Is global equality the enemy of national equality?
Is global equality the enemy of national equality?
The paradox of our times is that global equality seems to be in tension with domestic equality: as the distribution of income in advanced societies has become more unequal, global income equality has actually fallen, thanks to rapid growth in low-income Asian countries (China in particular). In this talk, I will examine the links between these two processes and offer some ideas on how the tension can be eased.
is foreign good morning my name of the courier de la is right from the us and i've been a journalist in the u.s for 10 years and i was lucky enough to be involved with the festival since its inception i'd like to remind the audience so that the subject for today's meeting is something that has been exacerbated over the past few years it's a question of the exacerbation of social inequalities or something that started off some 10 years ago even before the financial economic crisis of 2008 that certainly has made that even more visible and exacerbated again its main features the breaking up of the social mobility lift with uh some incredible results so the polarization of income the drop in the middle class that has always been importantly for the contribution to democracy in the western world well this has something that has been going on for a number of years already i wrote a book myself at the end of the middle class the translation into italian the birth of the local society that was released at the second edition i believe nine years ago of the festival of the economics in trento well nine years ago when we were talking about such subjects there were a number of mechanisms of globalization that were questioned and a decade ago we were you we used to being interrupting during the debate because there were the um those supporting the liberalist approach that would always be against um the intervention on the part of the state but even progressive or progressives would say two things mainly one that globalization anyway uh contributed good results in that it reduced the income in certain um percentage of the present population and the postal world indeed would not go hand in hand with all the rich being on one side and all the poor on the other side so some kind of rebalance was indeed necessary and the globalization basically took a billion people away from poverty especially in asia thus contributing to reducing tensions at it in the national level the other subject that uh was often uh referred to and this i believe is going to be the issue debated by some panel discussion tomorrow more than today and that really referred to the impact of automatization uh in the labor market with a rainbow and automation that would reduce the need for labor that again is not the subject of today's presentation but that in a way it was also said as bringing about a polarization in the inc but that was a lot theory prevailing whereas history proved us that all technology enhancement destroyed some jobs but created many others in other industries that had never been even thought of by economists the classic example that would be quoted it was that of the steam engine that did away with the world of um carriages so all those that work with horses so and um others would be done with but it promoted industry of steel rail roads and so on and so forth bringing forth a completely new economy the scenario before our eyes is different today of course with the years where we hoped that with a liberal's approach with the washington consensus what the economy's name the ears of the great moderation left with us a legacy which is actually full of inequalities and imbalances we are talking about that with professor danny rodrick he's a most distinguished economist who's now who now has a chair at the princeton university he also has other university posts he covers university posts in europe he cooperates with the national bureau of economic research which is the most distinguished institution in the u.s in terms of economic research tying the academia with those decision-makers basically at the political level professor roderick also had me boast an important passing in the at the columbia and harvard universities among the different books that he published he wrote a very interesting book in 2011 when we used to have a very much a single approach when it comes to globalization and in his books he wasn't opposing the intrinsic value of globalization but he was pointing out to the fact that the ungoverned undisciplined globalization is in itself disruptive as they say in america which is not a negative term but it is a challenge basically it requires some kind of discipline and tires and constraints so way back in 2011 in this book of ease that has been republished in an updated version by la terza in italy with a preamble with introduction covering what happened in europe on the european crisis so way back again in 2011 professor rodrick was pointing to the fact that that you can't have a cake and eat it basically to be a bit course you cannot have a perfect localization in the one hand and a perfect democracy at the same time and the perfect compliance of national sovereignty because at some stage you have to achieve a trade-off you have to have you have to make important political choices professor rodrick wrote this book and then again um he wrote uh comments on what is uh underway in europe at the present point in time and this i believe may trigger our discussion today and i believe that professor roderick is going also to refer to the reasons why we are finding a very difficult time when it comes to the employment situation especially in the in europe if compared to the us and then has also been a greater difficulty in with social mobility uh promoting social mobility indeed that those are starting off with the um at the social disadvantage um true education find it difficult to make a jump forward so this mechanism of social mobility is being hindered but perhaps more so in the u.s if compared to the euro because in either u.s it used to work more efficiently whereas it is lagging behind basically it is slowing down at the present point in time having said as much i'd like to give the floor over to professor dan broderick thank you uh massimo for the introduction good morning uh everyone i'm delighted to be here in in trento this is uh my second time uh in this festival and uh is it's just it's one of the most amazing events um that that i've i've been to so i'm very happy to be here again and i want to congratulate the organizers