Covid-19 & Deglobalisation: what will the post-pandemic world look like? | CoronaNomics Ep 12

[Music] hello and welcome to corona knotek's brought to you by econ films this week d globalization recent decades have seen an unprecedented peak of economic global connectedness but that trend was visibly weakening well before the Kovach pandemic and now many think the coronavirus disaster might put globalization into reverse but it's that reading correct and if it is what does it mean for our prosperity and what could and should follow globalization I'm Ben Chu economics editor of the independent and I'm Lizzy burden economics reporter at The Telegraph will be your guide and if you like what we're doing please hit the subscribe button as it helps people find us joining us this week is Dani Rodrik an economist at the Harvard Kennedy School and author of the seminal globalization paradox democracy and the future of the world economy we also have Penny Goldberg professor of economics at Yale University who was chief economist at the World Bank until March this year penny honey welcome to both hello well Danny I want to start by asking you kovat 19 has revealed the vulnerability of supply chains in the UK for example PPE shortages were a massive issue at living with the crisis as air freight rates soared because their restrictions on passenger travel but was this evidence that globalization had gone too far well I don't think anybody was expecting endemic of this kind although we should have been perhaps better prepared I think with the benefit of hindsight I think certainly with respect to a critical medical supplies government's would be well advised to stockpile and diversify supplies that doesn't necessarily mean less globalization it might mean different sources of supply propping up some domestic supply chains there are some tensions with hyperglobalisation but it's mainly a question of management rather than an either/or thing Perry to agree with Danny and and do you think that the globalization is already happening if at all you know if you're long would you say so if anything it's it's it's remarkable how well supply chains have worked under the circumstances this was the biggest global shock we've had since World War two and the fact is at least in a country like the United States and I I assume also in Britain were pretty well provided for the most part most people experience shortages in toilet paper but that had nothing to do with global supply chains it had to do with the logistics of the distribution system and of course you mentioned before Lizzie there were problems with PPE there were critical shortages in April in the two-three weeks when we desperately needed them so this is where the sentiment comes from that this is where this global supply chains failed us and this is understandable if one draws an analogy to what happens when you have a hurricane or another emergency domestically we always have shortages and this is because Danny said because we don't usually produce for these extreme events we produce for normal times so the obvious way to add to address that in the future would be to have strategic reserves we have the strategic reserves for example for petroleum we have them for for helium as it turns out we don't have them for food in the United States and we don't have them for medical equipment or for for PPE in New York City you had hospitals competing against each other for PPE within New York State you had New York City competing with other locations so you need this this critical reserves at a very local level you know to be to be safe so again you one could have many issues about globalization but but I think this criticism has been unfair are we in an era of the globalization I would say yes I think they started much earlier he didn't start some corporate crisis I would put the start at the global financial crisis around 2008-2009 we're just going to show a chart actually which shows world trade as a share of GDP and we've had waves since the 19th century of global trade they're being and flowing a very fast phase in the 1980s and 90s and then as he was saying penny it stalled for the past decade after the financial crisis and now of course we've got these sort of collapse in trade due to the cove is pandemic I put it to you first Danny I mean a lot of people are saying this great wave of globalization has come to an end what's your view on that fundamental question one way that we measure D the the extent of globalization is the elasticity or world trade with respect to GDP for example that is when global GDP increases by one percent by what percentage does world trade increase up until the global financial crisis that number that elasticity was typically about one which is world trade would expand by more than one percent when world GDP expanded by one percent ever since it's largely been essentially being a less than one the expansion of world trade goes really all the way back to the end of the Second World War we were all trading world long term investments have been expanding they're rapidly really since 1950 in fact the the expansion of world the volume of world trade between 1950 and 1990 was actually considerably faster than what we've had since then and and so I think there's a there's a kind of you know we've created imbalances in the world economy with sort of parts of the world economy becoming very integrated and long them with a lot of professionals and and and corporations and big banks and big tech becoming so very closely integrated with each other around the world but progressively I would say becoming disintegrated from their domestic economy so this process of international integration came alongside with a kind of a productive and social and economic disintegration within economies which we see in terms of rising and inequality within countries sort of greater dualism in in between the more most productive parts of the economies and the lagging parts penny do you agree with what Danny was just saying that but the globalization was a kind of an unbalanced phenomenon and there was there was sort of domestic disintegration as he puts it is that how you see things like Garrigues Danny partly so it's undeniable that we've experienced a big increase in inequality in most advanced ago at least