasing integration of the world's economies does not inevitably increase the inequality of incomes. The nineteenth century saw an explosion of inequality but by the middle of the twentieth century it had stopped rising. In fact, the proportion of the world's population in absolute poverty is now lower than it has ever been.
The authors recognise that the effects of globalization on inequality are complex. They stress the best response may be complementary policies rather than restrictions that would sacrifice the benefits of globalization. Indeed, a general argument emphasized in the Report is that many of the apparent costs of globalization reflect domestic policy failures, so that they are better tackled through domestic policy reform than through seeking to halt the globalization process. The authors find that the effects of increasing economic openness depend critically on the circumstances of individual countries and the policies they follow. Similarly, they find little evidence that governments are losing power to multinational corporations or other agents of globalization or that there is a 'race to the bottom' in environmental or labour standards or taxation. And where true international policy spillovers exist, such as the regulation of international financial markets, the authors suggest that the EU should take the lead in developing appropriate policy proposals.
The Report argues that the real dangers of globalization and the greater awareness of such dangers due to improved communications make it vital to implement policies to deal with them. The alternative is a backlash that would reverse some of the great progress that has already occurred.
This article summarizes CEPR Policy Paper
No.8: Making Sense of Globalization by
Francois Bourguignon, Diane Coyle, Raqule Fernandez, Francesco Giavazzi, Dalia Marin, Kevin O'Rourke, Richard Portes, Paul Seabright, Anthony Venables, Thierry
Verdier and L Alan Winters.
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