(mysterious music) - The most shocking recent political event for lots of people was
the election of Mr. Trump who with the most powerful
political office in the world, despite having zero
experience in politics. That happened in November
2016 but earlier that year the British electorate decided to take the country out of the European Union. In a number of countries in the rich world their really kind of a anti-foreign, right-wing politics
have come to prominence. The Netherlands, in Finland, in Denmark, in Sweden, in Austria, countries that have been traditionally associated with center-left, sort of liberal values, and this has made a lot of people ask Christians about
why this is happening? The supporters of these anti-foreign, anti-immigrant parties are
often described as angry people. People who are angry because they have been left behind in the evolution of the global economy
in the last few decades. Now the talk on globalization was invented by an American business school professor, whose name no one remembers now. We invent concepts and
thoughts all the time to describe new things
and it is one of those. But suddenly in the 1990's it took off and at least since the mid 1990's, it has been the defining
concept over time. The basic definition of globalization is increased flow of goods, services, capital, people, although,
all of the people who talk about globalization try not to talk about immigration. Because it's a politically sensitive issue and people who are gung ho about great to open there stores
up, goods and capital are not very positive about
opening borders for people. So that's an interesting
kind of inconsistency but that is now kind of more comprehensive by definition, which says, it's not just about increased flows but also
about changing global rules. Now it is, in terms of
rules, are sometimes force countries to change
their domestic rules as well. Because sometimes it's just
about not having tariff. Not putting special conditions
for foreign investors, that's more straight forward but now, this universe of rules,
the idea has spread so much that now countries are expected to change their corporate accounting practices to fit with these western practices. They have been expected
to change their rules on patterns, government procurement, lots of things that we
had thought were not the subject to,
international globalization in our coming under this
set of common rules. The impact is much greater than just border control, if you like. Now according to the dominant discourse globalization happens
because of technology. Technology is about
communications, transportation, that have become a lot more developed with the digital technology,
now even information can be moved around so, when you do, I don't know, MRI scan
of a patient in Boston, you can send it to actually India so that someone can read it there at a much lower wage
rate and send it back. These technological changes have created, in popular expression,
the death of distance, distance doesn't matter anymore. This has enabled us to deploy resources where they have the highest productivity. We are not bound by
national borders anymore and until they were wrong-footed by the 2008 financial crisis,
many of our political leaders and leading economist,
names like Jagdish Bhagwati and Jeffrey Sachs come to mind, was singing praises of globalization. Robert Rubin who was the
U.S. Treasury Secretary or what would be called Finance
Minister in other countries because of globalization and open market and the spread of market-based systems, the world is a much better place. Kofi Annan was even more
enthused about this, saying that this not just about prosperity in the rich countries but
the only realistic way of pulling billions of
people out of poverty. This was like trying to fight
against the law of gravity or Robert McCormick, the chairman of the International Chamber
of Commerce said in 2003, World Economic Forum Davos,
people trying to stop this was against progress and Mr McCormick deliberately likened, that the
anti-globalization protestors that were shouting outside
his venues in Davos, look these are like the Luddites. Luddites are this English textile artisans who lost their jobs to textile machines in the early 19th century and, at least some of them thought, they could bring their jobs back if they
destroyed the machines. So they have become the byword
for people who are fighting the inevitable, trying
to turn the clock back. And Mr. McCormick was
saying, you are against globalization, you are
basically against progress. So there was a lot of
confidence that this process will bring prosperity, lift people up out of poverty, this is a unique chance for humanity to leap to the next level, and they recommended therefore, countries need to open up their borders. The most immediate one
was trade liberalization, so reduce tariffs, ideally abolish it but you might need some revenue from it. So reduce it to a low level, get rid of quantitative restrictions like quotas. In addition to trade,
investment was also liberalized. Previously there was lots of restrictions on how much foreigners can
invest in the financial market and what kind of assets they can acquire. I mean, many of these
regulations have been abolished, so now there were huge financial flows coming into the so-called
emerging markets. Basically, middle income countries which use to have the CBO
restrictions on financial flows. Poorer countries are
cautious about liberalizing finance capital but a lot of them embrace the foreign direct investment. So foreign direct investment is like, actually there is no agreed
analytical definition because it basically
means someone acquiring a stake and a say in
management in a company that does production activity
within your national border and that someone happens
to be a foreigner. Now sometimes it's what people
call Greenfield investment, so enter, out of the blue,
comes into Costa Rica and builds a microchip
factory but it could be also what people call
Brownfield investment. There's some ailing car company in Turkey and Volkswagen comes and buys it up, now this kind of investment
has been particularly praised for stability
and also it's ability to provide technology as
well as finance capital. Until the 80's, 90's, a lot of countries has restrictions on what