in the United States and Britain I would I won't say in all advanced economies because the problem has not been as pronounced in European countries for example you know that that raises the question why it was the experience of Denmark or Germany so different it has a lot to do with domestic policies it's not just trade early on and buy early I mean in the 90s when this inequality was first documented the answer most of us game was no we we could link the rising inequality to trade and I think part of the reason we were giving this answer is we were looking at the wrong place so namely we were we were focusing on the skilled premium so the difference in the compensation between skilled at unskilled workers and as the research has shown later most of the most of the relevant inequality was in the spatial they mentioned its entire communities that were affected by by rising imports so it was not so much that that input from China or other low-wage countries increased the gap between unskilled and skilled workers it's the fact that certain areas were where there was a lot of manufacturing started going downhill this certainly created a climate that was very receptive to to the wave of politicians who came both in Europe and in the United States speaking against globalization but I think this is part of the story the other part that became very clear in the us-china trade war is the part of the anxiety is due to the ascent of China so so I think the the other the other motivation the other reason behind what's happening right now is is the the effort to stop China and that's very different that's a political motivation that has little to do with an economic rationale Danny I just wonder just looking at that and sort of long history of global trade and waves of it do you think we could see some time in future another wave of globalization some people are talking about kind of green globalization with carbon border tariffs and things like that is that feasible and how long might we have to wait to see something like that do you feel well I think there are certainly some areas where globalization has not gone far enough I think I would say that in terms of financial globalization and many aspects of the kind of WTO regional trade agreement LED mobilization I would say that we you know have probably gone far enough but there are many areas where I think the benefits of globalization in the sense of global global governance better global agreements more global cooperation those gains have not been reaped yet I would put you know to be largely non-economic areas in there one is public health we need a better World Health Organization they can provide better guidance that can lead a global vaccine effort and can provide for the global public goods in the areas of Public Health and obviously we need a much better environmental governance at the global level with respect to climate change if countries were taking climate change more seriously and implementing carbon taxes domestically I think they would be fully entitled to impose carbon border taxes to ensure that their domestic environmental policies are not undermined by exporters from other countries that don't have similar climate policies economic and social policies are primarily determined at the national level and that countries have the right to pursue appropriate social and economic and environmental policies and that when international trade investment cross-border financial flows tend to undermine the integrity or the applicability of those policies domestically that countries have the right to actually ensure that they can protect the integrity of their domestic economic policies I mean speaking of globalization not going far enough we saw on the graph earlier that world trade boomed after 1990 in large part because Asian economies were increasing their manufacturing bases and entering the global trading network at scale and then lifting hundreds of millions of people out of poverty but as you mentioned large sways of the world particularly in sub-saharan Africa haven't and penny I wanted to ask you if globalization does go into reverse how damaging will that be for the global South I think if you look at the experience of countries post-world War two the countries that grew very fast and managed to lift themselves out of poverty were all countries that embraced open trade there is nothing that leads to faster poverty reduction than trading with a richer country and we saw that happening you know in Japan in most countries in East Asia actually partly it's a victory of the old model of comparative advantage what these countries were doing was exploiting their comparative advantage in low-skilled labor producing goods very cheaply and selling them to the lucrative export markets of Europe and the United States as a means to for domestic reform they used it to improve their human capital to invest in infrastructure and so on so to build the foundations of development in the absence of this path as this export driven export led growth it's not clear what path developing countries can take it's not impossible but I think it's going to be much harder and we're not going to see the fast growth we've seen in the past when I was at the World Bank we always talked about trying to leapfrog to the 21st century by embracing trading services which sounds very attractive so you talked about you talked before about you know sectors that have not been liberalized yet and the big etc services very far it's not clear how this can happen or what the conditions for such leapfrogging are especially in places that that have no that are very weak in education they still don't have proper health care so in general people places that don't have human capital so in the absence of this of these preconditions I think we find ourselves in in an era where the very clearly a void there is no vision for what the future of development and I think the news is better for the for bigger countries if you are a country like India or apart from India no other country comes to mind actually about but India is a country with approximately 1.3 billion people you can trade the law domestically you know you may not call it international trade but but if in principle theoretically if India and embrace the right domestic reforms it