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Posts Tagged ‘Globalization’

A Brief History of (In)equality

Posted by hkarner - 28. Juli 2016

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J. Bradford DeLong

J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

JUL 27, 2016, Project Syndicate

BERKELEY – The Berkeley economist Barry Eichengreen recently gave a talk in Lisbon about inequality that demonstrated one of the virtues of being a scholar of economic history. Eichengreen, like me, glories in the complexities of every situation, avoiding oversimplification in the pursuit of conceptual clarity. This disposition stays the impulse to try to explain more about the world than we can possibly know with one simple model.

For his part, with respect to inequality, Eichengreen has identified six first-order processes at work over the past 250 years.

The first is the widening of Britain’s income distribution between 1750 and 1850, as the gains from the British Industrial Revolution went to the urban and rural middle class, but not to the urban and rural poor.

Second, between 1750 and 1975, income distribution also widened globally, as some parts of the world realized gains from industrial and post-industrial technologies, while others did not. For example, in 1800, American purchasing power parity was twice that of China; by 1975 it was 30 times that of China.

The third process is what is known as the First Age of Globalization, between 1850 and 1914, when living standards and labor productivity levels converged in the global north. During this time, 50 million people left an overcrowded agricultural Europe for resource-rich new settlements. They brought their institutions, technologies, and capital with them, and the wage differential between Europe and these new economies shrank from roughly 100% to 25%.

This mostly coincided with the Gilded Age between 1870 and 1914, when domestic inequality rose in the global north as entrepreneurship, industrialization, and financial manipulation channeled new gains mostly to the wealthiest families.

Gilded Age inequality was significantly reversed during the period of social democracy in the global north, between 1930 and 1980, when higher taxes on the wealthy helped pay for new government benefits and programs. But the subsequent and last stage brings us to the current moment, when economic policy choices have again resulted in a widening of the distribution of gains in the global north, ushering in a new Gilded Age.

Eichengreen’s six processes affecting inequality are a good starting point. But I would go further and add six more.

First, there is the stubborn persistence of absolute poverty in some places, despite the extraordinary overall reduction since 1980. As the UCLA scholar Ananya Roy points out, people in absolute poverty are deprived of both the opportunities and the means to change their status. They lack what the philosopher Isaiah Berlin called “positive liberty” – empowerment for self-actualization – as well as “negative liberty,” or freedom from obstacles in one’s path of action. Seen in this light, inequality is an uneven distribution not only of wealth, but also of liberty.

Second is the abolition of slavery in many parts of the world during the nineteenth century, followed by, third, the global loosening over time of other caste constraints – race, ethnicity, gender – which deprived even some people with wealth of the opportunities to use it.

The fourth process consists of two recent high-growth generations in China and one high-growth generation in India, which has been a significant factor underlying global wealth convergence since 1975.

Fifth is the dynamic of compound interest, which through favorable political arrangements allows the wealthy to profit from the economy without actually creating any new wealth. As the French economist Thomas Piketty has observed, this process may have played some role in our past, and will surely play an even bigger role in our future.

At this point, it should be clear why I began by noting the complexity of economic history. This complexity implies that any adjustments to our political economy should be based on sound social science and directed by elected leaders who are genuinely acting in the interest of the people.

Emphasizing complexity brings me to a final factor affecting inequality – perhaps the most important of all: populist mobilizations. Democracies are prone to populist uprisings, especially when inequality is on the rise. But the track record of such uprisings should give us pause.

In France, populist mobilizations installed an emperor – Napoleon III, who led a coup in 1851 – and overthrew democratically elected governments during the Third Republic. In the United States, they underpinned discrimination against immigrants and sustained the Jim Crow era of legal racial segregation.

In Central Europe, populist mobilizations have driven imperial conquests under the banner of proletarian internationalism. In the Soviet Union, they helped Vladimir Lenin consolidate power, with disastrous consequences that were surpassed only by the horrors of Nazism, which also came to power on a populist wave.

Constructive populist responses to inequality are fewer, but they should certainly be mentioned. In some cases, populism has helped in extending the franchise; enacting a progressive income tax and social insurance; building physical and human capital; opening economies; prioritizing full employment; and encouraging migration.

History teaches us that these latter responses to inequality have made the world a better place. Unfortunately – and at the risk of oversimplification – we usually fail to heed history’s lessons.

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The Globalization Disconnect

Posted by hkarner - 26. Juli 2016

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Stephen S. Roach
Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm’s chief economist, is a senior fellow at Yale University’s Jackson Institute of Global Affairs and a senior lecturer at Yale’s School of Management. He is the author of Unbalanced: The Codependency of America and China.

JUL 25, 2016, Project Syndicate

NEW HAVEN – While seemingly elegant in theory, globalization suffers in practice. That is the lesson of Brexit and of the rise of Donald Trump in the United States. And it also underpins the increasingly virulent anti-China backlash now sweeping the world. Those who worship at the altar of free trade – including me – must come to grips with this glaring disconnect.

