Globalization and Shared Prosperity: The Role of APEC
A presentation at the "Dialogue on Globalization and Shared Prosperity"
© Institute for International Economics
The Asia Pacific Economic Cooperation (APEC) forum has made a major contribution to the spread of globalization with its adoption of the Bogor goals. Achievement of "free and open trade and investment in the Asia Pacific" by 2010 or 2020 would further expand the gains from economic liberalization for all economies in the region. Hence APEC should rededicate itself to the pursuit of that objective and devise an effective strategy for doing so.
The globalization strategy of APEC to date has been incomplete, however. It has failed to recognize fully that trade and investment liberalization, while clearly in the overall interest of all of its member economies, levies costs on some groups and individuals within each of those economies.
Globalization creates losers as well as winners. Bogor thus covered only half the issue. APEC must address these concerns effectively, for social reasons and to maximize the economic benefits from its liberalization program, but also to minimize the political resistance to the pursuit of liberalization itself.
Hence APEC should adopt a Los Cabos target in 2002 of "shared prosperity in the region" to parallel the Bogor commitment of 1994 to "free and open trade and investment in the region." This would elevate the objective of equitable development to a status fully equivalent to that of free trade and investment. Implementation of this parallel goal would help counter the resistance to pursuit of the initial Bogor objective. It would thus help restore APEC's leadership of the overall globalization process, which has faltered badly in recent years due to its failure to make progress toward its own liberalization goals.
APEC has of course already done considerable work on sharing the benefits of liberalization and growth. There has been extensive discussion of "human resources development" and "capacity building," and modest programs have been put in place in these areas. Hence APEC has a solid foundation on which to build and pursue such a new Los Cabos target.
Two types of measures are of paramount importance. First, those adversely affected by liberalization-firms, communities, and especially workers-need to receive transitional assistance to cushion their adjustment from one endeavor to another. Like any dynamic economic change, expanded trade and investment often cause dislocations that carry significant social as well as economic costs. Since economies as a whole benefit substantially from the expansion of international activity, they can and should share some of those gains with the elements of society that are hurt by the process in the short run.
Three types of programs are worthy of consideration in this context. The more traditional is unemployment compensation, which reimburses dislocated workers for a temporary period while they seek new jobs. The more novel is wage insurance, which covers part of the loss of worker income for a transitional period if a new job pays less than the previous one. Other possibilities include creating portable health and retirement plans so that dislocated workers do not lose their basic benefits while shifting from one occupation to another. (All of these schemes, incidentally, can function as modest "automatic stabilizers" to help cushion an economic slowdown for a country as a whole.)
Second, national economies must empower their people to take advantage of globalization rather than feel victimized by it. Workers will understandably resist globalization if they feel unable to shift into the new opportunities that it creates. APEC economies must therefore upgrade the skill levels of their work forces via better education systems in general and improved worker training programs in particular. The resultant improvement in flexibility of the labor force will enhance national productivity growth as well as assure individual workers of their ability to benefit from further liberalization.
This two-fold strategy responds to the two-fold concerns of those who fear globalization: through the creation of strong safety nets to smooth adjustment in the short run, and through improved education and training to seize the opportunities presented by more open markets in the long run. All APEC economies should commit themselves, at Los Cabos in 2002, to adopt such strategies. They will then be in a far stronger position to achieve their long-standing commitment, adopted at Bogor in 1994, to achieve free trade and investment in the region by 2010 or 2020.
The policies that must be adopted to fulfill such a commitment are primarily domestic. It is up to each APEC member economy to put in place the necessary safety net and education/training programs. The precise nature, magnitude, and organization of those programs will necessarily differ, perhaps considerably, from economy to economy in light of the sharp differences within the region in terms of culture, levels of development, governmental institutions, and the like. APEC can nevertheless help promote the process, perhaps decisively, by:
- Focusing attention, at the highest political level, on the need to adopt such programs as an essential complement to liberalization;
- Thereby strengthening the position of pro-adjustment (and hence pro-liberalization) forces within each economy;
- Creating mechanisms for APEC-wide sharing of the experiences of individual economies, fostering the development of "best practices" benchmarks for policy measures such as unemployment insurance, and publicizing examples of what works and what doesn't;
- Laying a foundation for the extension of technical assistance from one economy to another, especially to help spread successful techniques that have proved to be effective in these policy areas;
- Encouraging external financing from existing sources, such as the World Bank's generous funding for social safety nets in numerous parts of the world; and
- Thereby helping restore confidence in both APEC itself and its member economies, by confirming that their original liberalization commitments were both substantively correct and politically viable, which will in turn restore the virtuous cycle of dynamic growth and adjustment that has marked most parts of the region for most of the postwar period.
APEC has an opportunity to take a major step forward at Los Cabos. It can adopt a major new "Los Cabos target" that will supplement, complement, and indeed complete the strategy that was originally launched at Bogor almost a decade ago. It can thus simultaneously expand its outreach to groups that have been skeptical of its concern for the disadvantaged and dramatically broaden its political appeal, reinvigorate its own institutional momentum, and reassert leadership of the globalization process. Adoption of the parallel theme of "shared prosperity for all" can usher in a new era of dynamism for APEC and stamp Los Cabos, along with Bogor, as key milestones in APEC's march toward full achievement of "a community of Asia-Pacific economies."