for putting on this very instructive stimulating but also entertaining event and also thank them for for inviting me the the subject that i'm going to be talking about is the relationship between national equality and global equality and i'm going to be approaching this from the perspective of the the paradox of the nation state in this context on the one hand the nation state is is the reason for the existence of huge income gaps around the world because it is the nation state that maintains and enforces borders without which a lot of people without opportunities and very low productivity work could come and avail themselves of the opportunities in the advanced countries and and raise their incomes significantly on the other hand of course the nation-state maintains all those institutions and the public goods and the mechanisms of regulation that enable the markets to function and enable wealth to be created and and and and and capital to be invested in other words the nation state is the uh pr is the foundation of economic prosperity um and and the question is is how do we square uh this uh disapparent paradox of of the the nation state that some in some sense being both the the cause of global inequality as well as the source of economic uh prosperity um it's it's a difficult question and i'm not i'm just going to be uh presenting uh some ideas here and and i find this a challenging uh issue uh to think about and in in a way i'm going to be playing here the uh the role of the the usual two-handed economist on the one hand on the other hand but that's i think is okay these days we have too many one-handed economists in the world so occasionally it's not bad to have sort of the two sides and somewhat unresolved uh issues to be to be discussed to to begin what i want to do is is actually present you with a quiz or a test and i want everybody to participate but don't worry there are if you don't if you get the answer wrong it doesn't matter so it's uh so don't be shy i'm just going to ask a a simple uh question um i i guess the the presentation is not being projected is it so it's not that's okay i'll ask you the question first and then i want to i want you to think about it but i'll going to after i ask the question i'm going to be very specific uh about what is it that i'm actually asking you uh to decide on uh to guide your thinking the question that i'm going to ask you um is a very simple one the question is this would you rather be rich in a poor country or poor in a rich country would you rather be rich in a poor country or be poor in a rich country now this is um i need to to to specify the terms so that um let's see yes here's the question um would you rather be rich in a poor country or in a rich country to help your guide your thinking uh let me be a little bit more specific about the terms in this question what do i mean by rich and poor okay but first because you could answer this in a number of different ways i want you just to think about only your material living conditions so you want to think about only how much income you have and how much you can afford to purchase in terms of goods and services and that's not just what you purchase when you go to the supermarket but also the education you can buy the health services you can buy and so forth so i just want you to think about only your own consumption and i want you to think about only in terms of your own income so that's what i mean would you rather be this or that okay so it's only about what you can actually uh consume the second is is to define sort of what i mean by rich and poor so i'm going to define a person who is rich as somebody whose income is at the top five percent of that country's income distributions so it's not the top one percent it's the top five percent and the reason i am doing top five percent rather than top one percent is because we don't have uh detailed enough statistics for all countries in the world top five percent we know pretty much about and similarly poor is somebody who has an income level uh in the bottom five percent of a country's income distribution okay rich is top five percent poor bottom five percent now that's about where you stand in a country's income distribution what do i mean by a rich country and a poor country it's very much similar i'm just going to rank all countries in terms of average incomes per capita incomes from the richest to the poorest and therefore a rich country is a country that is sort of representative of countries that are in the top five percent of all the countries ranked in this fashion in terms of average income per head and poor country is a country that is in the bottom five percent of all countries ranked by gdp per head okay are you ready to vote are you ready so how many would rather be rich in a poor country raise your hand okay how many would rather be poor in a rich country okay so uh i see sort of you know equally divided and there are lots of people who are sort of nervous in answering the question and who have not raised their hand i couldn't see i wish we had you know just like the people in the square can see us we could actually see the people on the square right now see how many people sort of voted in one way or another but that's a the way that i've posed this question it's a question that we can actually answer definitely because we actually we have the statistics we have the numbers on this so let me tell you what the right answer is and the right answer is that there isn't even any comparison that a person who is uh poor in a rich country um is more than four times richer than a person who is rich in a poor country in the way that i've defined this so here are the numbers so you think about poor country sort of representative country here in the bottom five percent is a country like niger the rich individual in a poor country incomes of around um less than three thousand dollars per head uh rich country again representative norway uh poor individual in that country again in the in the bottom five percent is more than thirteen thousand dollars and i should say that this is all adjusted for purchasing power the fact that prices of consumption goods are quite different in the poor and the rich countries so the answer is it's not even close and what is this actually showing it's actually showing that the bulk of differences in income disparities across the world are actually those that operate across countries between countries rather than within countries okay now there is a reason um that this is uh the basic fact of the global distribution of of income and