“I hear people say we have to stop and debate globalisation. You might as well debate whether autumn should follow summer. They’re not debating it in China and India. They are seizing its possibilities, in a way that will transform their lives and ours.”
Tony Blair, Labour Party Conference Speech, Brighton 2005.
Accepting the slings and arrows of globalisation was a central part of New Labour’s social contract. Globalisation was a fact, not an option. It presented huge opportunities which Britain had to embrace. The disruptive effects of globalisation – on patterns of work, traditional industries, flows of capital and people – were neither negotiable nor reasons to resist it. Instead, embracing free trade, flexible labour markets, the single European market and lightly regulated financial services was the route to prosperity. And that prosperity was essential to finance investment in public services, support for the least advantaged and rising incomes.
10 years and one global crash later, the left needs to revisit its approach to globalisation. As David Clark and Duncan Weldon wrote for the Fabian Society in the last parliament: “the laissez-faire globalisation of the pre-crash era produced a ruinous mix of squeezed living standards, growing imbalances in trade and finance, sub-optimal growth, de-industrialisation and unsustainable speculative bubbles”. New Labour rightly made its peace with the market economy, both at home and internationally. But as Dani Rodrik observed, globalisation went “hyper” when it became orthodoxy that any restrictions on the flow of goods and capital across borders should be resisted because they would undermine efficiency and growth.
For all its extraordinary achievements, New Labour showed little interest in shaping the terms of global economic integration. Under Ed Miliband there was an attempt to revisit the shape of Britain’s economy at home, but not that of the international economy. It is now imperative that the left takes that agenda seriously, for many reasons. Firstly, the structural problems in the global economy that were behind the 2008 crash continue to pose threats to economic stability and prosperity. Secondly, the search for justice between nations must have the terms of economic trade between countries as a core concern. And thirdly, because the left needs to show there is a political alternative to fatalism in the face of globalisation. If we want to stop British voters being drawn to the siren calls of those who want the UK to retreat into protectionism, unilateralism and euroscepticism, we must develop credible policies to improve the rules governing international economic cooperation.
The good news is that this is a fertile time for new thinking about how to improve global economic governance. The era of the irresistibility of the Washington Consensus is over, both in the developing and the developed world. In the aftermath of the crash, there is a newfound intellectual and political courage to change the rules of the international economy in order to achieve greater stability, prosperity, fairness and a space for democratic control over economic arrangements. There are five areas where the left should lead the call for reform to the terms of globalisation.
1. Promoting trade on fair terms
The sharp drop-off in world trade since 2008 has slowed down global recovery from the crash. For 14 years the Doha round of multilateral trade talks has been staggering on without progress, despite numerous efforts to revive it, and in its place has come a wave of trade bilateralism – most notably the current effort to establish a US-EU transatlantic trade deal (TTIP).
Championing the revival of world trade should be at the heart of Britain’s foreign economic policy. But the terms of trade should no longer be as divorced from progressive values as they once were. In particular, World Trade Organisation rules currently pay no regard to labour standards in member states. The requirement to observe basic workers’ rights – freedom of association, freedom to bargain collectively, eliminating workplace abuse and measures to block discrimination – should be hard-wired into these rules, not least as an incentive for member governments to improve working conditions as global trade recovers.
The most pressing trade issue facing Britain is TTIP. In the absence of progress on a world trade deal, bilateral deals with major partners can be beneficial, provided they don’t explicitly or inadvertently erect trade barriers with other nations. But political consent for TTIP should point the left towards challenging provisions in the emerging deal that put constraints on national decision-making. Specifically, governments should reserve the power to exclude key public services (such as the NHS) from market access; and dispute mechanisms between foreign investors and national governments must not allow corporations to overturn the sovereign decisions of elected governments. These provisions are essential to demonstrate that free trade does not come at the expense of governments’ ability to run their own countries and manage their own economies.
2. Correcting global imbalances
Seven years on from the 2008 crash, the world economy is still suffering from major structural imbalances. Many economists talk of a ‘global savings glut’, yet developing countries remain short of investment for desperately needed long-run infrastructure projects. While some surplus countries maintain large current account surpluses at the expense of growth, other countries (most recently China, Vietnam and Kazakhstan) have engaged in currency wars through devaluations in the search for competitive advantage.
