Trade and investment liberalisation, long viewed with ambivalence in much of the developing world, is facing growing scepticism in rich countries. The heightened concern has been prompted in part by fears of job losses, wage stagnation, and growing inequality. However, a recent analysis by the Organisation for Economic Cooperation and Development (OECD) suggests that, while the dangers of economic globalisation are real, they have been greatly exaggerated.

In its annual 'Employment Outlook' report released last week, the OECD, a Paris-based research organisation financed by the world's 30 richest countries, claimed that such concerns, though not wholly unfounded, have been overblown. According to OECD Secretary General Angel Gurría, public attitudes do not accurately reflect reality. "Millions are benefiting from globalisation, but at the same time there's a feeling something's wrong with the process," he said at a news conference. The report warned that policymakers would face continued resistance to greater international economic integration "if the perception that many workers do not benefit from it takes root."

"The story has to be told better," Gurría said.

The introductory section of the study suggested that the 'globalisation paradox' - greater feelings of insecurity despite greater prosperity - had intensified due to outsourcing and the increased integration of major developing countries into the global economy.

Trends in offshoring, wage inequality

The OECD report acknowledged that "offshoring is indeed a potential source of vulnerability for workers," largely because "jobs and wages have become more vulnerable to external shocks." The very possibility of outsourcing was credited with having contributed to slowed wage growth in developed countries, as employers use the threat of offshoring to pressure workers into deeper wage concessions.

Despite these measurable effects, actual growth in offshoring was modest, and unemployment fell in all but five of the OECD's 30 member countries in 2006, the report noted. Indeed, joblessness in OECD countries fell much more sharply last year than in 2005, a trend projected to continue at least through 2008.

The report did find a growing disparity in wages: in 17 of the 20 OECD countries for which data were available, the incomes of the highest earners grew slightly more quickly than the incomes of the lowest earners between 1995 and 2005. However, the report argued that, while offshoring may have partially contributed to the growing gap, the trend has been primarily driven by technological advances that have reduced the demand for human labour in the manufacturing sector.

Protect people, not jobs

Building on its empirical findings, the report proposed ways for OECD governments to mitigate some of globalisation's negative effects on their citizens, and thus "help strengthen public support for freer trade and investment policies."

The recommendations focused on social welfare nets, flexible labour markets, and incentives for entrepreneurial behaviour. Governments should reduce barriers to hiring and firing, the report said, but provide ample resources to help citizens start businesses, change jobs, or even switch industries. At the same time, states should provide generous compensation for the unemployed. Moreover, the report recommended that governments expand worker-training programmes, especially those aimed at the very low-skilled workers most seriously threatened by foreign competition.

Overall, governments should aim to help workers be more flexible in their employment search, while also providing them with a sense of financial and social security should their current job end. "The thing now is to protect people, but not protect jobs, because some jobs have no future," said Raymond Torres, the report's head author.

The OECD further recommended that states such as Belgium, France, and Sweden that rely on hefty employer contributions to finance their domestic social programmes reduce those charges while increasing consumption-based taxes to make up for the lost revenue. Relieving a portion of employers' financial burden, the report maintained, would both stimulate hiring and encourage companies to build their domestic workforces.

Public resistance runs high

Such policies, however, may prove unpopular. Indeed, a recent proposal by the government of new French President Nicolas Sarkozy to increase the consumption-based value-added tax in exchange for a reduction in employer charges was blamed for diminishing the margin of victory of his conservative party in recent parliamentary elections. Detractors, including Socialists, trade unions, and some economists, claimed that a higher VAT would raise prices, increase unemployment, slow economic growth, and ultimately fuel inflation.

In the US, some senior Democrats have conditioned their support for renewing the president's fast-track trade-negotiating authority on reform of the forty-year-old Trade Adjustment Assistance (TAA) programme, which provides vocational education for workers whose jobs have moved overseas as a result of foreign competition. In 2002, when granting the White House the right to submit trade deals to Congress for a straight yes-or-no vote without the possibility of amendments - a critical tool for trade liberalisation, including the faltering Doha Round talks - lawmakers nearly tripled funding for the programme. Critics argue, however, that TAA remains underfunded and ineffective.

Concerns over globalisation appear particularly widespread in the US. A recent poll showed that, while nearly two-thirds of US citizens believe that trade is good for the economy, more than half think the country has lost more than it has gained from increased economic integration. Some economists counter that these anxieties are more a function of the structure of the US' social safety net than of globalisation per se. They argue that, because employers directly provide so much of the US system of social protections, any new trade agreement that might send jobs overseas will be seen as a threat to the average US worker. Thus, the argument goes, any push for further trade liberalisation will face stiff opposition from some quarters until the government finds a way to boost support for the unemployed and guarantee basic social benefits independently of the employment system.

The latest setback in the imperiled Doha Round negotiations might be viewed as another symptom of a wider malaise over economic globalisation. Those talks took a possible fatal blow last week when top negotiators from Brazil, India, the EU, and the US came to an impasse on the liberalisation of trade in agricultural and industrial goods (see related story, this issue).

The new players: Brazil, Russia, India, and China

The OECD also considered employment conditions in Brazil, Russia, India, and China (the so-called BRIC countries), stressing that the continued integration of these rapidly expanding economies into the global marketplace was critical to the economic health of members of the rich country club.

Thanks in part to the effects of economic integration, the BRICs, which currently account for 45 percent of the global labour supply and one quarter of world GDP, are enjoying both reduced poverty levels and substantial employment gains, the study found. With their economies growing at breakneck speed, the BRICs have quickly become major players in the world trade system: since the early 1990s, total trade (as a percentage of GDP) has grown by 50 percent in Russia, almost doubled in China, and more than doubled in India and Brazil.

Yet the benefits of this increased economic integration have not been evenly distributed. Mirroring a similar trend among developed countries, wide wage inequalities persist in BRIC countries; in the cases of India and China, such disparities are growing. Moreover, rates of underemployment - especially among women and the elderly - remain high despite the recent rapid job growth.

The report also showed that informal employment, which avoids both taxation and regulation, continues to dominate in the BRIC countries, accounting for about 45 percent of total employment in Brazil, 53 percent in China, and more than 90 percent in India. Such high rates of informal employment translate into substantial losses of government tax revenue and indicate that a large segment of the labour force is unprotected by government-provided social security programmes.

To address these challenges, the report recommended that BRIC governments offer expanded educational opportunities for workers and implement measures to help their citizens transition into formal-sector employment.

Instead of feeling threatened by economic globalisation, the report concluded, OECD governments should focus on developing a "comprehensive strategy policy" that "enhances benefits from globalisation while addressing some of the adjustment and distributional concerns."

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