the reason is is the experience with economic growth around the world that we've experienced since about the industrial revolution at the outset before the industrial revolution income differences in different parts of the world in terms of average incomes were not greater than of the order of one to two or one to three so this chart shows you basically going back all the way to 1700 uh differences in average income levels in different parts of the world and basically in 1700 uh whether you're talking about africa or asia or europe income differences were actually quite similar because by the time we come to today they've grown to huge disparities in particular the world has been divided into a part that's rich largely europe and what's called here western offshoots or north america and australia and new zealand and then the rest of the world asia africa and latin america although as i'll speak uh in a second i think there's been a lot of changes in those parts of the world uh recently as well what that means is that the that the the um the driving force behind patterns of global inequality over the last uh two or three centuries has been at differences in average incomes across the world differences in how different parts of the world has grown uh in terms of of incomes per head and so another way of looking at this is to look again at sort of global inequality and if we go back sort of and and look at what has happened to global inequality since the industrial revolution uh we have had a significant increase so here is uh a measure of um inequality um which goes between 1820 and 2008 and blaze basically by this measure global inequality has uh more than doubled uh over this period now this measure shows global inequality both as a function of differences in incomes across countries as well as differences in incomes within countries so one thing we can do is actually ask the question precisely how much of this increase in global inequality is due to differences or growing differences across countries as opposed to differences within countries so if we do that decomposition then we divide those bars into two different colors the red part is the part of global inequality that is due to inequalities within countries and the green is the part of global inequality that is due to differences across countries or between country and equality and something that you can see here that comes out very clearly is that actually over this entire period the component that is inequality within countries has stayed roughly constant that red part of this bar is basically not that big is change of course inequality within countries has first risen and then has come down and recently has risen again but the striking part of this bar chart is what's happened in the green part of the bars that's inequalities across countries and that has come that has grown from a relatively negligible part of global inequality in 1820 to in fact right now between 1775 or between two thirds or three quarters of global inequality are these differences across countries so when i asked you the question about would you rather be rich in a poor country or poor in a rich country that was really going to the fact that most of the inequality is really across countries that there are very very few people in the poor countries that would enter the distribution of income in the rich countries and there are very very few uh poor countries poor people in the rich world uh that are actually uh as poor as uh people in the in the developing world so this is the the when we think about uh the challenges of inequality uh in the world uh wish uh in the advanced countries we should bear in mind that inequality within countries is actually a very small part of the overall global inequality and if we care about inequality we should care not just about inequality within countries but also inequalities across countries and the question of how much we should care is is one thing that i'm going to come back to uh in in in in a few minutes now there has been some good news in the recent decades because if this pattern of global inequality is being driven largely by differential growth rates across countries the fact that the advanced parts of the world over long centuries have grown more rapidly than the lagging parts of the world what has happened in the last two decades or so is actually a reversal that's quite interesting so if we look at growth rates in the rich and the poor parts of the world going back to the 1950 since about the early 1990s a very interesting reversal has taken place so this chart shows you the trend growth rates of the rich and the poor parts of the world going back to 1950 and so the the green part of the chart is average growth rates in the advanced countries in the developed countries and the orange part is the average growth rate in the poor parts of the world now what you can see is that until about the 1990s in fact the rich parts of the world were continuing to grow more rapidly than the poor part and what that means is that until the 1990s in fact this trend of divergence of average incomes in the rich and poor parts of the world was actually growing but look at what has happened since then the orange curve has taken off the green curve has been coming down of course the euro crisis has helped but as you can see that it predates the euro crisis this divergence and even though the poor countries will certainly not continue to grow at the rates that we see at the end of the chart it's a safe bet that in the foreseeable future the poor countries will in fact continue to grow more rapidly than rich countries and of course that's led by asian countries china india east asian countries but also africa and to some extent latin america as well and so reversing the logic what that means is just as the previous patterns of growth were driving inequality around the world now these most recent patterns of reversal in growth rates means that global inequality is actually reducing since the 1990s we can see this in these charts so this is a picture that shows the global distribution uh over of income and it shows for um five different uh periods five different years going all the way back to 1988 and the latest figures are for 2008. okay just look first at the first distribution for 1988 that's the unbroken distribution i can't quite see i think it's a gray and if you look at it closely you'll see that global distribution of income in 1988 that is basically a two-humped distribution most of the people are poor so there's a hump at the poorer part of the distribution