This is an area that calls for new rules and new institutions, in the name of the collective good of greater global growth. Given the failure of the world’s capital markets, we should welcome initiatives such as the Asian Infrastructure Investment Bank that seek to funnel capital into investment opportunities. But there are bolder ideas in the ether. Five years ago US Treasury secretary Tim Geithner sensibly proposed that G20 countries pledge to limit their current account surpluses and deficits over a period, and agree to correct imbalances if they drift from agreed targets. Within the EU, we should be leading the friendly pressure on Germany to reduce its own current account surplus, which depresses growth inside the eurozone and shifts the burden of adjustment to deficit countries such as Greece and Portugal.
3. Improving global financial stability
The process of improving financial regulation in the wake of the 2008 crash continues, slowly, both at national level and internationally through the Basel accords. But there remains scope for more ambitious reforms that reduce risk further. One idea whose time may well have come is the financial transactions tax (FTT). While it is true that an FTT would raise significant revenue, its main appeal is that it would serve as a brake on unnecessary high frequency trading that can cause significant financial market volatility. Although ideally an FTT should be introduced across global financial markets, Jeremy Corbyn is right to back an FTT across the European Union.
Another area of financial fragility is sovereign debt restructuring. The cases of Argentina, Greece and Ukraine show how debilitating the process of restructuring can be, creating widespread public resentment at the perception that creditors not governments run their country. Just as domestic bankruptcies proceed according to the rule of law, so should national bankruptcies. An international debt restructuring code should, as Joseph Stiglitz has argued, ensure that no country is asked to sign away its sovereignty to meet its debts. And he makes a strong case for why such a code should be anchored in the United Nations, rather than an IMF that is seen by many as an organisation representing creditors’ interests.
4. Ending tax injustice
One area in which a cross-national consensus is building is on the issue of international taxation: ensuring that tax arrangements are transparent and fair, and tax is paid in the country where income is earned. Efforts should start with tax havens. The total sum estimated to be hidden in low-tax, low-regulation jurisdictions worldwide is around $21tn: as much as the annual economic output of the USA and Japan combined, according to Forbes. Tax havens should provide publicly accessible registers to show who profits from the companies registered, and face penalties if they fail to comply.
The OECD’s recent report on Base Erosion and Profit Shifting is a big step forward in insisting on the ‘country-by-country’ tax principle – that transnational companies disclose how much profit they declare in each country where they operate, so that they can be taxed appropriately. As well as pushing for this principle to become a global norm, the left should argue for national governments to be able to restrict cross-national corporate mergers motivated solely by the desire to avoid tax (‘tax inversions’).
In addition, the Franco-German case for a minimum corporate tax rate across the EU should be explored, to prevent member states seeking competitive advantage through race-to-the-bottom tax cuts.
5. Supporting local economies
The recent closure of three foreign-owned steel plants has resurfaced the issue of what UK governments can do to protect local economies and their workers. The answer is: quite a lot. For one thing it requires government to be sharper-elbowed: for example, short-term support for the steel industry to compensate for high energy costs should be introduced pre-emptively, in advance of final EU state aids approval, rather than waiting months for the green light from Brussels.
In the longer-run, there is scope for a more strategic approach to supporting local economies, especially through government procurement. The billions of pounds spent on government contracts with companies currently come with very little conditionality. The left should argue for a community benefit obligation in major contracts to advantage local companies in bidding for infrastructure contracts. Similarly, procurement could be used to drive up R&D, training and other activities that improve the competitiveness of important industries. We also need to think imaginatively about how to promote sustainable growth (especially outside of London). Why not explore giving local governments powers to promote local growth and regeneration by allowing them to borrow against the consequent uplift in land values?
But the real step-change requires the left to be prepared to embrace a modern industrial policy. The countries that are succeeding in David Cameron’s ‘global race’ are not doing so through practising laissez-faire, but through active government involvement in the economy – in strategic partnership with business, and directing public investment, often through sovereign wealth funds. Labour needs to stop being imprisoned by the political folk memory of 1970s ‘corporatism’ and establish a high-level body with business to think about the long-term needs of the British economy in 2020 and beyond. We should be unapologetic about using public money to back activity that tilts our economy towards a higher-tech, higher-skill and higher-wage future.
What unites these proposals politically is the need to challenge the view that globalisation is shrinking the space for politics and undermining the ability of governments to steer their economies. Politics since the 2008 banking crisis has not been kind to the left across the developed world. But if there is a silver lining to the crash, it is that we should now feel liberated to challenge the laissez-faire orthodoxy that dominated both economic and political thought for so long.