Truth be known, there is no rigorous theory of globalization. The best that economists can offer is David Ricardo’s early nineteenth-century framework: if a country simply produces in accordance with its comparative advantage (in terms of resource endowments and workers’ skills), presto, it will gain through increased cross-border trade. Trade liberalization – the elixir of globalization – promises benefits for all.

That promise arguably holds in the long run, but a far tougher reality check invariably occurs in the short run. Brexit – the United Kingdom’s withdrawal from the European Union – is just the latest case in point. Den Rest des Beitrags lesen »

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The Global Economy’s Hesitation Blues

Posted by hkarner - 22. Juli 2016

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Robert J. Shiller

Robert J. Shiller, a 2013 Nobel laureate in economics, is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of
Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Phishing for Phools: The Economics of Manipulation and Deception, co-authored with George Akerlof.

JUL 21, 2016, Project Syndicate

NEW HAVEN – Economic slowdowns can often be characterized as periods of hesitation. Consumers hesitate to buy a new house or car, thinking that the old house or car will do just fine for a while longer. Managers hesitate to expand their workforce, buy a new office building, or build a new factory, waiting for news that will make them stop worrying about committing to new ideas. Viewed from this perspective, how worried should we be about the effects of hesitation today?

Hesitation is often like procrastination. One may have vague doubts and feel a need to mull things over; meanwhile, other issues intrude on thought and no decision is taken. Ask people why they procrastinate, and you probably won’t get a crisp answer. Den Rest des Beitrags lesen »

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The Presidential Candidates Get Globalization All Wrong

Posted by hkarner - 20. Juli 2016

Date: 19-07-2016
Source: The Washington Post

Globalization has become the scapegoat for inequality, poor jobs, reduced wages and other economic problems – real and perceived – during the US presidential election. “What’s lost in the obsession with globalization is the fact that the American economy is driven mainly by domestic factors,” writes Robert Samuelson in a column for the Washington Post, adding that about 75 percent of the US economy is domestic whereas other countries have higher trade dependence. The subprime crisis of 2007 that triggered global recession was a domestic challenge for the country. A strong US dollar and not trade agreements are a reason for trade deficits. US politicians should focus on encouraging corporate investment, business start-ups, productivity and reducing government debt. – YaleGlobal

70 percent of US economy is based on domestic factors; government debt, slowed corporate investment – not globalization – contribute to economic woes

Robert J. Samuelson is a columnist for the Washington Post.Samuelson

Can we get globalization right? It has emerged as an all-purpose scapegoat for our economic woes — lost jobs, depressed wages, large trade deficits, greater income inequality, anxieties about the future. The reality is otherwise: Although globalization is genuine, it has been distorted and its ills exaggerated. I have written about this before, but because the issue is so central to the campaign debate, it’s worth revisiting.

There can be no doubt that globalization has been cast as an economic villain. Donald Trump recently gave a major address on the economy. It was almost exclusively devoted to the alleged evils of globalization. Here’s a sample: Den Rest des Beitrags lesen »

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Brexit Counterrevolution Is Risk to London

Posted by hkarner - 15. Juli 2016

Date: 14-07-2016
Source: The Wall Street Journal

Though likely to remain Europe’s financial hub, it faces home-grown political uncertainty

Three weeks after the Brexit vote, a consensus is emerging that the U.K.’s decision to quit the European Union was primarily a revolt against globalization by “left behind” voters registering their anger at excessive immigration, which they blamed for driving down wages and putting pressure on public services.

There is plenty of evidence to buttress this thesis. Support for Brexit was strongest in areas that tend to be the most economically disadvantaged and where average levels of education are low, according to Professor Matthew Goodwin of Kent University.

But this “left behind” narrative hardly tells the whole story. It doesn’t explain why 75% of Conservative-held constituencies voted for Brexit, or nearly half of Tory MPs, or 58% of Conservative voters. Nor does it explain why support for Brexit tended to be higher in areas where immigration was lowest or highest among pensioners, while younger voters who are more exposed to globalization backed staying in the EU. Den Rest des Beitrags lesen »

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Remaking Britain

Posted by hkarner - 14. Juli 2016

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Gordon Brown

Gordon Brown, former Prime Minister and Chancellor of the Exchequer of the United Kingdom, is United Nations Special Envoy for Global Education and Chair of the International Commission on Financing Global Education Opportunity.

JUL 13, 2016, Project Syndicate

LONDON – Britain will have a new prime minister today – but the country’s post-European Union future remains uncertain. Indeed, prolonged delays are likely in implementing the voters’ decision to leave the EU.

The first uncertainty is the date when exit negotiations will start. The process should be completed within two years of invoking Article 50 of the Treaty of Lisbon; but the incoming prime minister, Theresa May, has already said she would not want to trigger negotiations until the end of the year.

