Development and Inequality under the Regime of Free Trade: What Do We Know?

Abstract

The liberalization of trade all over the world is among the most far-reaching forces of social change in our time, and it is also a much debated one. On the one hand there is the promise of increasing wellbeing for the whole world, while there is the fear of rising inequality, social disorganization, loss of cultural diversity and ecological damage on the other. The literature reflects this tension between optimistic and pessimistic views (see e.g. Tayne 2005; Hertel and Winteres 2006; Shale 2011; Hudson et al. 2013; Dunn 2014; Shields 2014). Global free trade need not inevitably trigger a race to the bottom in social standards but it can potentially broaden the scope of social standards not only in the industrialized nations of the world but also in developing countries. However, it forcibly brings about a structural transformation in which national and transnational integration are accommodated and a shift occurs in investment from a non-productive (consumptive) to a productive use of financial resources. In this context we will not examine how the structure of social policies changes within this framework in the industrialized countries of the world in general and the European welfare states in particular.