A New Path for International Economic Policy

February 22, 2008

 

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A review of U.S. international economic policy is becoming increasingly necessary as growth slows in the United States, rapid changes occur in the world economy, and constituencies worldwide protest growing inequalities. Stagnating median incomes in the U.S. show that the current policy is not working. A strategic review of trade agreements, development and monetary policy, and U.S. leadership within international institutions will help guide a new administration as it sets a new direction for international economic policy.

“Virtuous Circle: Strengthening Broad-Based Global Progress in Living Standards,” a Progressive Growth report by Richard Samans and Jonathan Jacoby, served as a point of departure for discussion of foreign economic policy options for the new administration at an event at the Center for American Progress. The “Virtuous Circle” report is an “attempt, not to be a prescription, but rather a framework for a new administration,” as Center for American Progress Executive Vice President Sarah Rosen Wartell explained in her introductory remarks.

Center for American Progress Senior Fellow and lead report author Richard Samans outlined the twin objectives of the proposed strategy. The first goal is to diversify the sources of global growth. The second goal is to diffuse the gains from that growth among all economic levels in order to build and strengthen the middle class. With the United States’ experience undertaking significant reforms and institution building to create a broad middle class, it can offer important leadership to other countries looking to develop their own economic institutions.

Experts at the event agreed that international economic policy needs to address structural impediments to sustainable growth. Tim Adams, Managing Director at The Lindsey Group and the former top international official in the U.S. Treasury, pointed to corruption, which he described as “the worst tax in the world” because it undermines institutions. Strengthening the rule of law can help countries ensure sustainable growth, particularly in areas of property rights, contracts, and stable central banks. The United States can play a central role in this process through multilateral institutions like the World Bank and the International Monetary Fund.

AFL-CIO chief economist Ron Blackwell observed the huge increases in the global labor supply and the prospect of declining living standards for the next 2-3 generations of American workers. He called for U.S. leadership in building effective global governance mechanisms to address these challenges.

According to Center for American Progress Senior Fellow Gene Sperling, a successful international economic policy also requires a “globally moral and humanitarian focus.” This, Sperling said, means working to build strong labor standards but also to “go beyond labor standards” so that the rest of the world believes that Americans care about the livelihoods of impoverished workers in developing countries.

Reframing U.S. international policy so that it focuses more heavily on broad-based progress in living standards for everyone is crucial for the next administration. As Sperling emphasized, “whether globalization and improvements in technology are seen as strengthening or hollowing out the middle class will be the prominent question” in the coming years and will affect the public’s acceptance of trade agreements and monetary policy. By adopting a sharp focus on diffusing the gains from economic growth, the leadership of the United States can pave the way to greater economic prosperity and equity at home and worldwide.

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