'Making the case for trade': Winning voters’ trust by strengthening social safety nets

Policy persuasion is most effective when it draws on the evidence base of all the social-science disciplines. Every strand of the social sciences – not just the mathematical precision of economics, but also the nuanced interpretations of history and the subtle trajectories of sociology – has a great deal to contribute as policymakers balance competing priorities.

That multidisciplinary approach – emphasized in such recent works as The History Manifesto, in which Harvard and Brown University historians call for policymakers’ greater reliance on the combined reasoning of all the social sciences – was thoroughly borne out in the recent Development Economics Series lecture by economist David Autor of MIT (who is a scholar at the National Bureau of Economic Research). Presenting a research paper on trade policy, and underscoring the importance of public opinion in shaping policymakers’ approach to it, Autor’s presentation used the logic of political science to highlight the electoral mood swings that help shape countries’ position on international trade.

Using the perspectives of political science – in the paper, “Importing Political Polarization? The Electoral Consequences of Rising Trade Exposure” (co-authored with colleagues from the University of Zurich; the University of California, San Diego; and Lund University) – was a valuable way to help remind Autor's economics-focused World Bank Group audience that policymaking does not occur in an academic vacuum. Even though the Bank’s economics-heavy analyses may try to distill policy options into quantifiable formulae, the policymakers whom the Bank advises get their political mandate from their countries’ volatile voters – who do not always follow homo economicus’ coldly rational approach to decision-making.

Amid the topsy-turvy 2016 electoral cycle in many countries – in which voters’ fears about job losses due to international trade have been inflamed amid an upsurge of populism and protectionism – you don’t have to be a public-opinion pollster to affirm Autor's assertion in his analysis of recent U.S. voting patterns: “We detect an ideological realignment that is centered in trade-exposed local labor markets and that commences prior to the divisive 2016 U.S. presidential election. Exploiting the exogenous component of rising trade with China and classifying legislator ideologies by their congressional voting record, we find strong evidence that congressional districts exposed to larger increases in import competition disproportionately removed moderate representatives from office in the 2000s.”

Translation: If you’re a pro-trade lawmaker in a district that has a high degree of imports from overseas, in a region that has endured what Autor calls “economic scarring,” then you’re likely to pay a heavy price at the ballot box – and, if you’re defeated, your successor just might be a strident protectionist. The Autor analysis shrewdly underscores the adjective “political” in the anodyne textbook phrase, “political economy.”

Economic logic surely refutes today’s impulsive populist reaction against open international trade. Yet lawmakers and policymakers – at least, the ones who manage to survive the voters’ whims or wrath on Election Day – cannot help but feel buffeted by today’s protectionist gales. Lamenting the anti-trade fears that Autor and his co-authors have identified, fretful pro-trade policymakers might console themselves by recalling the many recent political citations of the poet William Butler Yeats’ ominous vision: “Things fall apart. The centre cannot hold. . . . The best lack all conviction, while the worst are full of passionate intensity.”

Autor’s findings bring to mind the recent exhortation by former World Bank President Robert Zoellick – a pro-trade idealist and former negotiator of international trade treaties – that policymakers must forthrightly re-make the case for trade. Given the fearful mood of voters in many countries, that task will require lawmakers and policymakers to summon their political courage – yet patiently advocating the economic logic of open trade will be indispensable in rebuilding the once-strong, now-evaporating consensus in favor of trade agreements that allow for the free flow of capital, goods, services and ideas.

(It will be interesting to see the role that trade policy might play in a forthcoming bipartisan research report that Zoellick has helped co-author: the Center for a New American Security’s “Extending American Power” report, which Zoellick is scheduled to help launch in Washington on Monday, May 16.)

