Opinion: Tax cuts won't bring benefits of globalisation

Although there is a lot of confusion about the right way to run national economies, for those who support an open as opposed to a closed future the way forward should be clear.

An open world means the state should own less and facilitate more, enable global trade and investment, ensure labour markets are “reasonably” flexible, reduce welfare spending in favour of investing in people and commit to balancing the budget.

These are controversial policies. Their failure to advance the interests of ordinary people is thought to lie behind the current populist revolt that took Britain out of Europe, drove Donald Trump into the American presidency and threatens the future of the European Union.

For those now seeking to make the case for an open world, it is important to accept that the results so far have been very uneven. For the owners of capital and those who have a kitbag of 21st-century skills, openness has worked. For those without capital or the right skills, life has become very insecure.

Unless this division is resolved we can expect to see more instability around the world and, possibly, an end to openness.

There is a way out. When the globalisation agenda was being advanced, sensible people noted that two actions needed to be taken. First, open economies still needed to operate within regulations. These regulations could no longer be confined to national boundaries; there should be agreements that create the right environment for capital and business to operate globally.

Second, every effort had to be made to ensure the people who were displaced by change were brought along. It would be a mistake to simply offer welfare because the nature of the changes taking place meant that they would be reliant on an income transfer for the rest of their lives.

Shift to globalisation
Rather than redistribution, the emphasis needed to be on making it possible for people to get new good jobs. Alongside this core policy there would need to be an agenda that included such initiatives as better schools, more access to higher education, lifelong learning opportunities, a guaranteed living wage, investment in economic development, support for new businesses, good-quality, free health care and the provision of quality early childhood education.

When the shift to globalisation as we know it today took place in the 1970s and 1980s, it was unfortunate that too many governments were followers of a deregulation agenda. Priority was placed on making the world fit for the free movement of business and capital. The many casualties of change were seen as unavoidable collateral damage.

Efforts were made to offset the damage that was being done by many governments from the late 1980s but by then they lacked the resources to make a real difference. This was because deregulation had included cuts to taxes.

Therein lies the problem. To make globalisation work, governments have to have the resources required to bring as many people as possible along while protecting the most vulnerable.

In the halcyon days of globalisation this was not an argument enough people were prepared to listen to. A constituency had been created for a deregulated world but not for doing something practical for the “left behind.”

Hopefully, there is such a constituency now. It would be made up of two groups. The first is the people who now see themselves as part of an open economy and are gaining real rewards.

Price of populism
They now know that unless they are prepared to do something to help their fellow citizens became part of the future they may well fall victim to the kind of backlash that is becoming increasingly common. This should not be seen as an act of charity. If the majority of people are economically active participants in their society, the results benefit everyone.

The second group is the “left behind” themselves. While the populist approach may sound good, it has little to offer in practice because too much of it relies on trying to revive a past that is no longer relevant.  

Deep down the people who back politicians like Trump know it is not possible to go back to a version of the “good old days.” Their problem is that they have been sent down a culdesac with no hope of a better life. Offered a way out they would take it.

It is to this constituency that the proposition that more tax is needed could be put to in the form of a new social contract forged between the winners and losers from globalisation.

Remaining open has to go alongside the ability to channel some of the winnings into investment in people. It is not going to work to continue to allow divisions carved into societies some decades ago to continue. It makes no economic, social, cultural or moral sense.

One of the key lessons of the past few years is that globalisation need not and cannot mean that we lose a sense of our national identity. While the world may be increasingly open, the majority of people still live within national boundaries. This fact has been exploited by populist politicians as they bash immigrants and whip up negative nationalism.

It is past time for a more positive approach to be taken. One that makes it clear that we are in this together and that means pooling enough of our resources to ensure a better future for everyone.

Steve Maharey is an independent director and commentator. He is a former vice-chancellor of Massey University and politician.