roach67_Olivier Douliery_Stringer_tpp protest

Economics

La mondialisation menacée

Jul 25, 2016 Stephen S. Roach

NEW HAVEN – Bien que séduisante en théorie, la mondialisation est menacée dans la réalité. Telle est la leçon du Brexit et du succès de Donald Trump aux USA. C'est la réaction à la mondialisation qui sous-tend la virulente réaction anti-chinoise à travers le monde. Les adeptes du libre-échange (dont je suis) doivent affronter cette réalité.

Il n'existe pas de théorie rigoureuse de la mondialisation. Le mieux que peut nous fournir l'économie, c'est la pensée de David Ricardo au début du 19° siècle : si un pays se développe uniquement en fonction de ses avantages comparatifs (en termes de ressources et de main d'œuvre), il va bénéficier d'une intensification du commerce transfrontalier. La libre circulation des biens - la quintessence de la mondialisation - est prometteuse de bénéfices pour tous.

Cette promesse paraît réaliste à long terme, mais à court terme il faut se confronter à la dure réalité. Le Brexit en est le dernier exemple.

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0 Comments on this paragraph, 52 Comments on this article

Enrique Woll Battistini Sep 1, 2016

This article is spot on; only the blind pride prevalent in the unfettered capitalism-dependent societies in their antiquated socioeconomic-political systems can explain their 20th century outlook on the 21st century globalized world that fosters and preserves inequality and all manifestations of poverty:

http://www.academia.edu/24596360/TRUTHOUT_-_The_solid_wall_between_the_1_and_the_working_poor_in_the_USA_The_perverse_and_persisting_conundrum_of_the_minimum_wage_-_2016041801

https://www.academia.edu/13062623/Informal_Proof_of_Thomas_Pikettys_Thesis-2014060802

https://www.academia.edu/12823841/Mathematical_Model_and_Simulation_for_A_Partnership_for_Development_with_the_United_States_of_America_-_December_1999
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Barry McHugh Aug 13, 2016

The free trade argument only looks at half the equation. FInance, cross border financing, derivatives and how that complex is taxed and the interest rates are taxed and financial institutions protected, is the other half. Do you see Messrs Trump and Clinton addressing that side of the equation, and if not, are they suffering from 'regulatory capture'.
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Manu Oquendo Aug 5, 2016

This is no subject to dispatch and dismiss in a few offhanded lines of writing.
However, the Orthodox academicians --the self censored captured breed, Neoclassical, Marxians an Austrians-- should better calm down ant think slowly for a while.

Some of them should even go back to schools and redo the math on David Ricardo.
And, along their way to school, re read Kuhn on the reasons why dead Paradigms survive well beyond their useful life.
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Peter Taylor Aug 1, 2016

The UK suffered much less than the US in the 1930s because we enjoyed what I call "Globalisation-Lite", a.k.a. Empire and Commonwealth Preference, a free trade zone covering a third of the world.
- jagjeet sinha Aug 4, 2016
  
  BREXIT BOOM - AFTER EUROPEAN DOOM
  Now that Brexit is Brexit - the Troika of Leave Leadership is inside the Cabinet.
  And the Nation anxiously awaits the Light that they saw - outside of European Economics.
  America Australia Canada India & The Commonwealth were the foundation that made Britain Great.
  Britain, in hindsight after Brexit, perhaps should indeed have always remained at The heart of The Anglosphere.
  The Anglosphere must have a heart big enough for those within Europe/World who may want to stay with The Anglosphere.
  The litmus test perhaps that the official language of Club Anglosphere must be English.
  The leap into the unknown - May indeed be history repeating itself, albeit enlightened by experiences as the World's largest bloc.
  Dissolution of Sovereignty was a disaster - and against the wisdom of history.
  Clubs like these are matrix memberships, always anywhere.
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Peter Taylor Aug 1, 2016

