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Tuesday 22 Aug 2017 | 09:48 | SYDNEY
Tuesday 22 Aug 2017 | 09:48 | SYDNEY

Life in the middle (3): More second thoughts on globalisation



8 June 2012 11:52

In a couple of earlier posts, I've noted that right now it's possible to tell two quite powerful but also quite different stories about life in the middle in the world economy. One of these is a depressing tale about a squeezed developed-country middle class; the other is a much more positive narrative about the transfer of hundreds of millions of people out of poverty in the developing world.

Inevitably, the fact that these stories are occurring concurrently raises the question of whether there are links between the two. More specifically, is an expanding middle in the developing world coming at the expense of a shrinking middle class in the developed world?

Yes, this is yet another variation on the familiar question as to whether globalisation in general and liberal trading regimes in particular have been good for workers in the developed world. One early version of this debate was fought out in the 1980s and 1990s, when economists argued over the relative roles played by technology and trade in explaining disappointing labour market outcomes (broadly speaking, high unemployment in Europe, greater wage inequality in the US). Back then, the professional consensus tended to be that technology was much the more important factor.

Since then, however, international economic integration has continued to grow, and the debate has been re-opened. So, for example, Nobel Prize winner Michael Spence recently argued that the impact of globalisation has changed over time. Up until about ten years ago, he reckons its effect on the distribution of wealth and jobs was largely benign, but as emerging economies have become both larger and richer, the consequences for the rich world have changed. And yet, other economists continue to see technology, not trade, as the dominant factor.

Even if the pessimists are right, however, and it is true that globalisation has made life tougher for some in the developed world, this still has to be set against the substantial benefits accruing to those in the emerging economies.

To the extent that the winners are both more numerous and (on average) much poorer than the losers, the moral calculus may still turn out to be firmly in favour of globalisation even in the pessimistic case. The fact that some of the biggest winners of all are the richest in both developed and developing economies perhaps blunts the force of this argument somewhat. And it also doesn't rule out the possibility of designing (or repairing) institutions that do a better job of sharing out the gains from globalisation in both the developed and developing worlds.

Back before the financial crisis I wrote a paper called Second Thoughts on Globalisation, in which I argued that a combination of factors, including rising inequality and fears about the effects of international trade, meant that large parts of the developed world were having second thoughts about the benefits of globalisation. Post-crisis, the growing social pressures across the advanced economies are adding to this disenchantment. This raises two important questions about the trajectory of globalisation:

  • Will this change in sentiment among developed country populations be sufficient to trigger major policy reversals with respect to international integration and openness in the developed world?
  • Will the new 'winners' from globalisation in the emerging world produce an effective counter-weight to any such shift in the advanced economies?

Photo by Flickr user JefferyTurner.

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