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Globalization and
Inequality
J. Bradford DeLong
U.C. Berkeley
,
NBER
, and WCEG
http://bradford-delong.com
brad.delong@gmail.com
@delong
2017-06-02
.pages:
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0_H9kCtNY6cZglaYpa4IRw2pQ
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i9__uHwnHA0thhTg
.html:
words
I. Panel
A. JEF-APARC Forum
Naoyuki Haraoka
, JEF: Moderator
Brad DeLong,
U.C. Berkeley
Francis Fukuyama
, Stanford
Yoriko K
awagu
chi
,
Meiji Institute for Global Affairs
H
ideichi
O
kada
,
Japan Petroleum Exploration
Co.
Encina Hall, Stanford University
I
I
.
DeLong Opening
A. Proceed with Caution
What can we say about globalization and inequality?
First, we must say that we have to proceed with caution.
We face truly grave problems of measurement—at
measuring the extent of globalization, at measuring the
prosperity and rate of economic growth of the world, and at
measuring inequality.
The problems of measuring growth become insuperable
unless we largely neglect the fact that we produce and
consume not just more of the same commodities than we
did in 1800, but new commodities and new kinds of
commodities that give us, as John Maynard Keynes wrote a
hundred years ago, "conveniences, comforts, and amenities
1
beyond the compass of the richest and most powerful
monarchs of other ages". The problems of measuring
inequality become insuperable unless we largely neglect
the implications of fact that an income one-third of the
geometric average two hundred years ago meant that you
starved to death unless someone took explicit pity on you
personally, while an income one-third the geometric
average today leaves you poor relative to your neighbors,
but still rich relative to your ancestors. But if you wanted
deep thoughts about these issues, you would have called for
a philosopher rather than an economist.
B. Our Rough Guesses
Thus: neglecting these issues, the world's prosperity center-
of-gravity—the geometric average level of production—
was up from perhaps $1000 of today's real-value
international dollars per capita per annum to $4000 , and
the world's life expectancy was up from 28 to 65 years over
the period 1800-1976. And in the past forty years prosperity
has jumped from $4000 to $9000, and life expectancy from
from 65 to 75.
But look at the spread. The spread was roughly a factor of 8
in 1800: few countries then had average income levels less
than $500 or more than $4000 per capita per annum. The
spread rose to a factor of 32 as of 1976: few countries then
2
had average income levels less than $500 or more than
$16000 per capita per annum. The spread remains a factor
or 32 today: few countries now have average income levels
less than $1000 or more than $32000 per capita per annum.
While the story across nations is one of growing inequality
from 1800-1976 followed by a stable level of inequality,
the story across people is considerably different. The
relative spread of people's incomes today is substantially,
gratifyingly, and fortunately much smaller than it was in
1976. Russia has regressed, not absolutely—fortunately—
but relatively toward the global geometric mean.
C. China and India
China and India have grown at stupendous rates so that
they now are within close shouting distance above and
below the global geometric mean, and few countries and
only one large country—Japan—already rich has grown
rapidly and so pulled, relatively, signifi cantly further ahead
of the global geometric mean. Russia and Japan offset each
other. So the "convergence" of relatively income levels
across the globe that we have seen over the past forty years
that has, in combination with underlying economic growth,
made it the best forty year period for human economic
material progress ever in global history is 100
%
a China-
India phenomenon.
3
That is is only two countries makes this "convergence"
diffi cult to interpret as we try to assess the likely future.
Have we seen good governance institutions spread to
another 30
%
of the human race, leaving less than 40
%
of
the world with severely sub-par institutions as far as
economic growth is concerned? In that case, we would
expect good governance institutions for economic growth
to continue to spread over the next two generations, and we
would be hopeful. Or did just good luck bring good leaders
to power in two countries—albeit the two countries that
together amount to 30
%
of the human race—in which case
normal luck would see the next two countries to get good
governance institutions be small ones, and would perhaps
see institutional backsliding, perhaps severe institutional
backsliding, in China and India? On such questions as this
does our optimism or pessimism about the human global
future depend.
D. Branko Milanovic’s Elephant Diagram
The pattern of global growth over the past generation or so
in terms of the incomes accruing to different percentile
slots in the global income distribution are well-captured in
what has come to be called Branko Milanovic’s “Elephant
Diagram”: the tail of the elephant are the global poorest,
whose lives were and remain virtually indistinguishable
4
from those of our pre-industrial agrarian age ancestors
under the curse of Malthus. The back of the elephant is the
global prosperous working and middle class—primarily but
far from exclusively in China. The upward-lifted tip of the
trunk is the global overclass, the elite. the downward-
pointing base of the trunk is Russia. And the fi rst upward
curve is the middle class of the North Atlantic economies,
for whom—especially for the native-born males among
whom—the past generation or so has been the worst period
since 1850.
