 Good afternoon and thank you for joining us. My name is Alex White, I'm Director General here at the Institute of International and European Affairs. And it's great to have you with us for what I know is going to be a most interesting and stimulating webinar this afternoon because we're delighted to be joined by Professor Penny Goldberg, who is a professor of economics and professor of management at Yale University and former chief economist of the World Bank Group has been generous enough to speak to us this afternoon and addressing the topic globalization. According to our guest speaker the recent retreat from globalization has been triggered by a perception that increased competition from global trade is not fair. That leads to increased inequality within countries. So, I suppose the question is to ask whether this phenomenon is a small hiccup in the overall wave of globalization historically in the hope the sweep of history as aware, or are we at the beginning of a new era of deed globalization, which we hear a lot about. And in her address, Professor Goldberg will argue that the answer to that question depends on the policy choices that we make. And actually in her latest book, the unequal effects of globalization. Professor Goldberg calls for alternative policy approaches or at least that we would explore alternative policy approaches, including place based policies, whilst at the same time, continuing to sustain international cooperation. So just about the arrangements for the next hour or so Penny will speak to us for about 20 minutes or so give or take, and then we'll go to a Q&A in our normal fashion. We'll take that discussion by using the Q&A function. And you can send your questions into us and please do send them in throughout the session as they occur to you rather than necessarily waiting until at the end of the presentation but once that's the presentation is finished, we will as I say, go then to those questions. And you can also if you're interested, you can participate in the discussion on Twitter or should say on X, using the handle at IEA. The presentation and Q&A are both on the record this afternoon. Penelope or Penny Kujani Goldberg is the Elihu Professor of Economics and an affiliate of the Economic Growth Center at Yale University, which is what you can see behind her in the shower. You will be able to see a backdrop in a moment or so in the shot. From November 2018 to March 2020, she was the chief economist of the World Bank Group. Professor Goldberg was president of the Econometric Society in 2021 and has previously served as vice president of the American Economic Association. From 2011 to 17 she was editor in chief of the American Economic Review. She's a member of the National Academy of Sciences and the American Academy of Arts and Sciences recipient of the Guggenheim Memorial Foundation and Sloan Research Fellowships and recipient of the Bodhisattva Prize in Social Sciences. I promise you I could go on. There are many pages of achievements and distinctions that our guest speaker has but I think what we'll do is we'll go to Penny, we'll go to the presentation. So Professor Goldberg, the floor is yours. Thank you for being with us. Thank you very much for this very generous introduction and most importantly for the opportunity to talk about a topic that's very important to me in this forum. I have prepared a few slides that I'm going to share with you in a moment and as Alex said, I will try to give my presentation brief talk for about 20, 25 minutes and then leave time for questions. So let me share my screen. So I hope you can see it. Yep. So my talk will focus on what I will call the unequal effects of globalization. And I will draw heavily, you know, in the spirit of self promotion, I will draw heavily on a book on a monograph I recently completed on precisely this topic. So I will try to make two main points. The first is that when we talk about inequality in the relationship to globalization, we are talking about an extremely complex phenomenon with a lot of nuance. And the answers are going to depend on what dimension of inequality we focus on. This is important because if we don't identify the problem correctly, we cannot come up with the right remedies. The second point is going to be that I will argue that the increase in a particular dimension of inequality, namely geographical spatial inequality within advanced countries. What I mean by that is the gap between communities areas that are very wealthy and areas that are less so that is perhaps the most important reason behind the recent backlash against globalization. So let me start with a very brief overview of the evidence when it comes to inequality. So I assume some of you in the audience have taken international economics and you may have heard of the so-called Heckscher-Olin model of trade. This is the trade course, the workhorse model of international trade. And the big contribution of that model was that it focused on the distributional conflict generated by trade, not just on the aggregate effects that we tend to think are beneficial for the economy as a whole, but on distributional tensions. And in this traditional model, the conflict is a class conflict. So it's a conflict between capital and labor. In more modern versions of this work, it's presented as a conflict between skilled labor and unskilled labor. But it's always been about factors of production. And this framework provided a very natural framework for thinking about inequality in the 80s and the 90s, so in the previous century. Why? Because this was a period