Globaphobic nonsense.

Basically the only British national newspaper economics commentator who doesn't come across as a smug git is Larry Elliott in The Guardian. As a EU-sceptic on a basically pro-EU paper, Mr E has had to go against the flow, which most economics commentators don't attempt. Anyway, here's an interesting article by Larry E.

There are too many losers in globalisation
Politicians need to be braver when capitalism is the only game in town
Larry Elliott, Economics Editor, The Guardian, Monday November 7, 2005

It was pure Fawlty Towers. According to Helmut Kohl, Margaret Thatcher's comment after the Berlin Wall came down was: "We've beaten the Germans twice. Now they're back."

If true, this seems a rather perverse response, since Thatcher had spent the 1980s supporting Ronald Reagan in the last big battle of the Cold War, one that resulted in an economically weak Soviet Union being bankrupted by its attempts to keep up with the west in an arms race. Thatcher and Reagan hailed the demolition of the Berlin Wall as the release of millions of people from tyranny.

Moreover, the idea that a reunited Germany would seek to wind back the clock to pre-war days by annexing parts of Czechoslovakia and Poland (which is what Kohl reports Thatcher as saying in his memoirs) was always ludicrous. It was, after all, Gerhard Schröder's trenchant opposition to militarism that won him, against the odds, the election of 2002. Bellicosity is no more a vote winner in the re-forged Germany than it was in the old West Germany.

Thatcher was right, however, in her belief that German reunification would have profound consequences, even though she - along with just about everybody else - failed to see what they would be. For one thing, it helped to neuter the Conservative party as a political fighting force in Britain by setting off a colossal economic boom that was in turn reined in by the anti-inflation hawks at the Bundesbank. German reunification in 1990 coincided almost to the day with Britain's entry into the Exchange Rate Mechanism, and membership of the anti-inflationary club proved more and more painful as the Bundesbank ratcheted up interest rates. The denouement came on Black Wednesday in September 1992, when the pound was turfed out of the ERM; the Conservative party has been a broken force ever since.

Deep irony

Given Thatcher's own ideological bent, the second consequence of German reunification and the collapse of communism was deeply ironic. Both she and Ronald Reagan had spent the 1980s attempting to re-invigorate western capitalism by liberalising markets and making life more difficult for organised labour. Even so, there were limits. One was physical: there were large chunks of the world where capitalism's writ did not run and as a result the direct pressure on wages in the west from low-cost competition in the rest of the world was far less pronounced. A second was political: the existence of the Berlin Wall was a constant reminder that there was an alternative to the west - however economically inefficient and politically odious it might be - and it was therefore important for liberal economic policies to recognise this as a constraint. This meant there were certain no-go areas for policymakers concerned that people in the west would become more sympathetic to left-wing ideas if they were pushed too hard. Thatcher, for example, might have considered the NHS to be a lumbering relic of 1940s collectivism but she was cautious in her attempts to tamper with such a totemic symbol of the post-war social democratic consensus.

Both these constraints have now been removed. The past 15 years have seen the market arrive in the countries of the former Eastern bloc, a massive acceleration of liberal economic reforms in China, and India move away from a command economy. Nor is there any longer a need to keep the workers in the west sweet. Capitalism is now the only game in town, and the attitude is that those who don't like it can lump it. When there was a risk, however small, that people in the west might be seduced by communism, social democracy was an insurance policy. Now it is seen as an impediment to the more efficient application of the market. Politics in the west has adjusted to this new reality, with parties of the left far more aggressive in their embrace of the market than Thatcher and Reagan were prepared to go in the 1980s. Tony Blair's argument to Labour MPs unhappy about his reforms of the NHS or of disability benefit is that the world has been changed profoundly by globalisation and there is no point in hankering for the days when the west was insulated from competition. A milder form of social democracy, he would say, is still possible in the west but only if societies embrace change.

Yet the ability of politicians in the west to push through reforms is limited by the need to remain in power. There have been plenty of straws in the wind recently that suggest a backlash against globalisation: the result of the German election; the no vote in the French referendum; the retreat of George Bush on social security reform; the Schumer-Graham bill that proposes tariffs on Chinese imports into the US. Attempts are being made in London today to keep global trade liberalisation talks alive with a meeting involving the US, the EU, Brazil and India; the reason progress is proving so slow is that grassroots protectionist sentiment is growing in the west.

Stephen King, global head of research at HSBC, has an explanation. "Globalisation," he argues, "isn't just a story about a rising number of export markets for western producers. Rather, it's a story about massive waves of income distribution, from rich labour to poor labour, from labour as a whole to capital, and from energy users to energy producers. This is a story about winners and losers, not a fable about economic growth." Redistribution of income from workers in the west to workers in low-income countries has come about both through capital leaving high-cost sites in north America and western Europe for low-cost greenfield sites in Asia or eastern Europe, and through labour coming in the other direction. The rise in immigration has helped to keep downward pressure on wages in the west. Within western economies, labour's weak bargaining position has meant capital has been able to increase its share of the cake.

Lower prices

The upside of globalisation is that it has led to lower prices and hence raised real incomes in the west. But King says it is not as simple as workers winning on the roundabouts what they lose on the swings. "Consumers and workers are not one and the same thing: consumers include children, students, househusbands and wives, pensioners and the unemployed - none of these receives a wage. Equally, consumers include owners of capital - shareholders - and those who receive income from their savings, whether through bank accounts or through ownership of bond portfolios."

It's not difficult to see why politicians intoning about the challenges of globalisation are met with such cynicism. It's easy to be enthusiastic about globalisation if you are a winner, less easy if you're a loser. If you've just received a 2% pay rise when your chief executive has pocketed an increase 10 times as big; if your job has just been outsourced to India or China, or if your ability to negotiate a pay rise is limited by the arrival of cheap foreign labour, you're not necessarily going to buy the argument that it is illegitimate to defend your job and your living standards.

And as King rightly notes, the losers from globalisation all have votes. To coin a phrase: capitalism is creating its own enemy within.

larry.elliott@guardian.co.uk