Who are the losers of globalization? Many people claim that the rise of the three p’s (populism, patriotism and protectionism) is motivated by the fact that the benefits of globalization are unequally distributed over the population. But is this true?
Globalisation at work
The answer to that question is obscured by the fact that it is not exactly clear what globalization means nor how a ‘loser’ should be defined. The scale that comes with widening of markets has many manifestations, each with different impact and feel. Sure, worldwide trade increased from 505 billion dollars in 1955 to a staggering 8.164 billion in 2004. And has easily doubled since then.
But there is more than just trade. Labor markets and education are internationalized. Global tourism booms. Production processes are increasingly fragmented to profit from comparative advantages. Financial transfers are whizzing all over the world at a dazzling pace.
The cake is bigger
It is uncontroversial even among skeptics that globalization in all its manifestations increases the global cake. But what about the distribution of the cake? Protagonists often claim that poorer countries and poor people also profit substantially from globalization. Skeptics point at unequal distributions of income or wealth.
They are both right yet miss the point. Sure enough globalization also benefited poorer countries. If you consider lifting the tail as a good measure of fairness there are no reasons to complain. Poverty has declined steadily.
Who eats the cake
The skeptics are also right. The tail may have been lifted but the other side of the distribution benefited even more, most notably in the US where one percent of the richest people out-earn more than 40% of the rest. Only Zimbabwe does worse than that. The 80% poorest people in the US only earn 7% of the national income.
Another critical note comes from Dani Rodrik. Quite counter-intuitively, you can better be poor in a rich country (top 10%) than rich in a poor country (bottom 10%), since that makes you roughly three times better off.
It is ethically complicated to decide what is more important: increasing the cake or distributing the cake fairly. Can one have both? Maybe.
The benefits of globalization would be better distributed if poor people in poor countries are lifted from poverty. But one can hardly blame globalization, since corrupt regimes more than often prevent that from happening. Apart from educating women, most other attempts to break that devilish chain are doomed to be partially successful, at the very best.
What about the West
If we look at the West, is it true then that poorer people are stuck in the global mud? Against popular belief Lithuanian truck drivers, Polish plumbers or Syrian refugees do not lead to mass unemployment among the local communities. But the relationship between globalization and the fate of people at the bottom of the education ladder is more complicated than that.
How come that the regions that are likely to be damaged most by Brexit are the same regions that voted most heavily in favor of Brexit (according to Demos)? So more trade is bad but less trade is bad too?
Paradoxically, this is roughly true. An old Chinese proverb (I stole this one from Rodrik): Open the windows, but don’t forget the mosquito net. Fresh air is fine, but insects are not. The mechanism runs as follows. Increased exposure to trade makes some sectors vulnerable, and consequently people working in the endangered sectors have to employ themselves in different ways. In the long run this is a healthy mechanism and all benefit. But on the transition phase those who find it difficult to manage change will be stuck.
Losers of transition
The transition phase is notoriously hard to handle and is omitted from standard economic text books where markets typically clear. As a consequence it has been neglected by not only the mainstream economic profession but by political leaders as well. Letting people adapt to new realities is time consuming. As is making sure the whole legal construct is future proof and not based on old logic.
The costs of that neglect are disproportionally on the shoulders of people with relatively poor education. They will benefit in the future, but suffer in the present. Investing in education alone will help future generations, but not them.
The Chinese Mosquito net
If Western governments want to make sure that the benefits of globalization are more equally distributed among their citizens it is time to manage change by buying a Chinese Mosquito net. Appoint a minister of change. With a pinch of labor market policy, a touch of social security innovation, a handful of training and tons of democratic refreshments it must be doable.
It requires to say goodbye to traditional stovepipe thinking inside governments, since managing change is a multidimensional challenge. But what the hack, those nasty little stovepipes where long overdue anyway.