where we had very fast growth in trade and globalization in general. And at the same time, we had a rise in inequality in advanced economies. So it was very natural to connect the two. That said, there has been a large amount of research in the 80s and 90s. I contributed among others to that research. And we all fail to find an empirical connection between trade and inequality and the measure that meant the dimension of inequality. I have in mind here is the so called skill premium. So this is the difference between the wage of a skilled worker and an unskilled worker. And in this entire literature, skill means education, especially college education in advanced countries. So the gap between educated workers and less educated workers kept increasing in advanced economies. It was very natural to connect that to imports from low wage countries, but despite all our efforts, we could not find any evidence. There is also an additional casual observation that supports this conclusion that it was not driven by trade. And this is the fact that we also observe this increase in inequality in low wage countries in poor countries and their trade theory would predict that the effects should go in the opposite direction. Now, there are many caveats associated with this argument that they have written about this, but overall, the consensus among academics and as you probably know, economists disagree about almost everything. It's very rare for academics to reach consensus or anything, but the consensus in the 90s was that trade may have played a role, but it was a very minor role compared to other developments, most importantly technology. So this consensus changed in the 2000s, in the early 2000s, and the question is why? So one hypothesis is that it's because China entered the world trade and what you see in this graph is the growth of world Chinese exports, so the China's exports to the world between 1980 and 2021. And what you can see starting in 2000 is exports that rising very fast and a very large fraction of these exports goes into the United States and other advanced countries. There are many reasons for this growth, but for now, let's take that as a given it is what it is. This is one hypothesis that it's all because of China that had been trade with low wage countries before but these countries were relatively small relative to the United States or to great Britain. China is big, it matters because of its size. That said, there's an alternative hypothesis and this hypothesis is that the reason people started finding effects on inequality in the 2000s is because they changed their focus. So instead of focusing on the skill premium, the skill premium was they had done in the 80s and the 90s, they started focusing on a different dimension of inequality, namely spatial inequality. So inequality between rich and poor areas. So in the United States, the comparison was between areas in which there was a lot of industrial production that was displaced eventually by Chinese imports and communities that were not affected by imports. In Great Britain, there has been this long standing divide between Northern England and London, the London area and the south. So these regional inequalities became the focus of attention, at least in academic work and there are many studies that documented again and again, that opening up to trade in this dimension of inequality, not just in the United States, but also in developing countries that were not affected by Chinese exports or for example, in India or Brazil. In the US that has been also work on NAFTA that documented the same effect again that had nothing to do with China and how to do with Mexico. And but again, this studies documented this increase in regional inequality. Again, important to emphasize this study saying nothing about the aggregate effects, no one questions the fact that trade had many beneficial effects on on on people as consumers especially. But all these effects pertain to this regional dimension that became first order starting the year 2000. This brings up the issue that that I want to focus on that was my first point in the opening slide, namely that when we talk about inequality, we need to be specific about what exactly we mean by inequality. And here is a schematic that helps organize our thoughts. So what about inequality as being global in nature by global I mean what's the inequality that you get if you pull the entire population of the world, independent of where people live. And within country inequality so the inequality you get if you condition on the country let's say Ireland or the United States or Greece and so on. So in a country you can distinguish between how trade affects people as consumers and people as workers. So let me start by emphasizing a trade off or at least what is perceived as a trade off. People studying to in the year 2000 have increasingly perceived the trade off between the reduction of global inequality and the reduction of within country inequality. I think there is consensus by now that global inequality. So the inequality you get if you pull everyone all people across the world. This type of inequality has been reduced dramatically after World War Two. And I think there's also consensus, even among skeptics that globalization and particularly the integration of China and East Asia into the world trading system played a very important role in this development. However, there is this as I mentioned there is this increasing increasingly strong sentiment that all this has happened at the expense of within country inequality in advanced. So