18/8/2016 GlobalizationanditsNewDiscontentsbyJosephE.

StiglitzProjectSyndicate

ECONOMICS

JOSEPHE.STIGLITZ
JosephE.Stiglitz,recipientoftheNobelMemorialPrizeinEconomicSciencesin2001
andtheJohnBatesClarkMedalin1979,isUniversityProfessoratColumbiaUniversity,
CoChairoftheHighLevelExpertGroupontheMeasurementofEconomicPerformance
andSocialProgressattheOECD,andChiefEconomistoftheRooseveltInstitute.A
formerseniorvicepresidentandchiefeconomistoftheWorldBankandchairoftheUS
presidentsCouncilofEconomicAdvisersunderBillClinton,in2000hefoundedtheInitiativeforPolicy
Dialogue,athinktankoninternationaldevelopmentbasedatColumbiaUniversity.Hismostrecentbook
isRewritingtheRulesoftheAmericanEconomy.

AUG5,2016

GlobalizationanditsNew
Discontents
NEWYORKFifteenyearsago,Iwrotealittlebook,entitledGlobalizationandits
Discontents,describinggrowingoppositioninthedevelopingworldtoglobalizingreforms.
Itseemedamystery:peopleindevelopingcountrieshadbeentoldthatglobalization
wouldincreaseoverallwellbeing.Sowhyhadsomanypeoplebecomesohostiletoit?

Now,globalizationsopponentsintheemergingmarketsanddevelopingcountrieshave
beenjoinedbytensofmillionsintheadvancedcountries.Opinionpolls,includinga
carefulstudybyStanleyGreenbergandhisassociatesfortheRooseveltInstitute,show
thattradeisamongthemajorsourcesofdiscontentforalargeshareofAmericans.Similar
viewsareapparentinEurope.

Howcansomethingthatourpoliticalleadersandmanyaneconomistsaidwouldmake
everyonebetteroffbesoreviled?

Oneansweroccasionallyheardfromtheneoliberaleconomistswhoadvocatedforthese
policiesisthatpeoplearebetteroff.Theyjustdontknowit.Theirdiscontentisamatter
forpsychiatrists,noteconomists.

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Butincomedatasuggestthatitistheneoliberalswhomaybene itfromtherapy.Large
segmentsofthepopulationinadvancedcountrieshavenotbeendoingwell:intheUS,the
bottom90%hasenduredincomestagnationforathirdofacentury.Medianincomefor
fulltimemaleworkersisactuallylowerinreal(in lationadjusted)termsthanitwas42
yearsago.Atthebottom,realwagesarecomparabletotheirlevel60yearsago.

TheeffectsoftheeconomicpainanddislocationthatmanyAmericansareexperiencing
areevenshowingupinhealthstatistics.Forexample,theeconomistsAnneCaseand
AngusDeaton,thisyearsNobellaureate,haveshownthatlifeexpectancyamong
segmentsofwhiteAmericansisdeclining.

ThingsarealittlebetterinEuropebutonlyalittlebetter.

BrankoMilanovicsnewbookGlobalInequality:ANewApproachfortheAgeof
Globalizationprovidessomevitalinsights,lookingatthebigwinnersandlosersinterms
ofincomeoverthetwodecadesfrom1988to2008.Amongthebigwinnerswerethe
global1%,theworldsplutocrats,butalsothemiddleclassinnewlyemergingeconomies.
Amongthebiglosersthosewhogainedlittleornothingwerethoseatthebottomand
themiddleandworkingclassesintheadvancedcountries.Globalizationisnottheonly
reason,butitisoneofthereasons.

Undertheassumptionofperfectmarkets(whichunderliesmostneoliberaleconomic
analyses)freetradeequalizesthewagesofunskilledworkersaroundtheworld.Tradein
goodsisasubstituteforthemovementofpeople.ImportinggoodsfromChinagoods
thatrequirealotofunskilledworkerstoproducereducesthedemandforunskilled
workersinEuropeandtheUS.

Thisforceissostrongthatiftherewerenotransportationcosts,andiftheUSandEurope
hadnoothersourceofcompetitiveadvantage,suchasintechnology,eventuallyitwould
beasifChineseworkerscontinuedtomigratetotheUSandEuropeuntilwagedifferences
hadbeeneliminatedentirely.Notsurprisingly,theneoliberalsneveradvertisedthis
consequenceoftradeliberalization,astheyclaimedonecouldsayliedthatallwould
bene it.

Thefailureofglobalizationtodeliveronthepromisesofmainstreampoliticianshassurely
underminedtrustandcon idenceintheestablishment.Andgovernmentsoffersof
generousbailoutsforthebanksthathadbroughtonthe2008 inancialcrisis,while
leavingordinarycitizenslargelytofendforthemselves,reinforcedtheviewthatthis
failurewasnotmerelyamatterofeconomicmisjudgments.

IntheUS,CongressionalRepublicansevenopposedassistancetothosewhoweredirectly
hurtbyglobalization.Moregenerally,neoliberals,apparentlyworriedaboutadverse
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incentiveeffects,haveopposedwelfaremeasuresthatwouldhaveprotectedthelosers.

Buttheycanthaveitbothways:ifglobalizationistobene itmostmembersofsociety,
strongsocialprotectionmeasuresmustbeinplace.TheScandinavians iguredthisout
longago;itwaspartofthesocialcontractthatmaintainedanopensocietyopento
globalizationandchangesintechnology.Neoliberalselsewherehavenotandnow,in
electionsintheUSandEurope,theyarehavingtheircomeuppance.

Globalizationis,ofcourse,onlyonepartofwhatisgoingon;technologicalinnovationis
anotherpart.Butallofthisopennessanddisruptionweresupposedtomakeusricher,and
theadvancedcountriescouldhaveintroducedpoliciestoensurethatthegainswere
widelyshared.

Instead,theypushedforpoliciesthatrestructuredmarketsinwaysthatincreased
inequalityandunderminedoveralleconomicperformance;growthactuallyslowedasthe
rulesofthegamewererewrittentoadvancetheinterestsofbanksandcorporationsthe
richandpowerfulattheexpenseofeveryoneelse.Workersbargainingpowerwas
weakened;intheUS,atleast,competitionlawsdidntkeepupwiththetimes;andexisting
lawswereinadequatelyenforced.Financializationcontinuedapaceandcorporate
governanceworsened.

Now,asIpointoutinmyrecentbookRewritingtheRulesoftheAmericanEconomy,the
rulesofthegameneedtobechangedagainandthismustincludemeasurestotame
globalization.ThetwonewlargeagreementsthatPresidentBarackObamahasbeen
pushingtheTransPaci icPartnershipbetweentheUSand11Paci icRimcountries,and
theTransatlanticTradeandInvestmentPartnershipbetweentheEUandtheUSare
movesinthewrongdirection.

ThemainmessageofGlobalizationanditsDiscontentswasthattheproblemwasnot
globalization,buthowtheprocesswasbeingmanaged.Unfortunately,themanagement
didntchange.Fifteenyearslater,thenewdiscontentshavebroughtthatmessagehometo
theadvancedeconomies.

http://prosyn.org/3lx3Mm4

19952016ProjectSyndicate

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