foreign investors could do. So, there would be rules on which sectors they can invest, there would be sectors that would be completely
closed off to foreigners. There might be a requirement that the majority owner should be a local. Countries could say,
well you have to source more than 50% of input
are from local produces, the ratio going up to 85% in 10 years. These kind of conditions are very common but now all other countries
have abolished this in an attempt to attract foreign capital, especially in the foreign
direct investment. Many of them have also
changed their domestic policy to create what you feminist call, a business friendly environment. They'll cut corporate tax
rate, reduce workers right so that foreign companies can
exploit them more readily, deregulate business and this has changed a policy regimens in many countries. Having made this recommendations, the proponents of this path admitted that yes, in the short run there might be some losers from the process. So and that the U.S. opens
up this automobile market or signs a Free Trade
Agreement with Mexico, this might make some local
auto workers to lose jobs because there would be more
imports from say Korea. Some of the American
companies might relocate some of their factories from Mexico. These things have happened
but the argument was that yes, in the short
run this will happen but in the long run these people will be actually better off
because in the long run they'll be doing much better paying jobs. Because with this liberalization and the free trade agreement
the U.S will be exporting more investment banking services or software to countries
like Korea and Mexico. Therefore, these people will eventually get jobs that are better and better paying than the ones they used to have. That is the theory, in reality, how many former auto
workers in the United States who have turned themselves
into IT engineers, not to speak of investment bankers? One very striking evidence
is that in the United States the median, not the average, median wage has been basically stagnate since the mid 1970's, despite
the fact that the countries real per capita income that is inflation or just per capita income has more than doubled during that period. Now why do people get left
behind in this process? The short answer is because
it's costly to get retrained. Yeah, in theory you could
become an investment banker but that might mean going
back to the college, doing a masters degree
and doing lots of jobs before you can get hired by
investment banking company. Very few people have the resources and time and perseverance to do that. So as a result, only a
small number of people who got unemployed through these changes have been employed in jobs
that are better paying than what they were doing before. Most of them are either languishing in long term unemployment or have ended up in low skilled jobs, like security guard, shelf stacking in the super market or male stripping as in the
British movie The Full Monty. It is a movie about six unemployed Sheffield steel workers or
rather, ex- steel workers. So in technical terms, in the standard model of international trade known as Heckscher- Ohlin- Samuelson model. Named after two Swedish economists
of the early 20th century and later Paul Samuelson, the economists who sold the largest number of textbooks in the history of economics
between the 1950's and 80's. Samuelson formalized
what Heckscher and Ohlin theorized in the early 20th century and this is the standard theory that is used to defend free trade. Like all theories it
makes lots of assumptions and one of the critical assumptions there is full factor mobility. This means that capital labor can be easily transferred to other sectors if the demand for the
original sectors fall. So if the demand for auto workers fall and people move into investment banking. If American steel industry goes down somehow you can remold these steel mill into a factory that produces microchips. Put in this way, sounds ridiculous but that is the theoretical assumption behind this model and basically when that assumption doesn't hold, you have this phenomenon about
people being left behind. Defenders of globalization have argued that essentially there
is acceleration of growth from this process, which
will create more wealth, which will then trickle down
to the bottom eventually. So its a matter of adjustment,
it will happen in the end. Now despite the bad
press that it often gets, trickle down is not
necessarily a stupid theory. What it is saying is
that, you have to look at second or even third round
effects of something. For the simple fact that trade literally has made some American
workers lose their jobs doesn't necessarily mean
that there would be worst off in the end because that
process could have, I'm not saying that it necessarily has but it could have created more wealth. Which would then create more demand, therefore other things that which would then create more jobs
and more income and so on. Now of course, in reality the
trickle down has not happened. Many governments do lots
of things to basically, A: reduce the number of
losers from the process of globalization and B: compensate the losers through public means. The one thing that has
been prominently going on has been protection of agricultural in some of the rich countries. In countries like Japan,
Norway, Switzerland, they have this agricultural sector, which is by international
standard, very unproductive. But they deliberately keep these people in the agricultural
sector partly to maintain their tradition, partly to prevent depopulation of the rural areas but also in recognition of the fact that if exposed to the market
forces, these people would just disappear and they
won't be able to convert themselves into investment
banking or IT engineering. The U.S has provided
huge amount of protection and subsidies to the steel industry, while pretending that the
practice is free trade because the steel industry
is too large and politically too important just to
be left to go bankrupt. Of course, all these measures are costly, in the end a lot of things are wound down but a lot of countries are doing things in recognition that you
will have a lot of people that are thrown into
