A New Deal for Globalization

Kenneth F. Scheve and Matthew J. Slaughter

From Foreign Affairs, July/August 2007

Summary:  Globalization has brought huge overall benefits, but earnings for most U.S. workers -- even those with college degrees -- have been falling recently; inequality is greater now than at any other time in the last 70 years. Whatever the cause, the result has been a surge in protectionism. To save globalization, policymakers must spread its gains more widely. The best way to do that is by redistributing income.

Kenneth F. Scheve is Professor of Political Science at Yale University. Matthew J. Slaughter is Professor of Economics at the Tuck School of Business at Dartmouth and Adjunct Senior Fellow for Business and Globalization at the Council on Foreign Relations. He served on the White House Council of Economic Advisers from 2005 to 2007.

Today, such multiplication will depend on striking a delicate balance -- between allowing globally engaged companies to continue to generate large overall gains for the United States and using well-targeted fiscal mechanisms to spread the gains more widely.

Would addressing concerns about income distribution make voters more likely to support open borders? The public-opinion data suggest that the answer is yes. Americans consistently say that they would be more inclined to back trade and investment liberalization if it were linked to more support for those hurt in the process. The policy experience of other countries confirms this point: there is greater support for engagement with the world economy in countries that spend more on programs for dislocated workers.

U.S. policymakers face a clear choice. They can lead the nation down the dangerous path of creeping protectionism. Or they can build a stable foundation for U.S. engagement with the world economy by sharing the gains widely. A New Deal for globalization can ensure that globalization survives.