would grow internally it's not clear what advice you give in a smaller country in the small countries in sub-saharan Africa when the domestic market is not large enough to support such growth and and I see there are two paths one path is to embrace regional integration so to try to create bigger regional markets and the other one that I have that I have advocated it's easier to say that than actually to implement it is to to also embrace equality as a means for growth and what I mean by that is you have countries in Africa and that are resource region interior comes to mind you know countries that have natural resources these are also countries that are characterized by huge inequality so the ranks from this natural resource extraction go to a handful and then there is no growth demand trickle down to the majority of the population so in such countries if you had a higher degree of equality if you managed to create a middle class by redistributing wealth by embracing reforms that increase equality and even by creating this middle class then perhaps you could generate enough purchasing power in this country so that you could you will have to rely on international markets and then you could use that again to knocked additional reforms and invest in human capital and so on so this is the only way I can think of for going forward this era of the globalization I think that the reason that the established model of export-oriented industrialization isn't going to work anymore doesn't have much loot with the globalization per se I think Penny's right that the countries that have done the best are those that have been able to significantly export manufacturing but most of those countries actually did so in periods when the world economy was much more closed than it has been since the 1990s so we go back to Japan which took off in the 1950s and 60s then South Korea and Taiwan in the early 60s and 1970s that was a period when in fact the world economy wasn't nearly as open as in terms of barriers to trade in terms of quantitative restrictions in terms of financial globalization then the world economy has been since the 1990s the interesting thing about China is how China played globalization by Bretton Woods rules rather than hyperglobalisation rules because of course China you know leverage of other countries openness but in terms of its own domestic policies it had you know manages the exchange rate managed capital flows engaged in a lot of industrial policies so essentially the kinds of policies that you know you are allowed to do on the Bretton Woods and become have gone out of fashion under under hyperglobalisation now but I think in some sense all of that is is a little bit irrelevant because if the world economy goes back to open less levels of the 1960's and 1970's you know its first it's not going to tremendously change the trading opportunities for low-income countries and secondly it's not that the constraint is not going to be on ability to access markets the constraint is going to be the ability of low and middle income countries to engage in productive transformation so we do need new development models I think they'll have to be faced much more on domestic demand as Penny suggested it's a it's a much harder model because it's not like the old model where you develop a sequence of you know you know competitive industries you go from you know toys to the garments to car seats to cars and then steel and and and but you're really basically just a sequence of specializing in in a narrow range of products and you're not constrained by demand and that's a very powerful engine for development when we're talking about development based on services particularly domestic non-tradable services and again I want to underscore the point that that penny made which is that tradable services really I don't think can lift developing countries and that cannot be a kind of an engine for girls precisely because they tend to be relatively skill intensive and even countries like the Philippines and India that have developed a strong ICT and business processing exporting sectors those are relatively narrow parts of the economy so the problem for developing countries is is that it's just finding themselves in a new era where we'll need new development new growth models and unfortunately Corvette 19 is making things much much worse and and if rich countries Paulo pile on it by closing their markets on top is just going to make it obviously worse at the margin but I think the problem is a is a more fundamental one disagree with something that the tan is I I agree with most most things but I think that the importance of automation is overstated know that automation is not important we live in fear about what what automation will do to jobs in advanced economies and the argument that it's going to erode the traditional comparative advantage of low-wage countries is very intuitive but so far we have not seen this happen actually the world development report of the world man was on global value chains and we looked explicitly at this question of whether sectors that had adopted Automation what sectors we were seeing less trade with with developing countries and we actually found the opposite in sectors like automobiles or or or chemicals so these are circles at a very robot intensive these are sectors that had increased their trade with developing countries and and the explanation was one that was based on productivity that in these sectors productivity increases so much that yes even though there is this substitution towards machines at the same time you increase the scale of production so you end up still importing more from developing countries so it may happen in the future the fact that has not happened yet of course doesn't guarantee it won't happen in the future it's interesting that as trade economies we tend to emphasize less policy and more dystek neurological constraints and I think we didn't appreciate how important policy is until the trade war erupted between the US and China and then it became clear that having an environment that's stable and predictable or you have rules is very important for investment and for trade so I agree that me that China did a lot more than engaging in free trade but the the time when China's exposed to the United States