Globalization’s Grave Challenges for the West

VAISON LA ROMAINE, France: Globalization is not a policy, it is a phenomenon. Protectionist policies can temporarily soften the impact - often at high cost - but they cannot cancel it.

In an age when capital, goods and services, and legal and illegal labor are all mobile, globalization will accelerate. Appropriate policies can allow potential losers in the wealthy West to cope, but no part of the West has yet faced up to the need for such policies.

Economists point out that the world is richer if every country sells the goods and services it produces most cheaply, trading for the others. But that truism conceals more than it reveals. For poor nations, "most cheaply" has meant using the lowest- paid workers; for the rich it has meant using the most efficient processes. With advanced technology increasingly available to all, however, the combination of low pay and hi-tech conquers many industries.

Natural and policy reactions on both wealthy sides of the Atlantic have taken different forms, raising different problems.

In the risk-taking society of the United States, entrepreneurship has retained a relative advantage in areas such as information and biological technology, entertainment, and high finance. The rewards have been very high for successful entrepreneurs, and for executives in a position to reward themselves.

Employment has remained high because the new technologies have created jobs, particularly in supporting business and personal services, but many of these jobs are at wages much lower than the manufacturing jobs, which are moving abroad. The costs to the United States have been growing insecurity and inequality, compounded by deteriorating public infrastructure, physical and social.

In much of Europe, the "security society" has used regulations, expensive programs and high taxes to maintain services, leisure and equality as well as security. The costs have been sluggish growth and high unemployment (but many of the unemployed have remained comfortable).

Neither American growth nor European comfort is sustainable at current levels in the face of globalization. For Europe, this should be obvious: slow growth, compounded annually, will leave it further behind the United States and ultimately much of Asia, until Western Europe becomes an immense quaint Venice, supported by tourism.

America is in equal danger, however. According to the Federal Reserve chairman, Ben Bernanke, not a noted radical: "Our society is based on opportunity, it's based on flexibility in labor markets and product markets, it's based on open and fair trade. And all of those things are at risk if a growing portion of the population feels they are not sharing in the benefits from those changes."

What can be done to ensure that globalization does not lead to social collapse in America and economic collapse in Europe? The answers lie in opposite directions.

Current U.S. prescriptions focus on improving training and education, with no consensus on how, but preferably no increase in spending. That may be useful, but it must be supported far more intensively by restoration of safety-net programs for those who fall behind, and rebuilding of physical and social infrastructure. And Americans should stop kidding themselves: All this will require higher taxes.

None of this is new, but one needed element seldom mentioned even by progressive economists is the rebirth of the American labor movement. Unions built the American middle class; in an economy increasingly centered on highly rewarded winners buying business and personal services from everyone else, service and related unions - whose jobs are not exportable like those of the old manufacturing unions - must gain a bigger portion of the pie.

In Europe, on the contrary, although the roots of the problem lie in the deep cultural desire to keep things as they are, resistance to all change by unions makes matters worse. In the face of ongoing globalization, something's got to give. Were unions - and similar institutions representing agriculture and employers - to prioritize what they most cherish as against easier sacrifices (save the early-childhood crèche, sacrifice the daily street-washing?) - the yielding might be gradual and planned, in the European tradition, rather than heading toward the edge of a cliff as it already seems to be in France and elsewhere.