E. Globalization, Technology, Education,
Institutions as Causes and as Scapegoats
In what sense is “globalization” the cause of this distressing
recent generation plus for the North Atlantic middle
classes? Or, alternatively, in what sense is “globalization”
the scapegoat to which the North Atlantic middle classes
resort on their own out of ignorance or are led to resort in
an attempt to distract them from the true causes—or, in
many cases, simply because if you scare mostly-elderly
people about foreigners you can keep their eyeballs glued
to the TV and so collect money from advertisers as they try
to sell them overpriced gold funds and fake diabetes cures?
The overwhelming part of the story is: technology and
educational failure as cause, and globalization as scapegoat.
5
In brief:
•
In the United States, m
anufacturing employment
has
gone
from 30
%
to 12
%
because of technology
.
•
Japan has seen analogous but much smaller
technological trends—in large part because
technological forces have been hobbled, if that is the
word, by institutions in important sectors like food
processing
•
The decline in manufacturing employment has been
made
a much bigger deal
for distribution in the
United States
because the U.S. lost the race between
education and technology
.
•
Has it been m
ade a bigger deal because of the rise of
the overclass?
At U. Chicago, it is conventional to
bow to Sherwin Rosen’s “superstar economy” ideas
and view the rise of the overclass as an unmixed
blessing. Not so at Berkeley.
•
In the United States, m
anufacturing employment
has
gone
from 12
%
to 9
%
because of
an ill-managed
savings-investment balance
.
•
Not so in Japan: if the Japan savings-investment
balance has been ill-managed, it has been so in the
opposite direction.
•
The catastrophic mistake of the
Reagan and Bush
defi cits
—starving the country of savings in order to
overincentivize the nascent overclass.
6
•
Japan and Germany offer a different road
•
Globalization provided an important safety valve:
allowed a low savings country to continue to invest,
albeit at an inadequate pace.
•
Here g
lobalization
is
not the cause but the scapegoat
—and a partial cure.
•
“Bad trade deals!”
•
Manufacturing employment from 9
%
to 8.7
%
because of the China shock
•
Manufacturing employment from 8.7
%
to 8.6
%
because of NAFTA
•
Trump’s economic policy team appears to have
two ideas for how to renegotiate NAFTA
•
Require year-by-year bilateral balance
everywhere.
•
Force Canada and Mexico to accept the
provisions of the TPP
•
No effect of TPP
E. Globalization
,
Job Instability
,
and Job
Quality in America
Manufacturing and other goods value
-
chain jobs become
unstable because of the post-1980 dollar cycles
the sharp
up from the inauguration of Ronald Reagan to the Plaza,
the sharp down from the Plaza to the Louvre, the sharp up
7
during the dot-com boom, the down of the 2000s, and now
—perhaps—the start of a Trump dollar cycle. These very
large exchange rate fluctuations are s
ide effects of improper
governance and policy non-coordination
. But since the end
of Bretton Woods governments in the Global North appear
to have decided that they would much rather let currencies
float as shock absorbers than commit themselves to policy
coordination to damp such fluctuations. The consequence
has been to make export and import-competing
manufacturing sectors very unstable—and thus very risky,
especially for workers but also for investors and managers.
What role has this instability played in undermining the
institutional job ladders that used to exist for blue-collar
workers in the U.S., and still exist in Japan. And what role
have this and other sources of instability started to play
since the mid-2000s in undermining the institutional white-
collar job ladder stability as well? One powerful possibility
is that m
anufacturing and other goods value
-c
hain jobs are
good jobs only as long as they are union jobs
. And dollar-
cycle instability has meant maintaining a strong union
movement in affected industries nearly impossible—even if
fi rms do not prioritize union destruction.
These issues are still very unsettled. I would point people to
the arguments raised by and the forthcoming debate around
Richard Baldwin’s new
The Great Convergence
:
8
Information Technology and the New Globalization
<
http://
amzn.to/2rhle17
>.
I would also say that we are next to nowheresville in terms
of understanding the sources of the rise of the overclass in
America. There are lots of very good but speculative
theories and ideas. But there is little consensus. I fi nd
“winner take all economy” explanations completely
inadequate. But what is adequate? I would point out that
increasing investigation of tax avoidance and tax evasion
strongly suggests that the rise of the overclass has been
much stronger than one gets from the Piketty-Saez tax data.
But I would also point out that, here in the U.S., pre-1987,
large amounts of soft-dollar compensation and the use of
recapitalizations to create ownership interests then passed
on at death or committed to foundations means that we
have less insight into historical trends than we would wish.
We do know that the situation is not stable. We can see,
ahead, the possible transformation of the American
overclass into one in which inheritance has played a much
greater role
a la
Piketty. Has globalization played a large
role in its rise? If so, it is a role that Japan—and much of
continental Europe—have been largely able to neutralize.
English-speaking countries, resource exporters like the
Middle East and Russia, and emerging market economies
able to fi nd a place in global value chains appear to be in
9
