In Foreign Affairs, Kenneth Scheve and Matthew Slaughter, noting the rise of protectionism in the US, call for a “New Deal” for the post-industrial age (hat tip: Arts and Letters Daily). The basis for their argument is quite simple:
…Policy is becoming more protectionist because the public is becoming more protectionist, and the public is becoming more protectionist because incomes are stagnating or falling. The integration of the world economy has boosted productivity and wealth creation in the United States and much of the rest of the world. But within many countries, and certainly within the United States, the benefits of this integration have been unevenly distributed — and this fact is increasingly being recognized. Individuals are asking themselves, “Is globalization good for me?” and, in a growing number of cases, arriving at the conclusion that it is not.
They point in particular to falling incomes for every category of education except for holders of PhDs and professional degrees, and the corresponding feeling of economic insecurity that they argue jeopardizes the sustainability of the new capitalist order. Accordingly, they criticize the inadequate response of public officials to this sense of insecurity — the failure of governments to explain the virtues of the new age while simultaneously initiating policies that will ease the fears of anxious publics and try to provide individuals with the tools to compete.
Meanwhile, in the FT Martin Wolf lays out how the “permanent revolution” that is capitalism is transforming industrial capitalism into something else (he calls it, perhaps channeling Rudolf Hilferding, global financial capitalism, but that strikes me as too limited a term, because the impact of the decoupling of wealth creation from the production of tangible goods is and will continue to be wide reaching, throughout societies). Wolf is definitely worth reading, because he outlines the extent of the transformation underway, the extraordinary changes that have left publics scared and governments overwhelmed. The benefits, as Wolf notes, are substantial, but if they are to be preserved and expanded governments need to act to disarm public opposition and build a new regulatory framework, in the same manner that countries developed a regulatory framework for the industrial age.
As Harvard’s Dani Rodrik notes in a comment on Wolf’s analysis, “The problem, at its root, is the incompatibility between global finance and fragmentation of political sovereignty at the national level. Domestic finance could be tamed in the previous century through national institutions (regulation, legislation, central banks, and so on). Global finance, to work well and safely, requires institutions similarly global in scope. The chance that these global institutions can be created is, well, nil—at least in our time.”
Based on the thinking of elected officials in not only the US, but also in Japan and Europe, I must share Rodrik’s skepticism. It seems that few officials quite realize the extent of the change underway. They remain stuck in the industrial age, content to jury rig old institutions rather than imagine new post-industrial institutions. As such, public opposition, in the form of protectionism, will undoubtedly continue to grow. What I am curious about is how that opposition will metastasize into more formal opposition, reminiscent of the late nineteenth century’s Grangers and Populists. In fact, I am amazed that John Edwards seems to be the only candidate actively trying to tap into growing fear and resentment.
So the question is whether the heralds of “global financial capitalism” — to whom state intervention is largely anathema — will be flexible enough to embrace some form of social protection as a way to disarm and undermine more potent opposition to the post-industrial order.