Globalization and Redistribution: Feasible Egalitarianism in a Competitive World

Abstract

For well-known reasons, a reduction of impediments to international flows of goods, and factors of production — commonly termed globalization — may enhance allocative efficiency both globally and within national economies, and the associated competition among nation states may contribute to governmental accountability.¹ However, globalization is also thought to raise the economic costs of programmes by the nation state to redistribute income to the poor and to provide economic security for their populations. Among the reasons is the fact that the more internationally mobile factors of production — capital and professional labour — tend to be owned by the rich, and a nation-specific tax on a mobile factor induces national output-reducing relocations of these factors. Similar reasoning demonstrates the high cost of attempting to alter the relative prices of factors of production, for example, by raising the wage relative to the return to capital through trade union bargaining. Even Pareto-improving insurance-based policies are compromised, as cross-border mobility of citizens allow the lucky to escape the tax costs of supporting the unlucky, thereby reintroducing the problem of adverse selection plaguing private insurance and which public insurance was thought to avoid.