Globalisation - a primer about the European Debate

 

Globalisation is the probably the single biggest issue that hit the European Union in this decade. An opaque fear of globalisation was one of the main reported reasons why the French electorate rejected the European constitutional treaty in 2005. There is a sense in Europe that globalisation is a force that will end up impoverish the continent, that it will destroy its values, and its way of life. It is unlikely that European integration will continue further unless and until the Europeans come to terms with globalisation, and devise a strategy.

Europe’s problem with globalisation is highly asymmetric. In the UK, and most east European countries, globalisation is seen as an opportunity than a threat. At the other end of the scale is France. The French problem with globalisation was well analysed by Philip Gordeon, director of the Centre on the United States and Europe at the Brookings Institution in Washington. Writing in Le Figaro in 2005, Gordon identified three reasons why France in particular has a problem with globalisation.

It seems to me that there are three explanations for the French hostility toward globalization. The first is that globalization directly challenges the statist economic and political traditions of the country, which has by no means disappeared. Despite efforts over the past few years to reduce the role of the state in the economy, government spending continues to represent 54% of the French GDP, a much higher level than in most other industrialized nations.

A second reason is the very strong French attachment to their culture and their identity, which many in France believe is threatened by a globalization that takes the form of Americanization. Would the French have been as troubled by a takeover of Dannon if the buyer had been the Swiss firm Nestlé instead of Pepsico? The ghost of "coca-colonization" seems to bother the French as much as a new investor badly running one of its companies.

Finally, the French resist globalization because it threatens the notion of equality, which is one of the founding principles of the French republic. The inequalities created by globalization, which is more or less accepted by the more individualistic Americans, are not acceptable in a France that prefers equality—even at the cost of an elevated rate of unemployment and lower standard of living.

There is also a globalisation debate in Germany, but more introvert. There have been a few books about the subject, mostly explaining the phenomenon, rather than taking a stance. But some recent books, such as Gabor Steingarts “Weltkrieg um Wohlstand” (literally translated as “World War about Wealth”) also blame globalisation for Germany’s economic decline, and calls for resistence, by boycotting foreign-made goods, or at least those that were produced by countries where child labour and slave labour practices are prevalent.

Italy has been one of the biggest direct losers of globalisation since many of Italy’s traditional industries have been competing directly with the industries of some of the emerging markets. Italy’s fashion industry has also been suffering from reimported copycat products. In Italy it is now illegal not only to sell fakes, but also to buy them. But despite being more directly affected by displacements effects of globalisation, the domestic Italian debate on the subject is significant calmer than in Germany, and certainly calmer than in France.

 

The debate on globalisation is in reality a proxy for another debate, which the Europeans have avoided for a long time, and which is now catching up with reality: The debate about the future of the European social market economy, and its complicated inter-linkages between industry, finance and local government.

An intriguing opinion poll, conducted by the University of Maryland’s Program on International Policy Attitudes, fond that only 36 per cent of respondents in France thought that the free market is the best economic system, compared to 59 per cent in Italy, 65 per cent in Germany, 66 per cent in the UK, 71 per cent in the US and 74 per cent in China.

The European Union has tended to paper over the differences in economic systems in previous treaties. The Constitutional Treaty, rejected by popular referenda in France and the Netherlands, was also a mixed bag in economic terms, essential promising a social market economy in part II – the chapter on Fundamental Rights – and a more fully-fledged market economy in part III, which is the part the French No-proponents objected to the most.

At its most extreme side, the most radical free-market advocated, for example in the UK, the Czech Republic or Poland, argue that globalisation has made the EU redundant, or less important. This view is also shared, to some extent, by the British finance minister, chancellor Gordon Brown, who at the time of writing (2. December 2006) appeared the most probably candidate to succeed Tony Blair as UK prime minister in 2007.

At the other extreme end of the debating spectrum are those who would like to turn the EU as instrument in the fight against globalisation, to help protect domestic jobs through restriction on trade and the free movement on labour.

The mainstream view, for example that of most governments and the European Commission, is to embrace globalisation, while providing insurance, as Benita Ferrero-Waldner, the EU’s foreign affairs commissioner put it in a speech at Chatham House in London in March 2006:

But the proposed solution of insulating ourselves from the global economy is simply not viable. At least a fifth of Europe’s wealth depends on our openness to the world. Will Europe’s economies provide us with the standard of living we have come to expect if we simply opt out? No. There is no way of stopping the clock on globalisation. The real solution is to mitigate its negative effects, and maximise the positive.

This approach may appear to be a reasonable strategy, but the success will greatly depend on how to mitigate the negative effects, how best to insure. The proposal by the European Commission to set up a globalisation adjustment fund, which would help workers in large companies affected by relocation, is at best a partial answer, but in any case, it is an asymmetric answer, since the effect of globalisation on the labour market is complex, both in terms of its sectoral and regional impact.

One reason why some of the continental European economies have difficulties with globalisation is the reluctance to let go of manufacturing in favour of services industries. Much of the economic infrastructure is geared towards large-scale manufacturing – a relationship-based commercial banking system, works councils, co-determination that involves trade unionists as member of supervisory boards, strict state regulation of industries.

It is no accident that in France, for example, the debate about the future of the European Constitution got tangled up with the debate about the services directive, which took place at about the same time in the spring of 2005. What was first known as the Bolkenstein directive – named after the former European Commissioner who introduced it – it turned into a Frankenstein Directive in the popular jargon. It is was the ultimately globalisation directive in that it allow foreign

 

 

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