The standard of debate on both sides of the Brexit referendum was appallingly low. The "Leave" side could not utter two sentences without rousing the xenophobic rabble with the words "border control". The "Remain" side relentlessly broadcast the "Project Fear" scare-stories, epitomised by George Osborne's threat of an "emergency budget" to include lower state pensions and higher income tax & VAT.
More broad-minded people voted to leave because the institutions of the EUSSR (sorry!) are undemocratic, overbearing, monolithic and not fit for purpose. To Americans, Brexit is akin to California or Texas leaving the USA. To Brexiteers in the UK it is akin to the USA leaving a fictitious superstate extending from Canada to Cape Horn.
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Barry Rosenfeld Aug 1, 2016

Ricardo, unlike Malthus, had a fully static analytical framework. Why should one country permanently tie itself to production in a low technology, limited demand economy just because another has a current lead in a higher technology, less limited demand economy?

Globalization had political support only among a part of the elites, as witnessed by the continuity of the Corn Laws until the late 1840s. The (democratic) world has had enough of the unmanaged world economy, at least the one unmanaged by virtue of political decisions, and is exercising its democratic demands for more and better management by governments. That is, managed by means of policies that take account for the negative effects arising from disruptions caused by trade patterns influenced by the decisions of autocratic rulers (China, Russia, ) and international cartels such as OPEC.

As Stephen Roach should know, the earlier editions of Paul Samuelson's Econ. 101 textbook debunked the alleged fallacy of the "low wage" economy's trade advantages. Corporations know better than economists: they could destroy unions by offshoring production to low wage countries and offset any skill disadvantages by means of technological transfer.

There are, in reality, no reasonable ameliorative measures, for example, for what sort of occupation would you retrain a 50-year old assembly line worker, or for what industry would one consider retraining for a high-skilled worker whose skills are industry specific?

Globalization, based on the promotion of the Ricardian theory of comparative advantage is perhaps the only time Wall Street and multinational corporations pay attention to economics. Certainly they have no interest in counter-cyclical fiscal policy or the regulation of industries in which conspiracies exist to restrain trade( telecommunications, computer software, internet browsing, etc.).

In his sick way, Trump is on to something - the desire of people to take back some control over their economy, the basis for their way of life.
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Jaap Bosma Jul 31, 2016

Mr. Roach, you saw the edge, but you don't realise how deep the ravine is.
Your proposed solution, to throw some money at the losers of globalisation, is superficial and will not solve the real problem.
The real problem is that globalisation makes countries compete with each other for poorer worker conditions (and wages etc.) and less taxes for companies and capital.
That is the real problem that has to be addressed!
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Robbie Jena Jul 31, 2016

If responsible parties would have followed the Industrial Ecosystems of China...then we all would be connected.
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Douglas Leyendecker Jul 31, 2016

As a forest becomes over crowded it sets the stage for a fire that returns it to greater fertility and sustainability. Economy is not immune to Mother Nature's life cycle.

So what parts of the globalization forest are we going to prune to prevent it from burning down? What embedded institutions are ready to be cut and hauled away? Sovereignty? The UN? NATO? Climate change dominated industrial policy? Growing social safety nets?

Okay, these would be dramatic cuts to the forest. So instead we need "more fair" tax, labor, immigration, currency and trade agreements? More fair to whom?

We obviously need a better managed, managed economy. That just sounds like more trees to crowd the forest.

Globalization erodes nationalism. We've obviously reached a point where a growing number of citizens believe their national sovereignty is slipping away. Anemic growth doesn't help yet the structural changes needed are beyond the grasp and capability of the the establishment. You can't see the forest if you've always been living in the middle of it.

Fear of change is only natural. And sensational populist diatribe is also natural or it wouldn't be populist. But because Globalization 2.0 has the entire globe accustomed to being interconnected, no one is going to give up pizza, sushi, steamed dumplings and margaritas...or their smart phones.

Productive change will occur but not led by those embedded in legacy infrastructure. You can't think outside the box if you've spent all your life living in it.