and then there's a smaller hump at the rich part of the distribution that's how the world in 1988 looked like before growth patterns began to be reversed but if you see what has happened if you follow this chart over the years if you go all the way to 2008 what you can see is in fact those two humps have basically disappeared they've merged and there is much more now of a global middle class the middle of that distribution has been filling up and the biggest contribution to that of course has been the stupendous growth of china a country that started out very poor uh is extremely large and has grown extremely rapidly since the late 1970s uh bringing literally hundreds of millions of people into what we might call a global middle class even though that global middle class has income levels that are really a fraction of what we would call a middle class in the advanced countries why has this happened well the the simple answer the one word answer is china but the deeper answer of course is the kind of economic strategy that china has followed and in particular the role of economic globalization in enabling china to grow so rapidly on the back of a stupendous increase in exports of manufactured goods to the united states and to europe and other parts of the world so even without globalization china would have done quite well but globalization has enabled china to grow much more rapidly than it would have uh allowed um would have been able to do otherwise now i'll come back in a minute to the notion that the kind of globalization policy china pursued is not a completely hands off let's remove all kinds of barriers to trade an investment kind of globalization i'll come back to that in a second but the critical point here is that the processes of economic globalization of a particular sort which to some extent are responsible for the deterioration of income distribution in the advanced countries are also responsible uh for a significant uh reduction in global equality and to some extent that's the nub of the trade-off of the challenge that we've had a quarter century where global inequality globally global inequality has come down quite significantly thanks largely but not exclusively to china but of course that same process has had some chilling effects on inequality in the advanced countries as well okay so but if if let's let's um keep on the global aspect of inequality and the notion of economic globalization role in reducing it for a second and pose the next natural question why not take globalization one step further which is that globalization has been largely focused on reducing barriers to international trade and in international investment yet barriers to the mobility of people the ability of workers remains remain extremely high and on the face of it what greater force could there be to reducing global inequality than simply allowing poor workers to come in and work in the markets of the rich countries okay let's think about that for a little bit if we are going to be thinking about it how much would that exacerbate inequality in the advanced countries and should advanced countries be willing to countenance to accept that kind of inequality and if the answer to that question is well the trade-offs are worth it and i'll talk about the nature of the trade-offs um in a second even if we agree that at the margin some relaxation of the restrictions on the cross-border movement of workers might be desirable the question is how much where would we actually stop would we completely eliminate all the restrictions on labor mobility would that even be feasible what would that mean so let me just pick take apart some of these questions and and and so we can think about about some aspects of of of of or the elements that go into thinking about these kinds of questions first what do i mean when i say that the greater cross-border mobility of workers would be a very important force for greater inequality in the world economy well that's just driven by the fact that workers in developing countries if they were able to compete for jobs in the advanced countries labor markets they would be able to earn multiple amount of what they make currently now this is a hard question actually what that multiple is because obviously many workers in the developing world don't have the skills the education the resources uh to successfully compete for jobs in the advanced countries so what so we want to compare comparables and not mix apples and oranges and this comes from one study that actually tried to do the right kind of comparison which is to ask the question what would a worker let's say with nine years of education in a developing country how much would that worker be able to increase his or her earnings if he or she were to move to an advanced country to a rich country and the answer depends of course on on uh which country that worker is coming from and the work and and the countries are listed on the horizontal axis here the number on the vertical axis is exactly the multiple so if you see a 10 there it means that that worker let's say a worker who came from yemen or nigeria or egypt or haiti would be able to increase his or her earnings by a multiple of 10 that's 10 times those are some of the more extreme cases if you want to take an average the median across all these countries is about four and that's a conservative number that that worker would be able to increase his or her uh uh productivity his or her earnings by a factor of four and that's what i mean and what's what a lot of economists mean when they say that reductions in uh in in in restrictions on worker mobility across borders uh would be in fact the most potent force for greater global equality much more so than foreign aid much more so than negotiating the next trade agreement much more so than uh than pretty much everything that you can think of that could have an effect on incomes in the in the poor in the poor world but what is the operational implication of that what would actually what does that actually mean in terms of what we ought to do so let's think about it so here i'm now as an economist i'm moving into a territory that's a little bit dangerous which is territory of of ethics and distributional justice and fairness uh but it's it's a question that we have to ask ourselves if country if residents of rich countries are saying okay here are the numbers by keeping these workers out uh we are essentially preventing them from uh these kinds of of uh uh you know incredible gains these are the economists proverbial hundred dollar bills on the sidewalk which are