the scrapbook of history if you just let this
global market forces reign. Governments can do
something more proactive but to help people to find new jobs and the Scandinavian countries have been particularity good at this, they call this active labor market policy. Which means, instead of just saying that, yeah you have lost your job but
you should find another job, they provide subsidized training, they try to help people look for jobs. Very often the problem is
that when you lose your job in a town that used to
make ships and somehow get retrained and try
to move to another town to work as a software
engineer, you often have to sell your house to buy another one and then the finances become very tricky. So the government in Sweden has even given temporary loans to these people to be able to buy a new
house and pay them back when they sell their original house. So you can do these range of things to improve labor mobility. So when you have winners
from some economic process whether it's trade liberalization or technological progress, the government can collect more taxes from them because they now have a higher income and use that to compensate the losers
by providing them with income support, unemployment benefit, subsidized training,
access to basic services. And maybe this can help
out a lot of people, maybe still fall behind
but not so dramatically as their counterparts in countries with smaller welfare
state would do, if you're talking about the rough
size of the welfare state. In Western Europe it's typically around the 25% of GDP, many countries help out 30%, France, Finland, Belgium. In the U.S. it's about 20%,
in South Korea it's 10%. In countries like Korea and the U.S., the income support, unemployment
benefit is minuscule, a lot of other people have a very tough life once they lose their jobs. Because the factor mobility,
especially labor mobilities are rather low, the market mechanism can not fully compensate the
losers and the governments have had to intervene a
lot through various means, welfare state, labor
market, trade protection, in order to minimize the
negative consequences from this. Given this problem of
insufficient compensation you'd ask whether as a
neoclassical economist who believe in Pareto criterion, you should endorse all this process. A lot of neoclassical
economists have advocated globalization fully
knowing that it will create a lot of losers on the ground that the aggregate gains of
the winners is going to be bigger than the
aggregate loses of the losers. Therefore, in theory you can
compensate all the losers and the winners will still
have left something behind. This is known as the
compensation principle in neoclassical welfare economics but if you believe in
that you would have to make sure that this compensation is made. If it is not made, the
neoclassical economist are doing the same thing
as the people they use to condemn like the
utilitarian philosophers or the Marx's economist
who demanded sacrifice of a minority for the greater good. What they are saying
is, liberalized trade, some people get left behind, is still okay because the aggregate wealth is greater. That's not Pareto. That's completely
against Pareto principle. I mean what's the difference
between that and Stalin? Who said what? We can kill a few million people in order to make the
great nation better off. So this is seriously that, philosophical and ethical with the Christian here. In the absence of full trickle down, in the absence of full compensation, the result of bad globalization has been broadly increasing inequality. It hasn't happened in all countries but in over 2/3 rds of the countries, inequality has risen since the 1980's and in some countries,
in a very dramatic way. Globalization has been going on for at least two centuries, some
people say five centuries but I'm talking about
the last 30, 40 years. The problem is that the
current phase of globalization is that it has failed to
produce accelerated growth because when this pro-market,
pro-liberalization policies commonly known as neoliberal policies, came into stream in the 1980's it was very much predicated on that argument. Gross is that the fortunate
entrepreneur measures being choked by government regulation. We need to revive the economy, open it up, deregulate, increase competition, that is drive people to
become more productive. but when you look at the evidence that is not what has happened. Now before actually
looking at the evidence let me make one point,
we very often hear that, thanks to globalization
we are richer than ever. In itself, it doesn't really mean anything because we will be richer than ever as per our economy is growing
faster than population. So the relevant question is whether we are doing better than what we use to and the evidence tells
you, that isn't the case. Roughly speaking, for a few decades after the Second World War, the world economy was growing very healthily, 2.6%. In the next 35 years, gross
has markedly slowed down, basically it has been halved down to 1.4%. So we might be richer than
ever but these numbers tell you that we could
have been even richer, if we had maintained the previous raise of growth, we would be even richer. Most countries in this Ohlin period were actually using rather
interventionist policies and they had a lot more restrictions on internationalization of the economy. Globalization was a very
controlled affair in those days. All though there was a
gradual globalization, even the rich countries
had capital control, they had tariffs, all kinds of trade restrictions on
foreign direct investment. So that makes you think, I mean, how come you had this sort of period where most countries
were using "bad policies" and the world economy
grow much faster than what they have been in the last
three and a half decades? When lots of things have been liberalized, opened up and so on. Now when you say this, some people say, oh yes, but you have to
put this into context. At least the last three or
four decades of globalization has lifted a huge number
of people out of poverty. Especially in developing
countries like China and India. In worldwide terms, that
the working class people who have been hit very hard
by the globalization process in the rich countries,
yeah they probably belong to the top 10, 20% of the