As Picasso suggested, "every act of creation is first an act of destruction".
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Michael Muoio Jul 31, 2016

It actually is stunning that globalization has achieved the longevity it has. Unbridled abuse of literally billions of souls is unprecedented. Clearly the elites have missed the prerequisite awareness to maintain the status and power they maintain. Time for a global reset, but let's do it without the traditional method of war.
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Marc Freed Jul 28, 2016

I learned Ricardo's theory of trade as a college student in one of my first classes in economics. The superiority of free trade to fair trade was gospel that I simply accepted. Even as a working economist (BA/MS/ABD) for more than 40 years, I still find it difficult to think otherwise; but I believe that research in behavioral economics may undermine that simple framework (if it has not already done so in literature that I have not seen). Ricardo's idea assumes rational behavior and implies that such behavior will lead to a Pareto-optimal outcome for both parties; but it does not address what we might call a societal principal-agent problem with traders as principals and the rest of the population as consumers and workers as agents. The aggregate benefits of trade may indeed pass the test of Pareto optimality but those benefits do not appear to have accrued to those who have born their costs. "Fair" trade may still be a four letter word to most economists and the policy makers who accept their views, but proponents of globalization who wish to preserve its benefits in reducing poverty and raising incomes in most of the world need to pay more attention to the frictions that make our current "free" trade system less than fair for so many people in the developed economies.
- Steve Hurst Jul 30, 2016
  
  @Marc
  
  What more demonstration of the fact markets and consumers are irratrional than the Gt Recession and Brexit. Any model based on rational behaviour will fail in the face of irrational decisions. In short much of economics is stuffed full of nonsense with no statistical basis because many events are by and large unique and some observers postulate based on their cognitive bias
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- John Brian Shannon Jul 30, 2016
  
  Hi Marc,
  
  That is very well said.
  
  Regards, JBS
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Charles Van Schilt Jul 28, 2016

By the year 2000 I realized that the current global system was dysfunctional. When I saw all the jobs that Black and Decker, Compaq, GM, Ford, and all the other large corporations were moving out of the US and Canada. I realized that North American workers were in trouble. As anyone who has done manufacturing knows the cost of labor is a significant percentage of the overall price of a product if manufactured in any first world country. As an engineer who had done pricing for manufactured products I realized the long term effects would be the elimination of the majority of manufacturing done in North America even those that were fairly automated. And it doesn't require an MBA or a PHD in economics degree to have understood that. Good old common sense is all that was needed. At once you realized that with the huge cheap excess labour force that was now available to corporations around the world and through all the free trade agreements they pushed onto governments it would take a very long time to get wages raised. Unfortunately, the North American middle class would long be gone by the time that happened. So it's no wonder we have run into a anemic economy. So added to this is a dysfunctional banking system where betting is favored over investing into something that is tangible and then the creation of a class of capitalists, represented largely by the multinational corporations, who have so manipulated the political system whereby most of the profits end up untaxed and funnelled into very few hands producing huge inequality the likes of which we have never seen. Ultimately creating monopolies and destroying competition and eventually capitalism itself. Sounds like the economists and those MBA guys got it all wrong but I'm not surprised. What is surprising is that it took so long for those who were in the know to realize it.
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Gunnar Eriksson Jul 27, 2016

The move away from multilateral trade deals to bilateral has also meant more of managed trade than free trade. The multilateral corporations agree how to further exploit us all with dire results for smaller manufacturers, tax revenues and the consumer options
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Paul Friesen Jul 27, 2016

The big problem with today's free trade agreements is that they are not free trade agreements. Actually, they are more about restricting trade by protecting patent monopolies forever and such things. They are written by big corporations trying to preserve their advantages and produce ever more wealth for the rich and powerful.
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Zsolt Hermann Jul 27, 2016

We will never be able to "use" globalization properly until we understand the system we live in and how we can adapt to it.
Globalization is not something man-made, and it is not something that describes trade, economy or markets.

Globalization describes an evolutionary process humanity had to arrive to.
Contrary to popular belief humanity doesn't exist outside of, above the vast, cosmic, natural system we evolved from. We are still very much part of it.

And this cosmic natural system is "global", fully integrated.
It's optimal development, fragile balance and homeostasis depends on each and every element, from the smallest particles to vast galaxies mutually complementing each other.
Without this cosmic balance and homeostasis life wouldn't be possible.