not being picked up because of these borders at the nation state in forces how do we think about that one way to make the case for more labor mobility is to accept the fact that the restrictions as they are currently they are so excessive that they implicitly imply a weight on the well-being of people on the other side of the border that's extremely low hello well here's one oops here's one calculation so let's consider a very large movement of as many as 60 million workers from the poor countries to move to the rich countries so that would actually increase the labor force of the advanced countries by a full 10 percent that would be sort of like doubling uh the amount of the non-native population of of these countries so a huge number of people coming in that's about 60 million workers and then i have to make a number of assumptions about sort of how much wages in the rich countries would be depressed as a result of this influx of workers and so forth and also to make an assumption about how do we evaluate well-being of the poor and the rich okay and here i'm just making the simple assumption that we basically treat proportionate increases identically regardless of income levels or 10 increase in income is the same as 10 increase in income regardless of what your base starting point is so if you do the exercise then what that means is that rejecting being against an expansion of um the amount the the rejecting a relaxation of restrictions on on worker mobility implies that we value a person on the other side of the border at only 22 percent uh of one of our own so between fourth and fifth so we think that people across the border are worth only a quarter or a fifth of a person that shares a nationality with us is that too small is that maybe not too small when the american constitution was written the slaves in the south were given uh a three-fifth weight in the voting uh that in the in the in the uh in the seats that the states in the south would get in in congress sixty percent uh so by that standard um 22 percent uh considering that those were slaves uh 22 seems extremely low on the other hand no democracy actually gives any uh votes to non-nationals and by that standard maybe it's not that uh that that small i don't know my sense is that 22 percent if i were to confront people do you think that people that cross the border are worth only 20 2 uh of somebody uh in the same country i would guess that my most people would say that's you know maybe i would discount some but perhaps not so much and i should say that this is with the worst possible assumptions with respect to what the adverse effects on wages in the rich countries would be that i haven't taken into account that there would be also gains to others uh in the advanced countries employers and and capitalists would certainly benefit uh i haven't taken into account that you know there might be benefits from on the consumption side that the capital accumulation might might offset some of the adverse wage effects and so forth so this is in some sense a an extreme example the second point that i would make that actually makes an increase in labor mobility an attractive proposition is to put it in the context of some of the uh fairness discussions in trade and outsourcing i think the strongest argument against outsourcing of a certain kind is that when firms multinational enterprises for example outsource production to other countries where let's say labor standards are extremely low workers work in very has hazardous conditions or children work at ages that would be considered unconscionable in the advanced countries that that is in some sense unfair competition for the workers in the advanced countries that we are confronting our community our workers with a set of competitive conditions that we have we wouldn't accept domestically but that through the back door through the backdoor of trade and outsourcing the very similar kind of of competitive pressures can come and operate the great advantage of of labor mobility in this context is that precisely it would bring those workers to come and work in the advanced countries under the same labor regulations on the same kind of of of standards as domestic workers face so i'm explicitly rejecting of course the notion of two-tier labor markets where there would be different labor regulations for migrant workers i don't think there's any of course good argument for that so labor mobility compared to trade has the virtue that we would be applying the same domestic standards and rules to foreign workers as we apply to our own foreign workers and therefore this would overcome what i think is the most significant normative argument against outsourcing the argument about the unleveled playing field the much harder question of course is that even if i can persuade you that at the margin uh some relaxation greater mobility of workers across borders uh is desirable would make a significant contribution to reducing global inequality and that it would come at a kind of a trade-off in terms of domestic goals that is manageable and desirable the harder question of course is where would we stop how many workers should actually come in and here we actually don't have really i have never seen a good discussion of some kind of an optimality condition of how much is is the right amount and i don't think you're the trade analogy applies the notion that the lower the barriers the mobility the better because that analogy would imply that we should just completely eliminate all barriers to foreign workers but that really wouldn't work and given that i'm running out of time let me just focus on the second of the counter arguments here which is the counter argument about what it would it do to our domestic institutions to have significant amount of foreign workers coming in okay and remember i'm now coming back therefore to the institutions of of the nation state because if it is those institutions that have created the kind of markets and the kind of technology the kind of of of prosperity uh that the rich countries have been able to create and therefore they are so advantageous labor markets for workers from the rest of the world to come it would be sort of a pyrrhic victory to have so many people coming in in a way that might actually prove in a way that might reduce the efficacy the coherence and workability of those same institutions of the nation-state now that's a hypothesis that in fact that there might be an effect an adverse effect and where where those effects might come first is simply in terms of the numbers that if you think