We sharply disagree with this dismal view of globalisation.
So write three scholars drawing on their latest research on globalization. “Our recent research,” they continue,
indicates that the gains from trade and migration are tremendous and that the world stands to benefit greatly from their further liberalisation (Desmet et al. 2016). The problem with virtually all quantitative and empirical evaluations of trade and migration is their static nature. They completely ignore the dynamic gains from globalisation. As we will later discuss, these dynamic gains quantitatively dwarf any short-run costs.
After providing the theory of growth behind trade and migration, the researchers present their jaw-dropping conclusions:
Completely lifting all migration restrictions would increase real world output by 126% in present discounted value terms. Since such a policy may be unrealistic, consider instead a reform that liberalises migration so that 10% of the world population moves at impact. This would yield a present discounted value increase in real world output of 14%. Such a reform would cause some extra congestion in Europe and the US, implying that average welfare would increase by 9%, a smaller but still impressive figure. It is hard to think about any other policy that could readily be applied at the world level for which estimated benefits are as large. Migration is uniquely powerful in generating positive effects. In economic terms, having an open-door policy is a no brainer, not because of some abstract theoretical arguments, but because the measurement of the relevant forces tells us so.
Turning back the clock on trade would have equally dire consequences. Increasing trade costs by 40% would lower real world output by 30% in present discounted value terms. Although globalisation might create losers in the short run, allowing the free flow of goods and people across regions and countries is still one of the best ways we know to ensure our long-run wealth and well-being.
These numbers are astronomical. The potential good that can come from liberalized trade and migration makes the rising nationalism all the more disheartening.
5 thoughts on “The Benefits of Globalization: Trade & Migration”
Why is increased world output an unquestioned good? Doesn’t whose pocket it lands in matter just as much, if not more?
So, two things.
First, increased output is necessary but not sufficient for a better world. If you want things like modern medicine and widespread literacy, you have to have high levels of per-capita production. No matter how fairly goods are distributed, if you’ve got Iron Age productivity you’re not going to get modern medicine or widespread literacy because there won’t be enough stuff for (e.g.) people to stop farming and become teachers instead. So, increased output isn’t some kind of optional, nice-to-have, it’s the necessary precondition to increased standards of living.
If you want people living in developing countries to live lifeystyles like we live in the US, then you need to increase productivity. Period. (Note: this doesn’t necessarily mean increasing waste and resource utilization. Note that it’s rich countries like the US who also figure out super-efficient machine and renewable energy sources like solar. That’s because R&D–like widespread literacy and modern medicine–is one of those things that’s expensive for societies to have.)
But you are right that–at least in theory–if we increased productivity and gave all of that increase to Bill Gates, that wouldn’t really be an improvement. This is what I mean by necessary but not sufficient. The thing to keep in mind, however, is that that’s not what’s happening.
Walker and I wrote an entire paper on that, which you can read here: http://squaretwo.org/Sq2ArticleGivensWrightNoPoor.html
The short version? As capitalism spreads throughout the world, it is lifting more poor people out of poverty than any other program, policy, ideology, or welfare in the history of the human race. So yes: it is important to worry about equitable distribution of the increased productivity. But so far, capitalism is not only the only system that has proven capable of long-run productivity increases, but it’s also got the best track record (not a perfect one!) of alleviating poverty world-wide.
Economic research also finds a pro-poor bias when it comes to global trade: https://difficultrun.nathanielgivens.com/2016/09/30/who-benefits-from-trade/
I’ve read a lot of the arguments that only capitalism will improve the lot of the poor, and I guess I don’t doubt them as much as I doubt the motives of the capitalists who embrace them. For me the acid test will be whether those who have benefited disproportionately from globalized capitalism will be willing to share the loot with their compatriots rather than see the gravy train derailed by nationalist voters. If they are truly supporting globalization out of concern for the poor, they should be willing to make less-than-obscene profits in order to keep the system going.
Otherwise it seems pretty clear that there is a large and growing constituency in developed countries for stopping the program entirely. Whether they believe that stopping it would make them better off or are putting forth this idea in a spirit of extortion (‘Sweet little global economy you have there, be a pity if anything happened to it’) doesn’t really matter; either way, they’ve decided to vote against it until it starts paying off for them, and I doubt that any arguments about world productivity will impress them a bit until they start seeing some of that productivity reflected in their pay packets.
“I doubt the motives of the capitalists who embrace them”
I don’t care all that much about motives. I care about results. Most people seek to create value out of self-interest (whether to make money, achieve a dream, etc.), but that doesn’t change the fact that value is created.
“For me the acid test will be whether those who have benefited disproportionately from globalized capitalism will be willing to share the loot with their compatriots rather than see the gravy train derailed by nationalist voters”
Not sure how this is an acid test as to whether or not globalized capitalism benefits the poor. This seems to be testing a completely different question (i.e., the pure motives of capitalists).
“I doubt that any arguments about world productivity will impress them a bit until they start seeing some of that productivity reflected in their pay packets.”
Probably not, but there is a well-documented mismatch between the economic beliefs of laypersons and professional economists. Furthermore, people often only look at income (pay packets) and don’t consider purchasing power (how much bang for their buck).
Either way, your response really doesn’t address the actual data. You seem to be more concerned about (1) the motives of capitalists and (2) the beliefs (ignorance) of non-economists. Neither of these have any bearing on the empirical evidence favoring globalization.
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