Humanity is forced to integrate into such mutually complementing collaboration in order to survive within this system and continue its development.
Our artificial human bubble we proudly created is falling apart today.
All human made laws, ideologies and structures stored functioning or are on life support by inflating unsustainable bubbles.
Humanity's only chance of solving global problems and sustaining its existence is by adapting to the system, fully integrating in it through reaching similarity with it.

And that requires global human society to be rebuilt on the foundations of "mutual guarantee", the same altruistic, mutually complementing collaboration the whole system is based on.
No other trickery, "kicking the can" procrastination can help us.
Humanity was given a temporary maturation, graduating time period but as it seems today we need to grow up and become conscious part of the system learning from our previous historical mistakes and at the same time learning from the template nature provides us with.
We ask have to mutually finish our "global, integral education" to out our future on the right tracks.
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Yoshimichi Moriyama Jul 27, 2016

Economics starts from the notion of a homo economicus. If we were really a homo economics, there would not have arisen the problems Prof. Roach is discussing. But we are a social being the essence of which cannot be dissolved into a homo economicus. ]
EU would be a success when Germans stopped complaning about the taxes which were collected in Westfalin being transferred to Greece and British workers did not feel resentful of their jobs being lost to immigrants from an Eastern European country.
Until such time comes, a national boundary has a function to fulfil.. For instance, the Japanese could keep out the immoral deregulation of guns and lamentably high murder rates while the Americans could keep out the Japanese immoral gun controls and pitifully low rates.

As I read before, if Portugal had concentrated on wine in Ricardo's theory, it would not have developed modern industry while Great Britain would have been far more advantageous in modern industrial advance by its cloth production.
Paul Samuelson said in a lecture in Japan that American economics ignored "Malthusian" limits and could remain optimistic. I wonder if someone can chew and give a brief digest of Samuelson's take on globalization because I do not think I can chew it.

A sense of anger is wide-spread, but it is not solely because a lot of people have lost jobs or their income has declined or stagnated; I am afraid it is also because our lives are perpetually being driven hither and thither. We do not live by bread alone.
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Martin Screeton Jul 27, 2016

This has been talked about to death, studied to death and still no action... it's as if the politicians are completely blind to it... oh right... they are the 1%! :) I've leaned how to live on just about nothing in the meantime... I'm ready for the devastation to begin! P.S. Denial is not a river in Egypt!
- Edward Campbell Sep 9, 2016
  
  "The design of more enlightened policies must account for the powerful pressures now bearing down on a much broader array of workers. The hyper-speed of Globalization 2.0 suggests the need for quicker triggers and wider coverage for worker retraining, relocation allowances, job-search assistance, wage insurance for older workers, and longer-duration unemployment benefits." -- Not likely in the USA w/political, electoral response hamstrung by anachronistic procedures.
  
  Gerrymandered districts can't begin to be changed realistically until ~2022. Incumbent Republicans can block 99% of anything and have made it clear their response to a Black president will be repeated with a Woman president.
  
  They don't care if the house burns down as long as the forces of change are destroyed along with their peers who still wish for the 19th Century. Before the Civil War.
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M M Jul 26, 2016

Society today is more informed than ever and therefore expects more. If there was real prosperity in the EU and the US, none of the issues about outsourcing of jobs, migration, refugees, healthcare costs, etc. would have been an issue. Add to these matters, the cost of supporting an ageing population in the west, the high cost of living and the lack of affordability to have a decent living and to building a family. All these are a culmination of problems caused not only by globalisation but by many of the aforementioned issues some of which existed since prior to the 2008 financial crisis but people did not make a big deal out of them because their standard of living was relatively fine. The real causes of the 2008 financial crisis have not been addressed and were made worse by the eruptions of these mini wars all over the place. The solution is one and simple and has been commented upon by others in here, and that is the excessive wealth that is held by the 1% and that is growing by the day. There must be a re-distribution of this wealth through a combination of fiscal and monetary policies, but this will never happen because the decision makers are in bed with the 1%.
- M M Jul 27, 2016
  
  Dear JBS, thank you so much for your compliment, the feeling is mutual. As always, the very best to you. MM
  
  Dear yw yap, well not necessarily only sleeping, other things are also done in bed, such as reading….
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- yw yap Jul 27, 2016
  
  sleeping with the 1%? Sigh......
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- John Brian Shannon Jul 26, 2016
  
  Hi M M,
  
  And yet, the elites were told as far back as 2014 (and possibly earlier) that there was a problem, it's just that they decided to do nothing about it.
  