The second uncertainty is whether the negotiations can simultaneously resolve the United Kingdom’s terms of exit from the EU and its future trading arrangements with Europe’s single market. While the UK will claim that, under Article 50, negotiators should be “taking into account the framework of future relationships,” the EU trade negotiator is insisting that future arrangements can be discussed only after Britain leaves. Den Rest des Beitrags lesen »

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The Abdication of the Left

Posted by hkarner - 12. Juli 2016

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Dani Rodrik

Dani Rodrik is Professor of International Political Economy at Harvard University’s John F. Kennedy School of Government. He is the author of The Globalization Paradox: Democracy and the Future of the World Economy and, most recently, Economics Rules: The Rights and Wrongs of the Dismal Science.

JUL 11, 2016, Project Syndicate

RONDA, SPAIN – As the world reels from the Brexit shock, it is dawning on economists and policymakers that they severely underestimated the political fragility of the current form of globalization. The popular revolt that appears to be underway is taking diverse, overlapping forms: reassertion of local and national identities, demand for greater democratic control and accountability, rejection of centrist political parties, and distrust of elites and experts.

This backlash was predictable. Some economists, including me, did warn about the consequences of pushing economic globalization beyond the boundaries of institutions that regulate, stabilize, and legitimize markets. Hyper-globalization in trade and finance, intended to create seamlessly integrated world markets, tore domestic societies apart. Den Rest des Beitrags lesen »

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The Era of the Angry Voter Is Upon Us

Posted by hkarner - 10. Juli 2016

Date: 08-07-2016
Subject: Electorate Tremors: The Era of the Angry Voter Is Upon Us

Whether they are fans of Donald Trump, supporters of Brexit or Marine Le Pen voters in France, „angry voters“ have one thing in common: They’ve been left in the dust by globalization.

Paula Heap and Joel Coe live 6,400 kilometers apart. They don’t even know each other, but they share the same sense of outrage.

She voted for Brexit and he intends to vote for Donald Trump in November. She hails from Preston, a city in northwest England that never truly recovered from the decline of the textiles industry. He’s an American from the small town of Red Boiling Springs in northern Tennessee. His textiles factory, Racoe Inc., is the last of its kind still in business in the area.

It’s Heap’s view that globalization has created a lot of winners and a lot of losers, and that Preston is among the losers. She describes the EU as an „empire“ that regulates her electric water kettle but doesn’t create any prosperity. She’s riled by the many immigrants, saying the pressure on the labor market and the health system is increasing. „We want to retain control over immigration,“ she says. Den Rest des Beitrags lesen »

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The Brexit Alarm

Posted by hkarner - 8. Juli 2016

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Adair Turner

Adair Turner, a former chairman of the United Kingdom’s Financial Services Authority and former member of the UK’s Financial Policy Committee, is Chairman of the Institute for New Economic Thinking. His latest book is Between Debt and the Devil.

JUL 7, 2016, Project Syndicate

LONDON – As a passionate European, the outcome of Britain’s referendum on European Union membership horrified me. It will almost certainly result in our exit from the EU. But I have feared for many years that large-scale immigration to the UK would produce a harmful populist response.

Global elites must now learn and act upon the crucial lesson of “Brexit.” Contrary to glib assumptions, globalization of capital, trade, and migration flows is not “good for everyone.” If we do not address its adverse effects, Brexit will not be the last – or the worst – consequence.

Net immigration to Britain was close to zero in the early 1990s. It began to increase later that decade, and grew rapidly after eight formerly communist countries joined the EU in 2004, when Britain – unlike, for instance, France and Germany – waived its right to impose a seven-year delay before allowing free movement of people from the new member states. Last year, net immigration was 333,000, and the total population grew by around 500,000. Credible forecasts suggest that the UK’s population, now 64 million, could be above 80 million by mid-century. Den Rest des Beitrags lesen »

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The Impact of Financial Globalization on the Brexit Vote

Posted by hkarner - 7. Juli 2016

By on July 6, 2016, RGE EconoMonitor  Joyce cc

The reasons for the majority vote in favor of the United Kingdom leaving the European Union will be studied and analyzed for years to come. Globalization in the form of migration—or fear of migration—played a considerable role. Support for leaving the EU was also high in the British version of the “rust belt,” in this case the industrial Northern areas that have lost jobs to overseas competitors. But financial globalization also played a role in exacerbating the divisions that led to the vote to exit.

London’s role as an international financial center has served that city well. According to The Guardian, “The capital generates 22% of the UK’s gross domestic product, much of this from financial services, despite accounting for only 12.5% of the UK population.” Those employed in the financial sector have been well compensated for their work. In a study of financial sector wages in London, Joanne Lindley of King’s College London and Steve McIntosh of the University of Sheffield (see a shorter version here) report that “…the average wage in the financial sector was almost three times as large as the average wage across the whole private sector in 2009.” The same phenomenon has been observed in wages in the U.S. financial sector as well as in other European economies.

The relatively high wages paid to those employed in the financial sector contributes to rising income inequality in the UK. The Gini coefficient, a measure of income inequality, has soared in recent years, and according to one report is now the highest in Europe. According to the Equality Trust, “Average household income in London is considerably higher than in the North East.” But this disparity across the regions of the country has not been an issue in recent elections, leaving those outside the financial sector feeling left behind and marginalized. Den Rest des Beitrags lesen »

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