Globalization's Missing Middle
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The benefits of free trade, however, just have not materialized
for middle-income countries (with per-capita incomes between $1,000
and $10,000). Notwithstanding the promises made by the Washington
consensus and the rhetoric of reformist governments, tariff reductions
and freer finance have only been accompanied by stagnant growth
and rising inequality — particularly in Latin America, but in the
post-communist countries as well. This is globalization's missing
Liberalization's supporters respond to the mismatch between the
hype and the reality of globalization in middle-income countries
with a plea for patience. But this "just wait" optimism belies the
fact that global markets have placed the middle-income world in
a no-win trap from which it will be hard to escape. These economies
cannot hope to compete today with the West; their basic strategy
has been to try instead to compete with the Chinas of the world.
This has ended up only hurting workers whose wages have been cut,
but not by the enormous magnitudes that would be necessary to make
the middle-income countries competitive in mass-produced manufacturing
and standardized services.
Teching-up rather than dumbing-down is clearly a better long-term
strategy for these countries. But it will take decades to reap the
benefits — and the political costs of globalization's failings are
already large and mounting. The European Union's response has been
to open itself to new members from central and eastern Europe.
But populist backlashes against globalization — and America — are
increasingly widespread in Mexico and other Latin American nations.
If the U.S. wants to change political and economic realities south
of the border, it cannot simply propose more free-trade agreements.
The U.S. must recognize that these countries can't hope to compete
in the knowledge economy until education levels, physical infrastructure
and property rights more closely resemble those in the Western world.
The role for "smart" development assistance, from the U.S. and the
international financial institutions, should be clear. But the U.S.
will also have to use soft power to help heal the wounds in countries
that have been burned before by unfulfilled promises about the benefits