From Larry Summers‘ new column in Financial Times: Against all odds, we are living in a time of plenty. Neither the after-effects of September 11 2001 nor a tripling in oil prices has prevented the world’s economy from growing faster in the past five years than in any five-year period in recorded economic history…
If one looks at the growth rate of China during the past 30 years, living standards are increasing at a rate that will lead to a hundred-fold improvement over a single human lifespan. The impact cannot be overstated.
…it has been a golden age for those who already own valuable assets. Owners of scarce commodities have seen their returns rise prodigiously. People running businesses that can take advantage of globalisation to source labour less expensively and sell to larger markets have seen their incomes rise far faster than incomes generally. Certainly those in the financial sector in a position to benefit from the asset revaluations associated with globalisation have prospered…
The economic logic of free, globalised, technologically sophisticated capitalism may well be to shift more wealth to the very richest and some of the very poorest in the world, while squeezing people in the middle.
Martin Wolf: …if ownership of valuable resources is concentrated, openness to trade tends to generate greater inequality. Popular parties will then be protectionist, while the parties of elites will support free trade. The policies of the former tend to make their country poorer, but enjoy the support of the majority. The policies of the latter tend to make their country richer, but have the support of a minority. This is a recipe for unending conflict between populist politics and authoritarian economics.
…Until China and India develop further, many middle-income countries may find themselves squeezed between these rising giants and the technological prowess of the high-income countries.
Robert Wade: Income and wealth inequality up to some very high limit is good for the rate of profit and the concentration of capital ownership, and bad for legitimacy. And vice versa. Elites are likely to sponsor measures that lower inequality only when their legitimacy is seriously threatened. We see fluctuations in after-tax inequality over time in response to the degree of threat to the capitalist order or to the survival of particular states. Nutritional conditions and life expectancy improved in the British working class during the First and Second World Wars, even including the military, as the British elite sought to ration out scarce commodities, including food, in ways which much improved on non-war working class living conditions, or so I am informed…inequality has hardly begun to feature as an issue of global or even national policy discussion.
Asian economies have certainly benefitted from being able to access global product and financial markets (especially as compared to a ‘no access’ counterfactual). But they have adopted policy regimes that depart in major ways from the principles that Larry keenly promoted from the US Treasury, whose spirit is caught in his remark in this column, ‘protectionism [note the ‘ism’, as though it is a creed, like communism] is counterproductive’.
Joseph Stiglitz: [Summers] claims that “economists rightly emphasise that trade, like other forms of progress, makes everyone richer by enabling them to buy goods at lower prices.” As he points out, this is but one of the effects of trade: those who lose their jobs may be worse off. But even if there were full employment, economists have long explained that full economic integration with perfect markets would imply that unskilled workers everywhere in the world would receive the same wage – a wage which almost surely would be lower than their current wage. And even movements towards liberalisation will result in downward pressure on wages. The adverse effects in the developed country are the predictable and predicted effects of globalisation – effects which proponents not surprisingly have not advertised.
Read the column and the comments.