surge coincides with the time at which China was granted permanent normal trade relations that was in 2000 and then it entered the World Trade Organization in 2001 and you know if you actually look at the data around the time the tariffs were already very low the tyrus were close to zero it's not that they enjoyed lower tariffs because their their entry to the WTO what their entry did is it gave this predictability this stability and that gave them an incentive to invest in these trade relationships to build the infrastructure that was necessary for trading so I think if I'm if I'm sitting in a developing country right now and I'm thinking of doing the same then I will think about it twice so or if I'm in a country like Vietnam or Cambodia or Myanmar that are doing very well and you are I would be thinking if I if my export to the United States quadruple perhaps I will have the fate of China either there will be measures to stop me so I do think that that the current policy climate is an obstacle to many developing countries and especially those who have not managed to join the global trading system yeah well let's get into that question of economic nationalism in a bit more detail we're going to look at a chart what it shows is how populist parties in Europe have really surged in support over the past three decades now any first of all populist as you know in the u.s. often attack multilateral globalist organizations as they call them like the World Bank and like the World Health Organization but I wonder you've been inside these organizations do they sometimes perhaps don't not do themselves any favor by being less than transparent and with their perceived lack of accountability to people I think the part of the backlash in the last few years came from the perception at least in the United States that the World Trade Organization was not serving US interests if in fact it was it was undermining US interests there was another problem that I think is a true problem and there the concerns were valid which are that in some sense the WTO became the victim of its own success it became very large very diverse and it became impossible to accomplish anything so it was this all-or-nothing approach so for anything to happen all countries had to agree and they had to vote on entire packages of rules rather than isolated measures and that led to complete paralysis so in became an organization that for a while could not accomplish anything prior to as the videos to resignation he still there but but he announced he's leaving he made a true effort to reform the WTO and in my view in the right direction in the sense of trying to make it more flexible and more in tune with the times but you cannot do that without the cooperation of the United State it's the biggest the biggest icon now Danny let me ask you I mean do you agree with penny there that transparency isn't so much of an issue and on the UK F&S ISM you know brexit ears say that they are simply trying to get back democratic sovereignty from the European Union is that isn't that a perfectly legitimate goal from from an from a people in in a country to seek well I mean the European Union of course is is where you know I think the constraints of hyperglobalisation at the regional level bites bite the most and I think so I think there is a legitimate concern in Europe in part we knew eurozone about loss of economic sovereignty that's not compensated by an increase and proved to collect on to pollute the import go boys Britain of course is is was not the first country I would have expected to rebel against those constraints because it's not part of the eurozone and and as a number of carve outs fighting my criticism of conservatives and the Tories and the brexit ears would be that if you want to reclaim sovereignty which grexit was purportedly what it was about you have to have a good agenda for what you're going to be deploying your sovereignty for in other words what's your what's your economic vision what's your growth plan what's your you know what is it that you want to be that the European Union prevents you from becoming and that to me was never very clear I mean there were some segments of the progressive voice which were actually they were they wanted more free trade right it was the argument was that you know the European Union prevents us from having free trade and and we want to get rid of you know sort of European restrictions that really have free trade it's a general point there about you know you know protection or having higher terrors or protecting yourself from capital flows and our in policy play space the question is you know those are shields that should protect what you're trying to do for a legitimate social and economic purposes and if you have not specified those things simply putting up those protectionist barriers isn't going to we're simply leaving bu isn't going to may leave you any better off well thank you so much to our both of our guests Dani Rodrik and penny Goldberg has been a an excellent discussion and we've really got into the nuance of globalization what it means or what it doesn't mean and what its future might be and what the implications of that so thank you so much for our to both of our guests for appearing on Korona na mcc's we'll be talking to many more top thinkers over the weeks to come to discuss how we can weather the economic storm of cave at 19 so please do stay tuned and subscribe to our youtube channel and remember if you like what we're doing please hit like and share and if you'd like to talk to us just leave us a comment below this has been korone anomic Sport to you by econ films [Music] you

Channel: CoronaNomics

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Keywords: coronavirus, coronanomics, covid 19, covid, corona, economy, economics, globalisation, deglobalisation, what is globalisation, globalization, penny goldberg, dani rodrik, dani rodrick, danny rodrik, danny rodrick, 2020, globalisation impact, globalization explained, globalization crash course, globalist, globalization economics, end globalisation, world trade, dani rodrik globalization, dani rodrik globalization paradox, globalization paradox, dani rodrik interview, world bank, trade, news

Id: l2j9Ff3OhBE

Length: 29min 18sec (1758 seconds)

Published: Wed Jul 08 2020