about what it would mean to completely eliminate these uh restrictions at the border we are really thinking about is a a an unthinkable number of people uh coming in uh into the labor markets of the of the rich countries so one exercise is that basically there would be about 2.6 billion workers coming in into the labor markets um of the of the um rich countries and we're talking about an initial labor market of what 600 million okay so this is it seems uh uh uh really quite undoable and that's sort of an argument that you know it's it's you know you need you know some limits but what uh the second question is of course about you know the the the idea that has been lurking in in the background is what does it do uh to inequality um now in the exercise that i presented a minute ago i assumed that wages would fall down with domestic wages would fall as workers came in in fact in the economics literature there's now a lot of discussion that suggests that perhaps at least the medium to long run that those adverse implications might be outdone or might be undone i don't want to get into that discussion but i think the point that we should bear in mind is a point that a glenn whale from the university of chicago has made which is that if you look at the countries that have the largest share of non-native workers those are countries that are in fact the most staggeringly unequal countries um and of course here you think primarily of uh the countries um in in in the uh in the gulf in the persian gulf in the middle east countries uh countries like bahrain and and united arab emirates that have basically opened up their markets to huge amount of workers and and workers come willingly from bangladesh and india and the philippines because they can increase their incomes but that has come at the expense of of societies that are hugely unequal um and and that suggests that there is uh that that that kind of society might have difficulty sustaining the kind of democratic open institutions that we associate uh the advanced countries of europe and north america uh to be the third and final consideration here would be not about numbers or not about income inequality per se but about cultural ethnic religious diversity or heterogeneity and the question here is whether in fact to have a efficacious nation state and nation-state institutions do you actually need certain kind of limitations on how broad that spectrum can be that do you need certain sense of of common cultural understandings um uh to maintain those kinds of institutions there is a a line of thought uh in economics that suggests in fact that too much diversity too much heterogeneity in terms of ethnic linguistic religious cultural attributes uh is is is detrimental to the provision of public goods that is detrimental to the maintenance of social capital and social trust which requires uh common safety nets which requires the operation of a democratic regime but again that also is now coming under under examination so i'm not exactly sure that i want to take a very strong uh stand on that but i just present this uh as as a a possible third line of argument that that suggests a bit of caution the final note i want to make before concluding uh is a historical note is actually to go back to the first era of globalization that's the 19th century the period through the first world war and that era of globalization actually had significant flows of trade and investment but also significant flows of people workers in fact characteristically there were much fewer restrictions on the mobility of workers and people across borders in that first era of globalization than there is today and in fact the kind of global divergence that i've talked about about the world being divided into rich and poor countries occurred precisely in that era so here was a period where in fact the forces of global mobility of workers of people either reinforced or could not reverse uh the kinds of of disequalizing forces that globalization had created in that earlier era and the lesson there the reason is that the manner in which globalization occurred in that first era essentially left much of the developing world devoid of the mechanisms of development namely industrialization so the world got divided into a bunch of countries that managed to industrialize and a bunch of countries that were essentially left as primary product producers and natural resource producers and because the state and the institution institutions were weak in the poor partners of the world many of them were actually being colonized by the rich parts of the world there were no defensive mechanisms that allowed poor parts of the world to actually industrialize to compete on the basis of manufacturers and that of course is what has changed in the current area of globalization the miracle the chinese miracle was precisely a miracle of industrialization it was the role of the chinese state to foster industrialization and here we come back again to the role of the state that the manner in which china globalized as i said was not to let all the barriers go down but actually to use globalization in a very strategic way or as the chinese themselves say open the window but don't forget to put a mosquito net okay so you want to manage globalization and and that i think is is is sort of where i come out which is that there are strong arguments both for expanding cross-border labor mobility from where we are right now as well as as placing limits on mobility that would leave us far short of full mobility and here's where the trade-offs uh come into the picture my sense as i've indicated is that with respect to labor mobility we are right now at the too low side at the too little globalized site i wouldn't say the same about financial globalization where i think we've gone overboard but i think the world would be a better place if there was a little bit less financial globalization a little bit more labor globalization and finally the point that i've tried to make is that the nation state is not the enemy of global equality nation state is what enables the kind of prosperity that creates that challenge in the first instance and ultimately i think if we're going to get much greater global equality in the world that's going to come through perhaps in part a little bit with more labor mobility but ultimately with much greater equalization of the capacities of the nation-state of the kinds of capabilities that the nation-state requires and they're spread around the world to the countries that are either failed states or weak states that have not been