A V Rajwade: Surviving the global village

WORLD MONEY

In last week's article, I had argued that the rise of economic power in Asia seems to be leading to second thoughts about globalisation in the minds of some of its traditional supporters in the west. There is another development which may tempt politicians, particularly in the US, to get into protectionist mode: the possibility of the US slipping into recession in this election year, a result of a combination of various factors like:

The sky-high price of oil

The mess in the financial/banking system

The huge fiscal deficit that cripples the ability of the government to do anything significant to arrest the continued slowdown in the economy.

The Democratic Presidential candidate in the US is already making protectionist noises.

Employment in the US has been falling for the last six months, even before the economy has officially slipped into recession. Globalisation and free trade will be extremely tempting scapegoats for the growing unemployment and stagnant wages of much of the working class: blaming Chinese manufacturing and Indian services is always so much easier! And, in this respect, the people may be ahead of their political masters: a Pew poll taken in October 2007 has shown a sharp fall in support for free trade in Europe and the United States. Jeffrey Frieden (author of International Political Economy: Perspectives on Global Power and Wealth), in a recent interview, described globalisation as "a dirty word". Economists like Paul Samuelson, Paul Krugman, and Lawrence Summers are also singing a similar tune, though in a more sophisticated fashion. All of these are, broadly speaking, mainstream, relatively liberal economists