Can the "Seattle Democrats" Save Globalization?

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What a missed opportunity. Democrats recently chose Denver over New York as the site of their 2008 national convention. They should have picked Seattle; it would have been an apt symbolic choice. Back in 1999, the Emerald City was the site of massive antiglobalization riots outside a meeting of the World Trade Organization. Among antiglobalization groups, the clash is known as the "Battle in Seattle."

So what an appropriate convention location it would have been now that Democrats are manifesting such an outward distaste for globalization. They're blaming unfair free trade for perceived growing income inequality, wage stagnation, and the $800 billion trade deficit. (More on these economic issues: The Income Gap.)

"In the age of globalization and outsourcing ... the average American worker is seeing a different life and a troubling future," Democratic Sen. James Webb of Virginia said recently. He was one of many globalization skeptics elected to Congress in November and will be giving the Democratic response to President Bush's State of the Union speech next week.

But it's not just the new Democrats in Congress who are sour on globalization. In 2005, 58 percent of Democrats in the House and Senate voted against the North American Free Trade Agreement. In 2005, 90 percent voted against the Dominican Republic-Central American Free Trade Agreement. "The bloom is off the rose of free trade," says Jeff Faux, founder of the Economic Policy Institute, a liberal think tank.

A poll taken last month by the centrist Democratic Leadership Council found that 70 percent of respondents were concerned about "jobs moving overseas" while just as many thought the United States should repeal current trade agreements as thought the U.S. should make new ones. And 59 percent thought their standard of living would decline over the next decade. Another sign of workers' economic insecurity: 79 percent would prefer a job that paid less but "wouldn't be taken away." The authors of the DLC study, Mark Penn and Thomas Freedman, conclude

Voters do not want to stop globalization entirely, but they are worried about its consequences. They want globalization to be controlled and made to benefit all of society. ... As befits our national character, Americans are optimistic for our country. They insist that America must remain the science and technology leader, and more than one half express support for globalization. But Americans have real concerns about the future. Most Americans do not believe their standard of living will rise over the next 10 years, and they are sharply divided on new trade agreements. They support corporate welfare policies that protect manufacturing jobs, and they fear losing their own benefits. In this environment, Americans favor the "safe" option even as they say they are optimistic: Many want to limit change and competition rather than adapt, and they overwhelmingly choose job security over a higher salary. Ultimately, Americans are seeking a leader who will control and shape globalization in order to make sure all of society benefits. This leader will have a great deal of convincing to do.

Many on Wall Street are worried that skepticism will turn to hostility, and Congress will respond with protectionist measures such as slapping tariffs on goods coming from China. "An intensification of protectionist pressures [in Congress] is a distinct possibility," Morgan Stanley economist Stephen Roach wrote recently. What would a trade war with China look like?

China expert Will Hutton, author of the new book The Writing on the Wall, E-mailed me: "China's growth, because the country has been so open to imports, has been the single most important stimulus to the Asian and, thus, world economy over the past five years. China's stagnation would trigger a global slowdown, maybe even recession. ... The World Bank estimates that if China's growth rate fell by just 2 percent, up to 60 percent of China's bank loans would become nonperforming–so threatening both China's and, via Hong Kong, Asia's financial system. The flow of savings to finance the United States' deficit would dry up, probably forcing U.S. interest rates up–so worsening the economic slowdown."

(See the full Q&A with Hutton.)

Yet, ironically, Democrats might just be the party to ease these fears of globalization, a phenomenon that has added, by some estimates, $1 trillion to the national economy. The DLC poll shows that it is, after all, Democrats who are most concerned about globalization. Voters in the fastest-growing counties tend to be more Republican (leading Dems 37 to 26 in party identification vs. a Dem lead of 34 to 30 in the country as a whole) and more pro-globalization (36 are "very positive" toward free trade vs. 26 percent of voters overall). Yet even these voters only narrowly think–by 42 percent to 38 percent–that the GOP can do a better job than Democrats at helping Americans benefit from globalization. Overall, Americans prefer Democrats on this issue by 46 percent to 33 percent.

What might a potential Democratic agenda be to ease the concerns over globalization without killing it? (I recently had a chat on globalization with 2008 presidential wannabe Tom Vilsack.) Penn and Freedman write that "there is no single idea or silver bullet for dealing with the expanse of issues created by globalization. An agenda for coping with the "new economy" must include a wide range of programs–creating expanded 401(k)'s, more flextime, incentives for alternative energy, and a greater sense of equity and fairness so that stock and option programs reach down to all the workers in each company."

Jason Furman, director of the Hamilton Project, a centrist economic group, thinks there will be plenty of China-bashing rhetoric and talk of trade barriers–like one proposal to slap a 27.5 percent tariff on Chinese goods–over the next few years, not to mention a pause in new trade agreements. But in the end, he speculates, Democrats will mostly push for greater social insurance, such as vastly increased unemployment benefits. "Social insurance," he says, "can lead to a more dynamic society by letting people feel more comfortable taking risks."

Indeed, the idea of social insurance–a liberal think tank fave idea for some time–has been slowly seeping into real-world political agendas. In his book The Audacity of Hope, 2008 hopeful Sen. Barack Obama mentions the idea of a "universal 401(k)" plan, where the government matches your contribution, as an add-on to Social Security. He also ruminates about wage insurance, which might provide 50 percent of the difference between a displaced worker's old wage and his new wage for anywhere from one to two years.

Sen. Max Baucus, a Montana Democrat who is the new chair of the Finance Committee, advocates "global adjustment assistance," expanding wage and health benefits to workers displaced by all aspects of globalization, not just trade agreements. As for the protectionist measures that Wall Street worries so much about–Faux, for instance, would like to renegotiate the North American Free Trade Agreement–consultant David Smick, who provides political analysis to hedge funds, thinks there will be more talk than action, "unless we get a recession–then all bets are off."