In January 2007, Timothy Geithner - Obama's choice for Treasury Secretary - spoke to a Council of Foreign Relations audience about: Developments in the Global Economy and Implications for the United State.
Among other issues, he took up the importance and difficulty of building political support for open economies:
A successful conclusion of the Doha round of trade negotiations would provide some insurance against the risk that the process of economic integration will be interrupted or reversed. Despite the relatively favorable average income gains of the past few years, a common feature of the political context in economies around the world is the fragility or weakness of public support for openness and economic integration.
The political challenge of sustaining support for the process of integration may be the most important economic challenge of our time. To paraphrase Lawrence Summers, it is not enough to explain that globalization is inevitable and that policies that look politically attractive as a response to economic anxiety will only hurt the economy as a whole. Nor is it a politically effective strategy to state simply that economic integration is a necessary and powerful force in raising average incomes, or that technological change may be more important than trade or immigration as an explanation for slower growth in real wages for many Americans.
Raising the quality of education and exploring ways to improve the safety net are a necessary part of the solution to this challenge. But these reforms will have a long fuse and they may not yield the hoped-for increase in support. Trade does not appear to be more popular in countries with more generous safety nets, universal health care and highly subsidized higher education than it is today in the United States.
The political challenges of sustaining support for global economic integration and fiscal sustainability will be more difficult in the United States because of what has happened to the distribution of income and economic insecurity. Several broad economic forces substantially complicate an already difficult set of political challenges: the long-term increase in income inequality, the slow pace of growth in real wages for the middle quintiles of the population, the increase in the volatility of income that is a reflection of the greater flexibility of the U.S. economy, and the greater exposure of households to the risk in financing retirement and the burden of paying for health care.
More generally, the global financial system and the monetary arrangements that underpin it are in the process of a delicate and consequential transition as the major emerging market economies—particularly in Asia—move toward more mature monetary policy frameworks, more flexible exchange rate regimes and more open capital markets. This transition will require careful management, and the economic dimensions of getting it right would be complicated even without the political pressures those governments face.
He sees the importance of an open economy, and is concerned about building political support for it. He doesn't have a plan to do it. Telling people how important integration is to their well-being isn't working. A better educated, more adaptable workforce, and programs to address the frictions associated with adjustment, may not change attitudes and if they do, may only do so in the long run. To top things off, the political problem must be solved in the middle of a delicate and consequential transition. The key suggestion is a successful conclusion to the Doha Round to provide a certain amount of lock-in.
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