  Please note the falling median income for the U.S. in the chart -- and unfortunately, the New York Times didn't bother to add the Cost of Living Index plot to the chart. That would've been even more compelling.
  
  http://www.nytimes.com/2014/09/17/upshot/you-cant-feed-a-family-with-gdp.html?_r=0
  
  Your words ring true at full volume for all who would listen; "If there was real prosperity in the EU and the US, none of the issues about outsourcing of jobs, migration, refugees, healthcare costs, etc. would have been an issue." -- M M
  
  Such truth!
  
  Cheers, JBS
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Rahul Maniar Jul 26, 2016

One of the main premises of the article appears to be flawed. If Brexit was a result of globalization and free trade then why UK government is so keen to sign free trade agreement not only with EU but any country which is willing to sign one with them. In fact, post-Brexit they happily announced that Australia is willing to sign free trade agreement with UK. Brexit was as a result of unfettered movement of EU citizens to UK. Even pro-Brexit camp promoted points based immigration system. It is not very clear what are the reasons behind rise of Trump and Bernie in US. Probably it has something to do with free trade but one can not entirely attribute their rise to free trade. If it is, then it is quite unfortunate as there are almost 41 million American jobs also depend on foreign trade.
- yw yap Jul 27, 2016
  
  re CC: does that mean too much emphasis on Econs, not enough on Social?
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- Curtis Carpenter Jul 26, 2016
  
  Agree.
  It's understandable that an economist would tend to see every problem through an economic lens -- but populism is rooted more, I think, in the people's sense of justice, and justice is not entirely reducible to economic terms.
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Petey Bee Jul 26, 2016

+1 for recognizing that there is a problem. Better late than never.

I hope this flirtation with reality lasts long enough to turn into something useful. There's going to be a temptation to try to patch up the political symptoms by substituting a marketing approach for a deep re-evaluation of the merits of the free-market-purist position.

Maybe in this age of connectedness, there is some collective learning taking place on both sides ... I guess we'll see pretty soon.
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John Doner Jul 25, 2016

Worker retraining, job search help, etc. are fine. But the most important thing these workers have lost is respect. Once, they were expert at what they did, and known to be so. Most of them will never regain that status. How can this problem be addressed?
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John Brian Shannon Jul 25, 2016

Hi Stephen,

Let me jump right into it.

The job of globalization is only half done. Yes, opening up the world's markets to corporations and to consumers has been a qualified success.

It is undoubtedly one of the smartest things that has ever been done.

But as often happens, once the bulk of the fame is awarded, and the bulk of the wealth is captured, the nomads of change move on.

Leaving a half-finished job, which threatens to turn into a real mess -- that could potentially lead us to nuclear altercations if someone (or better, a dedicated team of geopoliticists) doesn't grab hold of it, and finish the job.

What is the job?

The answer is, what was globalization / trade liberalization held up to be, when it was sold as a panacea to economies around the world?

Full economic efficiency, efficient markets, full employment, high levels of GDP growth, huge investment inflows, unfettered movement of capital along with *more* available capital, fewer restrictions on movement of labour, standardized regulatory environment, higher per capita income, lower-priced products for consumers, and so much more...

Only half of which has materialized. And interest in completing the job is waning.

Not a recipe for success.

If we leave things to continue, all that you've predicted (and likely, even worse) awaits.

We have two choices; 1) Fall backwards by letting the present situation drift or, 2) Firmly and resolutely address the inadequacies of globalization, and it's even more damaging cousin, the 'trickle-up' economy.

Unaddressed, the trickle-up economy will result in 75% of the world's wealth being owned by 1% of the world's population -- by 2030 -- leaving only 25% of the world's wealth for the (then) 8 billion people to fight over.

