Globalisation, industrial revolutions in India and China and labour markets in advanced countries: implications for national and international economic policy

Summary This paper examines the impact on labour markets in advanced countries (ACs) of the integration of the two giant fast-growing countries, China and India, with the liberalised global economy. The integration is taking place under “current globalisation,” which consists of free trade, free capital movements and domestic labour market flexibility (instead of free international movement of labour). The first part reviews economic theory as well as several generations of empirical work on the effects of the fast expansion of exports from developing countries (DCs) on AC labour markets. Taking into account the positive, the negative, the direct and the indirect effects, the most up-to-date empirical research suggests that globalisation has a small overall effect on output and employment in the US, that is just as likely to be favourable as being unfavourable, depending on the time period and the countries considered. The paper highlights the pioneering contribution of Freeman (2005), which suggests that even if trade with the South has not previously disadvantaged North workers, the doubling of the global labour force with India and China’s recent integration with the international economy may have profoundly unfavourable repercussions for AC workers. Two major points of constructive criticism of the Freeman thesis have been emphasised here: (a) the lack of analysis of the relevant demand side variables and (b) inadequate recognition of the inherent economic strength and dynamism of the US economy and its innovative large corporations. These should enable the U.S to maintain its technological leadership. In relation to policy, the underlying question examined here is whether India and China’s industrial revolutions, which are a social imperative for these countries, can be sustained and made compatible with full employment and rising real wages for workers in the North. It is concluded that current globalisation cannot meet these twin objectives and that coordination and cooperation between nation states under alternative globalisation are much the better way, if not the only way of realising these goals. The reasons why this should be so are explained in the last part of the paper.