Economist Dani Rodrik famously argued that you can have only two of globalization, democratic policies, or national sovereignty, but not all three. Indeed, many argue that the likes of the Trump election and the Brexit referendum were largely votes against globalization and the so-called “metropolitan elite” who support, and some would say benefit, from it.
Research from the University of Göttingen explores the impact globalization has had on social cohesion. The author proposes a framework that aims to connect globalization to a range of social cohesion outcomes across workers, households, and firms. The author assesses cohesion according to six dimensions: political participation, civil participation, national and group identity, and political and interpersonal trust.
Social repercussions
The paper argues that globalization often has the biggest impact outside of the economic sphere. For instance, the rise in Chinese import competition has primarily affected social identity in the United States.
These social issues nonetheless come with economic costs. For instance, declining interpersonal trust increases transaction costs and reduces investment. Trust also plays a crucial role in the efficient functioning of large organizations and can even impact health outcomes.
Globalization shocks typically materialize through one’s earnings, with unemployment that follows a recession also often reducing people’s trust in each other and in their government. This can be exacerbated if prices rise due to inflation.
Personal experiences
The study also suggests that our perspectives on globalization and any shocks caused by them are inherently personal and based on both our own experience and that of our locality. This echoes another study, from the University of Amsterdam, which shows that our parents are hugely influential on our perspective on globalization.
For instance, when we have positive experiences of trade shocks, we’re more likely to view trade in a positive way and something that makes firms more competitive and increases innovation. It’s also common for people to assess the impact of trade shocks through a fairness lens.
Suffice to say, social cohesion isn’t only affected by globalization, and the paper also highlights the impact of things such as inequality and new technologies.
Maintaining cohesion
Thankfully, the researchers also believe there are policy options to help tackle some of these issues. For instance, to help address so-called absolute losses in both labor and expenditure, they suggest that the introduction of various social benefits and targeted investment policies to stimulate employment and wage gains can be useful.
However, they also believe that when policymakers are going about their work, they need to take into account a number of things, including the relative losses from globalization, the economic costs of social repercussions, and take into consideration any underlying cyclical trends that can amplify the impact of globalization.
This can help policymakers ensure that any policies that are created are targeted at those most likely to be affected by any globalization shocks, such as those with lower skills and income. The authors also argue that they should consider the social ramifications of attempts to attract foreign direct investment rather than just the economic and labor gains.
