Must-read: Kevin O’Rourke: “The Davos Lie”

Must-Read: From last winter…

Kevin O’Rourke: The Davos Lie: “As I write these words, the great, the good and the self-important are trudging around in the Alpine slush…

…sporting their best parkas and a variety of silly hats, and opining about the state of the world…. If there’s one thing that people agree about in Davos, it’s that globalisation is a Good Thing. And indeed, so it is, if the alternative is the autarky of the inter-war period…. If you are even slightly cosmopolitan in your ethical outlook, you should want this to continue. But it always makes sense to ask whether you can have too much of a good thing…. Who are the winners from globalisation, and who are the losers?… Developing economies with lots of cheap unskilled labour should export textiles and other labour-intensive manufactured goods to rich economies where wages are high. A second implication is that labour-intensive industries should go into decline in rich countries. A third implication is that this should lower the demand for unskilled workers, hence lowering unskilled wages and increasing inequality…. The debate has swung back towards the view that trade is important in explaining rising inequality, not only in rich countries, but potentially in developing economies such as Mexico as well….

I happen to think that inequality matters for its own sake, but even if you don’t agree with that value judgement you should still care about inequality, since it matters politically as well…. Unfortunately for Davos, globalisation’s losers are becoming increasingly hostile to trade (and immigration)…. Such attitudes are now beginning to influence politics in several rich countries…. Economists can tut-tut all they want about working-class people refusing to buy into the benefits of globalisation, but as social scientists we surely need to think about the predictable political consequences of economic policies. Too much globalisation, without domestic safety nets and other policies that can adequately protect globalisation’s losers, will inevitably invite a political backlash. Indeed, it is already upon us.


Brad DeLong


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