Over the last three decades or so we have had 300 or 400 million Chinese that have lifted themselves
out of extreme poverty, extreme deprivation. The world’s greatest poverty eradication ever
experienced would not have been possible if China had not turned itself towards the world markets,
had become an exporting superpower. New employment opportunities for people
who come from villages of the farm can be employed in textile and garment and
footwear and steel factories producing for world markets. That creates new jobs,
new incomes, higher productivity, and a country like China has benefited hugely from that along
with a number of other Asian countries. Globalization is held in very mixed regard
in the advanced countries. Something like a third of the respondents in surveys in
the United States fear for their economic future because of the presence of countries like China.
If you are an engineer, manager, an accountant you would do very well because your skill is in
greater demand and not just domestically but in the world economy because those are
the kinds of goods that advanced countries tend to export but relatively less skilled
workers of the advanced countries have not done all that well under globalization. So,
a single mother in Southern California working in a textile plant, now you have to compete with
Bangladesh, with Vietnam, with India, and that means that there is a downward pressure on your
wages and on your employment opportunities. Economics is a science of trade-offs, we can
have too much of globalization. Well trilemma is to explain the nature of the trade-offs of
these three things; hyper-globalization, a national sovereignty, and democracy. You
can have at most two out of those three. You cannot have all three of them simultaneously.
So if you want to enhance globalization you have to decide whether you’re going to give
up some sovereignty, or going to give up some democracy. That’s the nature of the trade-offs.
Well-functioning markets always are embedded in a range of institutions that are largely these
days provided by governments. A challenge that globalization poses: if you’re going
to have this global market who is going to provide those institutional underpinnings?
In the 19th century, an earlier era of globalization, countries like Britain and
the United States effectively enforced the rights of investors and ensured a free flow of capital
around the world. The moment that the golden straightjacket came into conflict with a system
of greater democratic participation, in particular of the labour movement, those rigid rules were no
longer compatible with this new face of politics. So we historically moved to a different period,
what I called here the Bretton Woods compromise. The period after the Second World War where Keynes
said we need to have a regime that’s going to combine a national sovereignty with democratic
politics. And that required essentially keeping hyper-globalization at bay.
Of course, it’s entirely possible to imagine a third possibility. One way that we can combine
democracy with hyper-globalization where essentially we have the global federalist
equivalent of a United States of America. Now, of course, that seems a very far-fetched notion
in some people’s minds. This is for example what Europe is about, it’s creating a kind of
quasi-federalism. The troubles that the eurozone are going through today derive from this trilemma.
An economist’s first job is to provide the analysis. To to be clear about what
the trade-offs are and to provide a sense of what the likely outcomes of different choices
are. What we want is not the most extreme form of globalization but the right kind of globalization.
I think it’s very important for our audience to understand economics is not a monolithic,
universalist set of ideas. Economics is very much a collection of different models that
apply under different settings and the hard job that we have is in matching setting to model.