let me show you a few graphs that will illustrate these points. So this graph shows you how world exports as percent percentage of GDP have evolved over a long time horizon so between 1827 and 2019. And you can see some developments that you certainly know about so during World War One and World War Two war trade collapses after World War Two. So after after 1945 we have all these trade agreements and all the efforts to make countries more interconnected partly as a means as a way of ensuring that we maintain peace and we've achieved that in Europe. But so trade starts going up after 1945 and it keeps rising it keeps rising through the 50s and the 60s, but then comes the year 1989. So here, and then you can see this very fast rise of trade as percent of GDP. So this is the period this is the beginning of the period that has been termed the era of hyper globalization that's when trade was incredibly fast. And you can see from the graph this is historically unprecedented. There has been a lot of trade in previous times, but what happens after 89 is truly unprecedented. And that goes on until approximately until actually 2008 2009 that's when the financial crisis happens during the financial crisis trade collapses. But then the year after the after the after the main financial crisis after 2009 trade comes back again it bounces back. But then then it never it never gains its previous momentum so it keeps growing, but at a slower pace. And at that point there is a lot of debate whether we have the beginning of the globalization. In my opinion at that time we can just talk about slow realization if you want or whatever term you want to use. There is no evidence that we have a retreat from globalization in just a trade is growing more slowly than before. However, what I want to emphasize is that during this period, again that that's 89 to 2009 approximately, we also have an amazing decline in global poverty and you can see that in this graph. This graph shows you the poverty rates the extreme poverty rates as defined by the World Bank between 1990 and 2020 these are the real data and then it's projected these are the rest of projections by the World Bank as to what is going to happen for the near future. And you can see that in the black the black area represents East Asia and Pacific essentially extreme poverty is eliminated. This is mainly the story of China here and some other countries. Also India to a large extent but not as much as China. Even America in Europe again over these almost eliminated South Asia, I'm sorry South Asia India is in South Asia so again you can see the decline in poverty you see that clearly, but it's not as pronounced as what you see in the black area which is East Asia. And then you see the area at the top this is Africa this is where the problem persists we still have extreme poverty extremely high extreme poverty rates in Africa. Now, do this does this graph prove that it was globalization that was behind this decline in extreme poverty, not necessarily, but the correlations are strongly suggestive, except, especially if you take into account the fact that Africa is the continent that's least connected to the rest of the world and there we don't see any advances, East Asia with the entry of China in the world trading system is the continent that experienced the biggest gains. Another way to show that is a graph that actually came from the World Bank originally by work of Bronco Milanovic and Chris of Luckner. And what this graph shows this is a so called growth incidence curve. So it shows again for this period of hyper globalization. It shows what the income growth rate was in percentage rates that's the, I'm sorry that's the vertical axis against the percentile of the global income distribution so what you can see is that the people that were at the left part of the global income distribution so these are the people who are globally poor, they experienced very fast growth around 40% 50% the middle around, you know the 50th 60th percentile they experienced the fastest growth around 70 80%. So they are these are actually the people. If you take the world as a whole, who are really poor and growth in this in this segment of the population is extremely fast. It's much faster than it is at the 80 or 90th percentile to be fair to the literature with this curve has been more recently updated by a team of researchers that include PKT and Saez and Zachman so these are economists were well known for having focus on the top 1% and having used tax data as opposed to survey data to document increases in inequality and what they show there is a graph that shows a little bit different. The graph shows that a lot of the game has been at the very top of the distribution so the top 1% capture a large part about 27% of the total growth. So this is true, but at the same time you see here that the people at the very low end of the distribution so that the truly poor the globally poor also grew very fast about 120%. So you still have very fast growth among the very poor. However, what this figure also shows is if you look in the middle, the middle is in relative terms squeezed and this is where the middle class of the US and Western Europe find themselves. So this is, again, in absolute terms, everyone is doing better but in relative terms, the people in the middle are doing worse. These are the graphs like that that led to the perception that there is a trade off between global and within country inequality. Now coming to the within country inequality, we can look at people as workers, or as consumers. I already