Sunday, May 04, 2008

Populist Ideas from Harvard’s Summers

“Populism,” or pre-election pandering to the ungrounded fears of workers. That’s the dismissive accusation leveled against trade policy reforms proposed by the two Democratic candidates for the U.S. presidency, Senators Clinton and Obama. Now a distinguished American economist has come forward to give their populism a good name.

Lawrence Summers, former U.S. Secretary of the Treasury, does so in a two-part article in the Financial Times, which is not a populist organ. Without mentioning the debate or the debaters, Summers explains why U.S. workers have a legitimate basis to oppose current U.S. trade policy. He urges revising it “to focus on the issues in which the largest number of Americans have the greatest stake.”

As a mainstream economist, Summers expresses his continued support for global economic integration – but not its present form. He emphasizes that economic integration will stagnate unless the workers of the United States and other countries grow convinced that it benefits them, and not just its “business champions.” So he argues strongly for the need to develop “a strategy to promote healthy globalization.”

His strategy has two components:

-- Domestic: “strengthening efforts to reduce inequality and insecurity.”
-- International: “focus on the interests of working people in all countries, in addition to the current emphasis on the priorities of global corporations.”

Summers, 53, now a professor at Harvard, which he headed for five years as president until two years ago, draws on a parallel in American history for the current need to focus international economic diplomacy more on preventing harmful competition between countries:

“There is a reason why progressives in the early part of the 20th century sought to have the federal government take over many kinds of regulatory responsibility. They were concerned that competition for business across states, and their ease of being able to move, would lead to a race to the bottom.

“Financial regulation is only one example of where the mantra of needing to be ‘internationally competitive’ has been invoked too often as a reason to cut back on regulation. There has not been enough serious consideration of the alternative – global cooperation to raise standards.”

Here Summers adds: “While labor standards arguments have at times been invoked as a cover for protectionism, and this must be avoided, it is entirely appropriate that U.S. policymakers seek to ensure that greater global integration does not become an excuse for eroding labor rights.”

In his two-part article (one published on April 28, the other on May 4), Summers acknowledges that two U.S. policymakers detected the present predicament years ago: former U.S. Secretary of Labor Robert Reich and economist Paul Samuelson.

Summers’ ideas add to the doubts that a growing number of economists have about U.S. trade policy. That policy is deeply entrenched, however, and might well continue more or less as is (even by inserting a supposedly improved labor chapter into NAFTA). Hopefully, however, the next occupant of the White House will be wise and strong enough to initiate a broad strategy to promote healthy globalization.

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