Can you say... "BOOM!"

I'd rather not see that.

People think this problem is sooooo difficult to fix, and just sit on their hands, hoping the problem will go away, or that they are no longer in office, once it hits (2030)

But it isn't difficult to solve. It's just going to take some political courage. And frankly, that's what has been lacking. Courage.

We solved WWI. We solved WWII. We solved diseases like polio, smallpox, diabetes, malnutrition (in those places where we cared enough to solve it) and we put a chicken in every pot.

Solving those issues took plenty of courage.

The politicians and military commanders of the previous era were up to the task of solving the (much larger) problems of their time.

Let's hope our next crop of politicians are courageous and are up to solving the problems of our time.

Thank you for posting your fine essay at ProSyn!

As always, very best regards, JBS

https://thisiseisenhower.com/2016/07/23/new-us-economic-model/
- yw yap Jul 27, 2016
  
  JBS, U are as often Courageous. The Risk is the politicians are often short-termists!
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Michael Public Jul 25, 2016

You seem clueless. Let me help. You admit there is some kind of problem with workers not being happy and then suggest more of the same manure that got us to this point. Workers don't need training (graduates are unemployed), welfare or pocket money. What they need is equal relevance to capitalists.

How about a compulsory law that workers get their regular wage, capital providers get the risk free rate and the the remaining profit is split 50-50?

That would be roughly fair and would stave off the coming revolution. After all, capital is risked by capitalists and their life and welfare is risked by workers.

And just to be clear this has nothing to with free markets at all. Workers need free markets to sell, what the company makes.

No. This has to do with capital getting all the profits and voting rights. Capitalism and free markets are not even remotely the same thing, but the way you use the words free markets to mean capitalism is misleading.
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MARY Healey Jul 25, 2016

Hypothesis is wrong. When mankind accepts the notion that we all need one another to sustain life on this planet earth,respect and civility will become a natural outcome. We are not TWO Planets; but ONE.
Time is nearing for a new order which will depose the entrenched "elite" building a more unified effort for all men. The challenge of our time is upon us.!
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Kitty Kitty Jul 25, 2016

So the concrete solutions are..?
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stephan Edwards Jul 25, 2016

Another puff piece for globalization. Everyone who is bright enough to read without moving their lips knows their will be no,none, zero, zilch, compensation or help for the big losers in this wonderful world free trade policies have brought us.
Their will be no cushioning Mr. Roach as you and your fellow investment bankers are well aware the donor class which effectively owns the US government will not stand for it. It would cut into profits and bonus' after all. The donor class after all has a truly remarkable case of let them eat cake. Although these days they say the invisible hand of the market will fix all, does that sound familiar Mr. roach?
One of 4 thing is likely to happen at this point and sure which one is most likely:
1) Populism throws up a Joe Mccarthy or and I find this more likely a leader that makes Robespierre, Hitler or Genghis Khan look like school girls. There is an awful lot of hate out there for our so called "elites". If someone crystallizes it the results won't be pretty. It isn't unearned you folks fed and watered it.
2) A war the makes WW2 look like a bar room fight. Most likely started by a "leader" trying to distract his people from the fact that they have been totally screwed to benefit the 1% of their nation.
3) Possibly the most likely an equivalent of the Reichstag fire and the suspension of civil liberties and rights for the duration of the never ending emergency. Dictatorship in other words, most likely by a front man for the groups doing well out of globalization protecting their interests.
4) Least likely, our so called elites realizing destroying the social safety net and shipping a big chunk of the working classes jobs overseas at the same time was a bad idea. Not going going to happen if any politician started saying it was a bad idea the investment class would proclaim him insane and lock him up.
I admit I am prejudice I despise so called globalization with a passion. I have watched 2 jobs shipped to Mexico, another to Vietnam and Trained my H1B replacement at a fourth. Tell me something what has globalization done for me and alot more like me besides take me from a reasonably comfortable middle class life style to a life of utter poverty. I and millions like me Globalization and the people who proclaim how wonderful it is with an awe inspiring passion! Why shouldn't we?
- Petey Bee Jul 26, 2016
  
  @SE, MP
  
  What you're describing in #4 and #5 would need to survive some heavy duty sabotage from those who would want such a system to fail (we see this once or twice each decade in various places in latin america).
  
