European Affairs

altIt is with the assembly worker and IT technician in mind that Daniel Hamilton and Joseph Quinlan set out the case for giving a stamp of approval to globalization’s impact on Europe. In their book, Globalization & Europe: Prospering in the New Whirled Order, they explain and evaluate the “gains and pains” that Europe has – and will – experience and deliver the invaluable service of breaking down the scorecard of globalization by each country, by economic participant and by different measures of the economy.

Hamilton and Quinlan – respectively, a diplomat-turned-academic and a New York-based international banker – do not hide the fact that they believe Europe has been one of the big winners of the globalization sweepstakes and that Europeans stand to continue to benefit if Europe adopts the necessary attitude and measures. However, they are also quick to acknowledge that globalization affects individuals, industries and countries in different ways and that anxiety over globalization is common and entirely legitimate. That provides a useful cautionary balance to their favorable verdict and prognosis for globalization in Europe.

One of the primary causes of fear about globalization is that many Europeans believe their jobs are being “off-shored” and lost to developing countries like India or China where wages and production costs are much lower. When a person sees their jobs and income endangered, it is difficult to see the broader benefits of globalization – like higher flows of goods and ideas or higher GDP growth. Recognizing this, Hamilton and Quinlan spend a great deal of time investigating and trying to explain exactly how employment stands to be affected by the new “whirled order” in the world.

While globalization is certainly responsible for the loss of some jobs, Hamilton and Quinlan make the case that it is not the villain that is often depicted. They document that, thanks to globalization, employment has actually increased in the last 20 years and that offshoring accounts for a tiny portion of unemployment in Europe.

For every job that has been lost to economic changes in the past two decades, a new one has been created in a more competitive part of the economy. Hamilton and Quinlan cite data showing that unemployment rates have decreased over the last ten years: in 2006, the European Union added nearly 3 million jobs to its economy. They argue that all the chatter about European job losses due to offshoring ignores the fact that Europe, itself, is a leading offshoring destination. In fact, the EU-15 on-shores more jobs than it off-shores. They write:

Despite the popular impression that there is a single lump of labor, a fixed quantity to be shared among the world’s workers, economics is not a zero-sum game. A job gained in China is not necessarily a job lost in Europe, especially if both Europe and China are growing, and that is in fact what is happening. There are more workers in the world, but they are all part of an expanding economic pie.
Though it is true that many European jobs have been off-shored to areas where labor and production costs are cheaper, the book lays out the argument, based on various statistical metrics, that the number of jobs lost to greater global competition are far fewer than those lost due to regular economic rumblings. Bankruptcies, internal restructurings, government policies, slow economic growth and technological changes are the primary reasons for layoffs, not globalization. According to the European Monitoring Center for Change, off-shoring accounts for less than eight percent – or 200,000 – of the total job losses in Europe in the last four years. And the European Restructuring Monitor (ERM) has a similar statistic: it claims that off-shoring and delocalization account for only 4.6 percent of planned job reductions between 2002 and 2005 whereas internal corporate restructuring accounts for about 75 percent.

The authors acknowledge the difficulties of precisely quantifying the impact of globalization and to separate out precisely the number of job losses due to off-shoring, mainly because the line where globalization begins and ends is so blurred. But all of the studies that they cite show that off-shoring plays a secondary role in European job losses.

Why Offshore?

Contrary to common belief, many of the jobs lost in the E-15 due to relocation are not sent to India or China. Instead, they are actually “near-shored” – that is, off-shored to a nearby area – within the old EU core or to new member states. It has become a common pattern in Europe: from 2003 to 2006, more European jobs were near-shored to new EU states than to China, India and other parts of Asia. In Germany, for example, about 87 percent of the jobs “off-shored” were actually near-shored to new EU states. Manufacturing jobs in particular are more likely to be near-shored than to be off-shored – a trend likely to increase if transport costs continue rising.

In their book, Hamilton and Quinlan reiterate the refrain that economic globalization has not had a uniform impact on Europe. The experience with globalization varies from consumer to company, from manufacturing to services and from country to country. As an example of the diverse effects, Hamilton and Quinlan remind us that the number of jobs lost to off-shoring varies widely. According to the Organization for Economic Cooperation and Development (OECD), off-shoring in France accounts for only 3.4 percent of the total jobs lost from 2003 to 2006, but it accounts for 25 percent in Portugal over the same period.

While the book speaks in defense of economic globalization, it never forgets the cost of today’s new “whirled order.” With the growing pains in mind, the authors invite Europe to take a good look at the facts and accept, with a grain of salt, that globalization brings a whole lot of success. Providing their own recommendations on how to mitigate the negative effects, Hamilton and Quinlan conclude with a warning to Europe that if it fails to embrace globalization, its economy and people will inevitably suffer and it will not be the fault of the “plumbers from Poland, construction workers in Turkey, assembly-plant operators in Shenzhen, or accountants in Mumbai.” Instead, it will be the fault of leaders and voters who ignored the facts and were led by demagogues to protectionism and stagnation.

Megan Watson is an editorial assistant for European Affairs.

This article was published in European Affairs: Volume number 9, Issue number 3 in the Fall of 2008.