Winning Over Globalization’s Losers

The large net gains from global economic integration clearly are not enough to convince those who have lost their jobs and the many others who feel at risk. But wage insurance and a mobility allowance would enable vulnerable workers to adjust to these risks, promising benefits that would far outweigh the costs.

On both sides of the Atlantic, many view economic globalization as a threat to below-average earners. According to a recent poll by the German Marshall Fund, majorities in France, Germany, and the United States favor maintaining existing trade barriers, even if doing so hampers economic growth. Clearly, the large net gains from global economic integration are not enough to convince those who have lost their jobs and the many others who feel at risk.

The recently established European Globalization Adjustment Fund (EGF) is an EU-wide response to this challenge. The EGF can spend up to €500 million annually in EU member states on workers affected by trade-induced layoffs. But sharing the benefits of globalization with the losers is traditionally regarded as a national responsibility. For example, the inspiration for the EGF, America’s Trade Adjustment Assistance, introduced by the Kennedy administration in 1962, is a purely national scheme. Is EU involvement really justified?

The economic case for a European globalization fund is that trade policy has been delegated to the European level, while Union members retain control rights to block decisions. Consider the hypothetical example of full trade liberalization in textiles, which would have greatly asymmetric effects between, say, Sweden, with hardly any textile industry, and Portugal, with a substantial one. Sweden would be a clear beneficiary while Portugal would be hit hard, owing to the large number of displaced textile workers.

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