  Of course the US is a little too big and a little too heavily armed to be "made an example of", if it should decide to experiment with socialism. But that doesn't mean it wouldn't be tried and turn into an enormous mess.
  
  The specific form of mess I am afraid of would be a semi-official attempt to preempt, counterbalance, or confuse movements with too much of a socialist element, by promotion of a more corporate-friendly right-nationalist alternative, which unfortunately would have more long term risk in my paranoid opinion.
  
  As long as the backlash movement is focused on flushing the current players out of the system, the two can mix well enough. Anyway who knows. History doesn't repeat anyway, the unexpected will come from a different angle. In any case...
  
  This next part is for the authors, not the commenters.
  Personally, I think fears that by recognizing and addressing the side effects of globalization -- fears that this will open the door to some kind of radical socialism -- that is way over the top. I don't think most people would want that degree of change anyway-- just a correction of the dysfunctions and more severe inequalities and profiteering.
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- stephan Edwards Jul 25, 2016
  
  I find the chances of corporate law being reformed to be right up their with the chance of Godzilla remodeling Tokyo in the next 48 hours. In other words nope not going to happen. The people who would have to do it are already doing well out of current situation and have no desire to change it. Social stability does not matter to them only the numbers at the end of the quarter.
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- Michael Public Jul 25, 2016
  
  Or 5) corporate laws will be reformed where workers have equal vote and profit share compared to capital providers. Want to send the factory to Mexico? No chance workers will vote for that. Not happening. Want to bring in h1b's? Let's ask the workers.
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Walter Gingery Jul 25, 2016

Another welcome post under the heading 'What did they think?"
Classical theory of comparative advantage assumes full employment. Somehow, no one has paid attention to how to handle the consequences if that condition doesn't hold.

As Mammy Yokum used to declare, "Time's a wastin'."
- Michael Public Jul 25, 2016
  
  It also assumes equal trade. But China does not buy American ip. It steals or copies it.
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Joe Jones Jul 25, 2016

I have long enjoyed Stephen’s insightful analyses. Thank you so much.

Globalization is not inherently "bad." But, it is inherently disruptive - in terms of its beneficiaries and societal distribution of wealth and income.

Globalization certainly perpetuates a false notion that one can "get something for nothing,” especially in rich countries. For example, UK, US, German and other policy makers can underinvest in education because they readily attract highly educated, often entrepreneurial individuals, to fill a domestic labor shortfalls, whether through immigration or through the creation of remote virtual global workplaces via the Internet (eg, witness the move toward offshore software development).

Thus, in the richest countries, globalization has seen a pronounced underinvestment in domestic human capital, as well as basic infrastructure, and public services. The biggest loser overall has been the vast majority of domestic workers in these countries who are less competitive in the global marketplace, experienced declining real disposable incomes, alongside rising debt burdens, and, most importantly, feel a profound sense of economic and social insecurity.

But one must pay the "Pied-Piper" eventually, as the town of Hamelin's residents once learned to their detriment. Globalization, without appropriate domestic policies and investment, is a recipe for eventual political and economic disaster. It promotes a large disaffected population who live an ever more insecure; while undermining the overall purchasing power and consumer demand needed to fuel sustainable economic growth.

But let's not fool ourselves. Globalization is part of a much bigger picture, the informationization of society, production, and commerce. Computerization and, in particular, the automation of intellectual labor especially through so-called AI techniques, will accentuate social and economic disruptions by orders of magnitude. The price of human capital will be pushed down, severely, over time.

Who then benefits; who then loses? Society must decide whether to invest in its people, AND HOW, or face far more disruption than we face today.