world income distribution. So some people have accused these people of being really spoiled. I mean you belong to a
top 10, 20% of the world and you want to introduce
all this restrictions in international trade and investment, which would make it more difficult for people down the ladder,
like poor Chinese people whose trying to pull
themselves out of poverty so that you can maintain some kind of relative position in your own economy. Now there's some truth in
that argument but I think the argument has quite a
number of serious problems. First of all, it is not just the working class people in the rich countries that have been left
behind, a lot of our people in developing countries
have also been left behind. So if you look at, especially regions like Latin America and
Sub- Saharan Africa, where is the most diligently implemented neoliberal policies
under pressure from the International Management
Fund and the World Bank, which basically put all of
the conditions on their loans, they're growth in the "Brave
New World" has collapsed. If you go to Latin America,
a lot of people complain about the bad old days
of (mumbling speech). Per capita income in
the region use to grow at over 3% per year in that period and in the subsequent 30 years, the growth rate is not even 1% per year. Sub-Saharan Africa was even worse, even in the 60's and 70's it was growing at 1.6% in per capita per year. Yeah, not super rate
but it's not something to be scoffed at because
this is essentially the rate that today's rich countries grew during their industry revolution. It looks bad only because
you are comparing it to a rate in Korea or Taiwan
with five, 6% per year but in the next 30 years
the annual average was 0.2%. This means that after 30
years Sub-Saharan Africa's per capita income was only 6% higher than what it was 30 years ago. In a good year, China grows
that much in six months. Now given that the rich countries during this period grew between
1.5 and 2% per year, this means that Latin American and Sub-Saharan Africa
have been left behind. The gap between them
and the rich countries have vastly widened. And unbeknownst to the outside world, China experiences literally
hundreds of thousands of industrial strikes,
local riots, demonstrations. You could go to these
Chinese people and say, oh you should still be
happy because you have become richer and Brazil has much worse income distribution
than you, it doesn't work, because inequality matters
only because you think you belong to a certain group. If I told you that there are 55 planets in the universe, which has
intelligent beings and all of them are vastly richer
than Earth, would you care? I wouldn't, I can't even go there. Probably some of the delicacies that these beings eat are toxic to me. This is not to devalue the
kind of material progress that China has achieved
in the last decades. It's been truly impressive but don't think that this makes all the
Chinese people happy, there are lots of angry people there. Now having said that, I
think we need to be positive and realize that it is
possible to minimize the number of losers from this process and actually compensate
them more generously, and indeed, all other
countries have done this. So if you look at income
inequality statistics you'll realize that
despite having a much more open economy than the United
States, the Netherlands and Canada have seen no negative change in income inequality in
the last few decades. Income inequality is raising a little bit in Germany, Japan and
Italy but only marginally. In Switzerland there's
even evidence that at least in the 1990's income inequality fell. Now these are interesting facts because we have been told that these forces of globalization can not be stopped. Everyone has to just accept that. We have been told that these
forces shouldn't be stopped because it's driven by
a technological progress and therefore trying to meddle with them is like trying to turn the clock back. No, that's not true. A lot of countries have done
things to contain the effects and despite having one of
the least open economies in the rich world, the
U.S. has experienced huge increase in inequality from what already was one of the highest
levels among the rich world, exactly because it used
different policies. There's the smaller welfare state, it's at the corporate governance system is much more pro-corporate,
labor law is more anti-labor. So the typical reaction from
the angry people in the U.S. was it's all because of the Chinese, it's all because
factories moving to Mexico but the real reason for
increase in inequality and the mass production of angry people in the U.S. lye actually elsewhere. It was other countries
that have shown that despite being far more open
to international economic forces they could contain inequality. There is another
interesting historical fact that corroborates this point, in the late 19th century
and early 20th century, roughly between 1870 and 1914 there was another high point of globalization. Roughly speaking, during
this period the world economy was basically as
globalized as it is today. In some ways it was more
globalized, in some ways less. What were the technologies that they used to achieve that degree of globalization? Basically steamships and wired,
not even wireless telegraph. In contrast, in the 1950's, 60's and 70's we had basically, all the technologies of communication and transportation that we have today except for the internet. In those days there were already airplanes, there were fax machines. Despite that, that period
was much less globalized then the earlier period in the late 19, early 20th century, basically showing that technology is not a defining factor. The world economy was much less globalized in the early post Second World War period, compared to the late
19 early 20th century. Exactly because countries
deliberately control the degree of globalization partly through national policies, partly
through international agreements. So even today we shouldn't
accept the outcomes of this globalization as a force of nature that we can avoid, a lot of countries have done lots of things
to change the outcome. Once you begin to think that this is some irresistible force of nature then you basically lose
control of your destiny.