Autor’s insightful perspective on voters’ fears about the down-side of trade also brings to mind the recent comments by a senior sage of globalization: C. Fred Bergsten, the former director of the Peterson Institute for International Economics, whose grasp of the political aspects of trade policy was honed during his years as Assistant Secretary of the Treasury for International Affairs during the Carter Administration. At a recent Washington forum sponsored by the Sasakawa Peace Foundation USA, Bergsten focused on very same factor that Autor identified: voters’ wavering trust in trade, and the need to reassure them about the resilience of the social safety nets that might support them if they were to fall victim to trade’s momentary down-side.

“The big problem that generated this domestic backlash against trade is the fear – somewhat justified, though overstated – that it has adverse effects on real incomes of workers [and] income distribution [within] the U.S.,” Bergsten told this month’s Sasakawa-sponsored Third Annual Security Forum in Washington, as he weighed the likelihood of the eventual approval of the hoped-for Trans-Pacific Partnership (TPP) pact.

“The U.S., unfortunately, does not have very effective social safety nets to deal with economic change, from any source. But with trade, it takes on a particular dimension. You can’t vote against robotics, but you can vote against trade agreements. And so people take out their angst in that direction,” said Bergsten.

“The Europeans have safety nets. The Canadians have safety nets. Most countries have safety nets to deal with the adverse effects – and there are adverse effects, there are losers from globalization and trade. . . . [Trade agreements are] the proxy that then gets addressed in the political process,” said Bergsten. He called for “some initiatives on the domestic safety-net side” by the next Administration in Washington to strengthen Americans’ confidence that more resilient social programs will be able to cushion the blow to those hurt by globalization. That would create more space in the political center for Washington to eventually approve an amended form of the TTP, featuring stronger safeguards and safety nets.

The combination of Autor’s scholarly analysis and Bergsten’s pragmatic judgment offers a timely reminder that economic support for open international trade requires an enduring country-by-country consensus that trade’s rewards will, over the long term, outweigh its risks. That consensus has evidently frayed, in many countries, amid the economic strains of the global financial crisis and its slow-growth aftermath. Yet a renewed conviction that international trade offers long-range benefits – for all economies, and especially for enterprising economies in the developing world – can take hold, if lawmakers and policymakers follow-through on the advice, from Zoellick and Bergsten and others, to forthrightly assert the job-creating, wealth-generating potential of open trade to help achieve the world's highest economic priorities: eliminating extreme poverty and building shared prosperity.

ADDENDUM: October 2016: As the debate intensifies in this raucous election year – and as the issue of globalization is inflamed, amid an upsurge of protectionist fervor in the world's developed economies – another point made by Bergsten, of the Petersen Institute, is worthy of further reflection. Much of the populist outcry for protectionism has clearly been triggered by fears of job losses and downward mobility, since many Western economies maintain only a threadbare “social safety net” to cushion the fall of those who are momentarily on the downside of globalization. Yet laissez-faire fundamentalists – who have championed market-opening trade treaties while shunning adequate enhancements to social-safety-net programs – are (ironically) now reaping the popular anger that they themselves have sown. “We [at the Peterson Institute] have always supported trade liberalization, an open world economy and global economic cooperation,” said Bergsten at the Sasakawa Peace Foundation forum (at 4:32:20 in the video below). “But we have always said – and [have] been frustrated by our failure to win support for the notion – [that] you have to deal with the domestic downsides, the costs and losers of globalization, if you were going to preserve it. . . . We’ve been very frustrated that some of the same people [in the U.S. Congress] who say they’re the biggest supporters of free trade . . . wouldn’t put up a nickel to support the downsides, the costs and the losers. That’s gotta change, or the baby goes out with the bathwater.” Open trade, as all too many policymakers are now belatedly realizing, must be paired with confidence-building social-protection programs that can help tide-over, re-train and up-skill those who may be dislocated by globalization. Trade-policy pragmatists have long asserted the case for a more robust package of social-protection measures. If only the free-market-triumphalist faction had heeded those pragmatic voices and agreed to pay for sensible safety-net safeguards, the global economy might have been spared from today's threat of a protectionist backlash.