able to follow the kind of development strategies that china and other countries in asia have pursued so successfully in the last two or three decades so let me just stop here thank you thank you very much i believe that you have given us many many stimuli and we have just a couple of minutes for a few questions less financial globalization and more labor globalization all paid with all the difficulties that you have so well described well these two problems are global problems which we are experiencing our own way dramatically in italy with migrations coming from the mediterranean and with outsourcing and the delocalization of many manufacturing activities towards eastern europe asia and other countries in the world so are there any questions from the audience before i ask my own questions please use the microphone otherwise we cannot provide the translation uh to what i have been able to read in country like china while you have certainly better condition for many people the internal uh distribution has increased the the inequality so it would be important to remember that you cannot compare developed country with underdeveloped country second it's an interesting analysis and hypothesis you made but some assumptions are not realistic first of all you have described the fact that if you have worker coming in the developed country you have to assume that the market force will be the same now in italy we have a situation where the presence of immigrants has created double working markets where there are people which work at very very low salary not rights so the fact that you bring a lot of people will also create this possibility i i i think both are extremely uh pertinent points on china you're absolutely right that as china has grown more rapidly domestic inequality has expanded considerably so china is now much more unequal country than it was um three decades ago uh to some extent i think that's a result of a very rapid growth that when you're growing at nine ten 10 a year there's no way that you can increase everybody's income in a country of 1 billion at the same rate but even the people at the very bottom of the income distribution in china have actually managed have increased have experienced significant uh expansions uh in income and therefore if you look at rather than inequality for example you look at poverty rates in china uh they've fallen significantly so that's not to whitewash what has happened in china in terms of domestic inequality nor by that matter would i want to use china as an example of a political system for any other country and and and so i want to be clear that this is this is not a model uh but i think the kind of of rapid economic growth that china has uh has has experienced uh is is something that can be done at other countries look at india today which is a democracy an imperfect one but a democracy and now is actually growing more rapidly than china and i have no doubt uh that if it continues to grow this rapidly domestic inequality will will increase in india as well the uh with respect to the second point you're absolutely right with respect to dual labor markets but i'd like to suggest that one of the reason why you have this creation of two-tier or dual labor markets is that in fact so much of the labor migration uh occurs uh sort of illegally uh so that there's you know it's basically uh workers that are coming in uh not within the law but sort of illegally and that makes it very difficult to integrate them into the formal labor markets so in fact there was a mechanism whereby workers came legally i think it would actually be easier to avoid these kinds of dual labor markets in particular to avoid the problem of not applying national labor standards and regulations to foreign workers hi so i just have a quick question so the the experiment you showed at the beginning was quite striking so i was wondering just a little bit on the data so say for example that i mean norway is one of the richest countries in the world and also one of the most equal niger probably has an average income of about a thousand dollars per capita in norway like about 70 000 or maybe something like that so let's assume that i'm in the united states in the bottom five percent what is a country where i have to be in the top five percent in order to have the same income of someone in the bottom five percent in the united states probably some country like still pretty poor country i would i would assume something like cameroon or something like that i'm just curious about it thanks so here are the numbers i'll just leave this on so because all the numbers you need to make that calculation are on the slide you're absolutely right i mean the choice of norway you're right it's a little bit unfortunate because norway is a very relatively equal country um and so it it it it makes it look as if that's skewing the results but i could have chosen you know a country that's much more unequal like britain or united states and the results wouldn't change all that much uh the problem is is just that those two distributions aren't overlapping except at the very top at the very very very top at the very very very very bottom and in fact if you want to look for a country where there is a overlap of about five percent uh which i'm saying here you know you would be talking about another developing country um so i think you're you're quite right i don't know exactly what country that would be um but uh it would be fairly easy to find out uh but it would certainly not be a rich country not even a middle-income upper-middle-income country for sure and i would add that i could live probably as a poor in norway considering the the welfare state and the network that you have there i wouldn't live in the lower five percent in baltimore probably in the same conditions one last question and then we shall conclude because i would like to be finished by 12 10. impact of international coordinations like economically or politically ward is for example does the monetary union does this increase the likelihood of equality across the countries yes or no or other political corporations i wonder whether you had a look into that well i think you know it would be an implication of of what i said that the kind of of um international institutional arrangements or international cooperative arrangements uh that had the greatest chance of reducing global inequality would be those arrangements that actually enable poorer countries to grow and here i think we've gone through various phases of thinking about what that means i think there was a time when