mentioned that if you look at people as workers, there is very little, there is no evidence that the wage differential that reflects skill as reacted to trade liberalization. However, a special inequality became much more salient feature of inequality and let me show you, let me make the point showing just one graph on Brazil. Brazil is convenient because it offers the right data and the right trade policy experiment for looking at this issue. In other countries, it's less clear, less clear card that includes the work on on the US and Britain, but they have been studies making the same points in this context. What happens in Brazil is you have a major liberalization in the early 90s. And what this graph shows is what happens to them to the employment, the formal employment in those areas that were hit harder by this liberalization relative to the areas that were less exposed to the trade liberalization. So it focuses on relative effects between areas that were a lot exposed to imports, various areas that were exposed less. And what you can see is that you have a prolonged decline in earnings, formal earnings, but it's not a short-lived phenomenon, we're not talking about one or two years, it lasts almost 20 years until it eventually stabilizes. If you look at earnings in again formal earnings, you get very much the same picture. This is the pre-liberalization period. There is a positive trend, so earnings are going up. Then comes the liberalization. Wages take a hit and then they keep declining. It's not again, it's not a short-term phenomenon. The wages keep going down for 20 years and eventually everything stabilizes. And the reason it stabilizes in Brazil is because there is a very large informal sector. This is a different story in developing countries and eventually all these workers get absorbed by the informal sector. So this is a very somber message that this paper conveys, namely that we're not talking here about short-term displacement effects. There are true displacement effects that trade liberalization brings about. And again, you don't see these effects if you look at the skilled premium, but if you look at inequality across regions, then they become apparent. So I mentioned the effects on employment and earnings, but people also found effects on education, on child labor in developing countries, on crime, on mental health. So it seems those areas that experience a negative demand shock because of imports are confronted with a long-run problem. And here I have a very brief overview of other dimensions of inequality that people have connected to this increase in imports. And in all these cases, this inference is based on comparisons, on spatial comparisons between areas exposed to imports and areas that are not exposed to imports. So it seems what happens is imports are a negative demand shock and some areas, some regions end up in a bad equilibrium. Now, Alex mentioned at the beginning that in the introduction that one of the conclusions of my monograph is that perhaps given all these we should consider place-based policies. And in fact, this is something that I do believe in and I would not have said that a few years ago. Place-based policies cover a very bad name in economics for a very good reason. Many of them have proven to be completely inefficient and captured by lobbies. As I said, traditional policies to compensate losers from liberalizations, from globalizations have not worked. And so given that and given the importance of spatial inequality in recent results, it seems to me it's worth reconsidering previous results. That doesn't mean that we should unconditionally embrace place-based policy, but at least we should realize there may be a need for it and consider how we can make it most effective. I talked a lot about people as workers, so let me also briefly talk about people as consumers. This is all of us. And the trade models again tell us that what trade does is it leads to lower prices, higher quality of goods, more variety. So what do the data tell us? The work on this aspect, surprisingly perhaps, is more limited than the work on workers. And there are two questions you can ask in this context. The first is do prices respond to trade barriers? This is a question that's particularly relevant these days when we are confronted with high inflation. And second, if prices do respond to trade barriers, is it the case that the people who benefit the most from price declines are the poor relative to the rich? Because if that's the case, then trade also affects inequality through prices. So to make a long story short, what people have found is that prices do respond to trade barriers. There is a lot of evidence from the recent trade war between the US and China that shows these effects. Although the effect may be not always one for one, the effects on the distribution are more mixed. And that said, in my opinion, price changes are more likely to affect low income households simply because low income households consume more. High income households tend to save more. So given that consumption is more important to low income households, any developments that lead to lower prices of consumption are going to have these proportional effects on these low income households. So but at any rate, the price effects and that's a well known problem in trade are less silent than employment on wage effects. So even if some households or if all households benefited from trade, all of us benefited in the form of lower prices in the form of more variety. The perception that some groups of the population were heard by trade