There is no avoiding the implications …

Addressing globalization and informationization requires a far more active public sector investment and fiscal policy than the business and political elite have been willing to countenance so far. The grand challenge is in mobilizing such resources for the Common Good, rather than for narrow short-term vested interests, and above all coming to a workable national consensus as to what constitutes the “Common Good” in the first place. That may require a new type of politics.
- Steve Hurst Jul 25, 2016
  
  @Joe
  
  The limited number of highly educated people poached from overseas does not explain the wholesale decline of real incomes in developed society(s). That is however explained by the wholesale disruption of labour supply by a surge of labour from globalisation. The idea nobody had any idea this would happen is ingenious. The whole principle of globalisation as far as business is concerned is the opportunity to utilise cheap labour whether domestically or abroad. If anybody proposing globalisation does not understand this they are grossly incompetent. Implicit in globalisation is lower labour costs; therefore for developed countries lower labour income. The next step in reducing labour costs is AI. Providing business can acheive income and profit it is not bothered which sector of society or which location it comes from
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Edward Nixon Jul 25, 2016

Perhaps too many of the costs of globalization are bundled into that grab-all category, externalities. The environmental costs created by many industries are simply shrugged off by participating companies. Similarly, the real cost of displaced workers, become government's problem while the companies doing the shucking off wend their merry ways toward leaner and cheaper production models. With respect to globalization in the form of free trade: the perception that these treaties are designed and negotiated, not by those to whom government is accountable, but by large and largely anonymously unaccountable industrial interest groups.
- Curtis Carpenter Jul 25, 2016
  
  Well put.
  
  "Trade liberalization – the elixir of globalization – promises benefits for all" is about as empty a phrase as Donald Trump's promise to "make America great again" -- much depends on who is defining "benefits" and "greatness" -- and how.
  
  Trump's idea of "greatness" and an economist's notion of "benefits" are hardly universal -- although both seem to think otherwise. And that is, I think, at the core of the "globalization disconnect."
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Neil Gundel Jul 25, 2016

Why is Stephen Roach so willing to see Brexit and Donald Trump as proof that globalization has failed?

In the first place, neither political malfunction is based on a reality-based understanding of economic trends - and it is arguable that they are primarily based on economics at all.

Secondly, to the extent that they are based on economics, it seems more reasonable to blame the failure on the financial crisis and the regulatory blinders that enabled it, aided and abetted by short-sighted political moves that slash public spending on education and infrastructure in order to allow unnecessary tax cuts.
- Michael Public Jul 25, 2016
  
  It is diversion. Globalization is not the issue. The issue is that the world top 1% will soon own 70% of assets on current trends. It is as a result of globalization that they have become so wealthy. The issue is one of SHARING the gains. The workers got retrenched when the factory moved to China. The government got nothing when the headquarters moved to Cayman Islands and revenues got a the double Dutch and Irish. Teeatment meaning no tax is paid to anyone. Globalization works. Just for way too few people.
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Steve Hurst Jul 25, 2016

'It is up to those of us who defend free trade and globalization to prevent that, by offering concrete solutions that address the very real problems that now afflict so many workers.'

But these 'solutions' are lacking including in this article and it is not as though the issues are new. The lack of provision of 'solutions' even as rudimentary outlines simply means to most people that there are not any to hand. Hence all that is left to citizens is the ballot box as a way to say enough is enough. Complaining as many do that the citizen is illinformed etc etc is neither here nor there; they have been left feeling there is no option

In the face of steady decline the argument 'As history cautions, the alternative – whether it is Brexit or America’s new isolationism – is an accident waiting to happen' is a nonsense; the accident has already happened - it was called unfettered globalisation. It is possible that the recent decline in global trade simply reflects the damage done by globalisation. If so the whole proposition free trade gives expanding activity is flawed.

There are the usual propositions floating about, continually refreshed that removing restrictive measures will boost jobs by millions, but it is never revealed where these would occur
- Petey Bee Jul 26, 2016
  
  Very well put ...
  The accident has already happened.
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Paul Daley Jul 25, 2016

Compensating the "losers" is a political problem, but the political reaction to poorly crafted economic policies has been stifled by political arrangements that place final decisions on monetary and trade policy beyond the reach of popular democracy. Further progress will require better political arrangements that allow the people of the party states to ratify, reject or amend proposed arrangements. The issues involved have too many dimensions to be handled exclusively by any set of experts.
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