we thought that every we knew what the secret to economic growth was and that was basically a very neo-liberal kind of a recipe or a washington consensus type recipe and i think a lot of the things that we did at the global or transnational level reflected that so the world bank the imf programs and i think to some extent you know the uh you know emu even in europe was informed by that vision so that you basically just you know keep get the macro fundamentals you have you know single money you know sort of a central bank that's you know single-mindedly focused on inflation you know fiscal rules and then basically you know you know and then a single market and then the rest the catch-up happens on its own um so i think we're we're now um you know we're now moving away from that kind of a consensus where we understand that growth policies are highly context specific they tend to require the state to be much more active uh to be in a sort of you know in a process of collaboration with the private sector so we need to provide some policy room for countries to develop their strategies in the same way that china or vietnam had their uh policy rooms before they joined let's say the world trade organization and much of that was taken away through that um and so that means that that yes let's think about international arrangements uh but often uh you know we constrain too much uh what countries can do in the name of similar set of rules in the main of homogenization of regulations uh in the name of reducing transactions costs to trade and goods and services and capital and in fact again we need to sort of find an intermediate solution where we certainly don't want discrimination against developing countries or the poor countries so we do want some rules but we do also want to leave sufficient policy room or room to maneuver for countries and their and their in their states to develop the kind of locally appropriate development strategies and i think we've been sort of moving in that direction but i thought i you know has we're not quite there yet i have just a question we did the example of china growing increasingly while uh its inequality within the state is growing as well and you talked about uh uh also about uh i don't remember the the country like yemen i guess that where the labor market market is very open but the inequality is uh is uh is increasing uh my question is thinking also um um bearing in mind also of social dumping and the fact that maybe globalization since 1970s increasing inequality within the state of the rich countries is there a risk in your opinion that the reducing the global inequality can somehow increase the the inequality within country and that may be at the end of this of this phenomenon the the overall inequality could be the same or maybe it could be reduced only for uh for a bit absolutely i do think there is a risk i mean i think you know managing globalization is not just for poor countries it's not just for the china's or africas of the world i think it's also for the advanced countries including europe so i think they you know europe and the united states they need their globalization strategies too um i think you know what that should be is is a very very difficult question and i think again it's something that you know we're we're beginning to to think about those things you know i i do think that you know we need to be very pragmatic about this and we talk when we talk about globalization you know we need to be very clear and specific about different types of globalization bearing in mind that our policies might need to be very different so i would again surmise that much more damage has been done to social coherence and social mobility and inequality in the rich countries of the world and in particular in europe by the kind of financial globalization that we have experienced over the last since the 1990s then in fact has been caused by the kind of very haphazard patchwork kind of of labor mobility that that has existed in that same period so i would think very differently about policies in those two domains so yes i do believe that there is that risk and the biggest risk of course as you intim intimated is that if you don't maintain confidence in the west and the rich countries that globalization is working in a way that's making pretty much everybody better off and instead people start to think that globalization is just the rich people's game then you undermine the confidence for globalization and then you are not going to get the kind of of really thought through um a management of globalization but instead you're going to get sort of the nativist reaction you're going to get a very populist reaction you're going to get reaction against immigrants as of course you know we're seeing in uh in in and and and discrimination and and sort of uh um uh almost neo-fascist reaction and that i think is is precisely the kind of risk that that we're um that that we're we're experiencing that the that we need to focus our energies on where the real issues are and and there i think we're still very far away from uh having the right kind of priorities one last question at the back good morning good morning there are a number of aspects where we should focus our attention so as to avoid the risks that you are referring to in your last answer do you think there's a role to play for the internet international global governance of tax systems on large capitals or on the movement of such capitals do you think there's a role for that i believe that we should focus also on again tax systems attention should not just be devoted on labour mobility but also on tax systems and the governance of financial flows i i agree with you completely i mean i think i think to the extent that uh your question was about um uh a you know global taxation of um uh uh capital or or or financial flows especially of short-term flows um i i think that would be a good thing i think i think that there's a lot that individual countries can do on their own even without global coordination and certainly europe on its own is sufficiently large that it could act on its own if if it wanted to um so i i'm i'm i'm all all in favor of that thank you very much to you all i believe that we tackled a very um sensitive issue just think about the issue of migration migration is something that is uh impacting us importantly there are lots of humanitarian consequence to that also in the management of refugees so thank you very much for being here and i wish you all the best with this 10th edition of the economics festival of trento foreign you