On both sides of the Atlantic, many view economic globalization as a threat to below-average earners. A recent poll by the German Marshall Fund said that majorities in France, Germany and the US favor maintaining existing trade barriers, even if doing so hampers economic growth. Clearly, the large net gains from global economic integration are not enough to convince those who have lost their jobs and the many others who feel at risk.
The recently established European Globalization Adjustment Fund (EGF) is an EU-wide response to this challenge. The EGF can spend up to 500 million euros (US$680 million) annually in EU member states on workers affected by trade-induced layoffs. But sharing the benefits of globalization with the losers is traditionally regarded as a national responsibility.
For example, the inspiration for the EGF, America's Trade Adjustment Assistance, introduced by the Kennedy administration in 1962, is a purely national scheme. Is EU involvement really justified?
The economic case for a European globalization fund is that trade policy has been delegated to the European level, while EU members retain the ability to block decisions.
Consider the hypothetical example of full trade liberalization in textiles, which would have greatly asymmetric effects between, say, Sweden, with hardly any textile industry, and Portugal, with a substantial one. Sweden would be a clear beneficiary while Portugal would be hit hard, owing to the large number of displaced textile workers.
The negative impact of such redundancies is serious. Organization for Economic Cooperation and Development statistics show that 40 percent to 50 percent of displaced manufacturing workers in the EU's first 15 member states remain without a job 24 months after becoming unemployed. Around 30 percent work in a job that pays less than the previous one. Only around one-quarter are re-employed with a wage at or above the previous level.
Through the EGF, part of the cost of helping displaced textile workers would be borne by all EU countries, thereby making wider trade liberalization a more likely prospect. Although Sweden, for example, would be a net contributor to the EGF, it might well be a net beneficiary of the arrangement as a whole. In principle, a web of bilateral transfer arrangements could achieve such an unblocking of trade. In practice, however, such transfers hardly ever take place, so the potential gains from opening trade may fail to materialize.
Nevertheless, the EGF's rules need to be tightened, lest the scheme comes to be regarded as a political gimmick. The current setup leaves too much room for discretion, as neither necessary nor sufficient conditions for aid are clearly spelled out. This will expose the EGF to wasteful political posturing and lobbying by countries and sectors.
The EGF's rules should be amended to ensure that governments and trade-displaced workers receive transparent, visible, and reliable assistance, as well as to spread best practice in active labor market policy.
Displaced workers often face unemployment, a lower-paying job, or a new job far from home. Of these, the unemployed typically receive most public support. To address this distortion head on, and to provide clarity concerning the allocation of funds, the EGF should focus its limited funds on two simple active labor market programs: wage insurance and mobility allowance.
Wage insurance could offer workers whose pay was cut after displacement compensation for up to two years amounting to half the difference between the old and the new wage. The mobility allowance could offer those moving for a new job a lump-sum payment of two months' gross pay in the previous job, or four months' pay for cross-border moves. The very simplicity of this scheme will likely ensure high visibility and reasonable take-up rates.
The downside of such a focused approach is also clear: the margin of choice for EU members about how EGF funds are to be spent in their country would be minimal.
In view of the likely advantages, this might be acceptable if member states could be assured that, if the schemes work, it will be expanded. This can be done as part of a reform of the European Social Fund, which has an annual budget of around 10 billion -- 10 times the current funding of the EGF.
If the EGF does not prove effective, the money can simply be given back to the EU budget or to member states. But if the EGF does work, the benefits would far outweigh the costs.
Etienne Wasmer is professor of Economics at Sciences-Po and OFCE in Paris. Jakob von Weizsacker is a research fellow at Bruegel, a Brussels-based think tank. Copyright: Project Syndicate
As a person raised in a family that revered the teachings of Confucius (孔子) and Mencius (孟子), I believe that both sages would agree with Hong Kong students that people-based politics is the only legitimate way to govern China, including Hong Kong. More than two millennia ago, Confucius insisted that a leader’s first loyalty is to his people — they are water to the leader’s ship. Confucius said that the water could let the ship float only if it sailed in accordance with the will of the water. If the ship sailed against the will of the water, the ship would sink. Two
South China Sea exercises in July by two United States Navy nuclear-powered aircraft carriers reminds that Taiwan’s history since mid-1950, and as a free nation, is intertwined with that of the aircraft carrier. Eventually Taiwan will host aircraft carriers, either those built under its democratic government or those imposed on its territory by the Chinese Communist Party (CCP) and its People’s Liberation Army Navy (PLAN). By September 1944, a lack of sufficient carrier airpower and land-based airpower persuaded US Army and Navy leaders to forgo an invasion to wrest Taiwan from Japanese control, thereby sparing Taiwanese considerable wartime destruction. But two
This year, India and Taiwan can look back on 25 years of so-called unofficial ties. This provides an occasion to ponder over how they can deepen collaboration and strengthen their relations. This reflection must be free from excitement and agitation caused by the ongoing China-US great power jostling as well as China’s aggressive actions against many of its neighbors, including India. It must be based on long-term trends in bilateral engagement. To begin with, India and Taiwan, thus far, have had relations constituted by various activities, but what needs to be thought about now is whether they can transform their ties
The US Navy’s aircraft carrier battle groups are the most dramatic symbol of Washington’s military and geopolitical power. They were critical to winning World War II in the Pacific and have since been deployed in the Indo-Pacific region to communicate resolve against potential adversaries of the US. The presence or absence of the US Seventh Fleet — the configuration of US Navy ships and aircraft in the Indo-Pacific region built around the carriers — generally determines whether war or peace prevails in the region. In the immediate post-war period, Washington’s strategic planners in the administration of then-US president Harry Truman shockingly