is dominant. And the special effects, as I mentioned before, the fact that some communities are in decline, these effects have been large and persistent. So let me conclude by coming to the new policy environment. So we find ourselves in an era of, I would say the globalization, if you are uncomfortable with this term, I think it's safe to say we have a major backlash against globalization. And when we think about this backlash, I would roughly chart three phases in this, in this backlash. The first is between 2016 and 2020. So that starts with Brexit in your world with the tariffs that the US imposed on China in my world, then the retaliation of China. And what drives these developments is a sense that first we have unfair competition between countries or an increasing sense that China is advancing at the expense of the US and the West. But at the same time, the sentiment that I outlined before that there is a trade off between reductions in global inequality and within country equality. We have regional inequalities, we have labor market disruptions, and all this leads to a public sentiment that's supportive of a new wave of trade protection, Brexit, Trump tariffs. That said, what I have found in my work and others can found to that trade remain robust through these developments, the public sentiment is becoming increasingly negative towards trade. But if you look at the trade data, you don't see, you don't see any changes. And phase two is during the coffee time so mainly 2020 and 2022. And then we are presented with new arguments against trade, this have nothing to do with inequality, then it's all about resilience. In my opinion, and I have written about this extensively elsewhere and we can talk about that later trade put incredibly resilient during the time, despite all the talk about disruptions. There is certainly disruptions. There is no question about that. But let's remember what the magnitude of the shock was the world economy shut down on and off for two years. And despite this shutting off. We managed to actually get through this. We didn't start in Moscow, in almost any country. Most economies bounce back. So I don't think any of these would have been achieved without international trade. And in fact, as Pfizer pointed out, even the manufacturing of the vaccine of the mRNA vaccine required ingredients that came from 19 different countries. So it would not have been possible without the cooperation and among many different countries and trade between these countries. So despite the incredible backlash that we all experienced during that time, we'll say that actually trade contributed to resilience during that time. And then phase three starts, in my opinion, around 2000, February 2022 with the invasion of Ukraine. And then we have new arguments against trade based on national security. So resilience is again a first order concern, but now it's not resilience against natural shocks or health shocks is resilience to geopolitical risks. And that sets off new developments that support the coupling from Russia in Europe and the coupling from China in the US. So I think it's fair to say that we are in a new era now we see the reversal of the case of liberalizations and multilateralism in the US and in the UK. So these are two of the champions of free trade. There is still trade agreements going on in other parts of the world, mainly Africa, but the significance of the US and the UK cannot be ignored. These are the two countries that have always pushed for free trade. We've seen in the last two years we've seen profound changes in US trade policy, and I will leave the sanctions against Russia aside because Russia is an aggressor. There's a lot of war going on, but many of the policies that the US undertook have to do with China. I listed here some of them and all this has prompted Edward Luce of the Financial Times to declare about a year ago superpower that's the US declared war on a great power that's the China, and nobody noticed. So the fact is we don't talk much about it, but the fact is we are in a very different era, there is not just less cooperation on the trade front, there is a three economic war going on between the US and China. And I would like to conclude with a following thought. It's very easy to blame all this on the invasion of Ukraine and geopolitical risk. One needs to wonder if we would be where we are right now, if the public had not been gradually prepared for this backlash against globalization. So there is a difference I think between what the catalyst was for the recent developments and what the two causes are behind what's happening. I expect that economic historians are going to be debating these issues for many years to come, but in my opinion the rising inequality in the previous decades has played a crucial role. Because it prepared the public and many policymakers for receiving the protectionism that we witnessed in the last few years. We saw many movements in that direction, both in the US and in Europe we saw the rise of extremist views, we saw the anti globalization sentiment becoming stronger over time, and none of the things that happened in 2016 or prior to 2022 had a big impact on trade, but what they did is little by little there were stepping stones little by little, they prepared the ground for what happened in 2022 and 2023. So in my opinion inequality was not perhaps not the only cause but one of the main causes behind what's going on today. And with this I will stop here thank you very much for your attention and for your time, and I will be very happy to take questions.