The End of IPE
Adam Smith, Karl Marx, Joseph Schumpeter, JM Keynes
Class 24 – Thursday, 7 May 2009
J A Morrison
1
Agenda: End of IPE
I. Globalization’s Winners & Losers
II. Evaluating Globalization
III. Course Evaluations
2
Agenda: End of IPE
I. Globalization’s Winners & Losers
II. Evaluating Globalization
III. Course Evaluations
3
Before we evaluate globalization
normatively, it’s worth
investigating its distributive effects.
As globalization increases, who
wins and who loses?
4
We’ll look at differences in income
distribution across time and across
space.
Then we’ll consider the role
globalization plays in influencing
these changes.
5
II. Globalization’s Winners & Losers
1. Income Distribution: Cross-Temporal
Variation
2. Income Distribution: Cross-Sectional
Variation
3. The Role of Globalization
The Recent Increase of American
Incomes
Comparative GDP per capita of Selected
Countries: 1975-2002
So, GDP per capita is rising virtually
everywhere.
But how are these gains
distributed?
9
The Gini Index
• Index is one way of capturing the distribution
of wealth
0
Income is uniformly
distributed; no
inequality
1
Income is completely
concentrated; total
inequality
10
US Income Inequality, 1967-2007
Income listed by Household. Source: US Census Bureau
11
Share of US Aggregate Income
1967
43.8%
52.2%
4.0%
Richest 20%
Poorest 20%
Others
Income listed by Household. Source: US Census Bureau
12
 The size of the middle class has
shrunk upwards of 10%!
13
So, the US has become less equal
over time.
Where have the increases in
income gone?
Surely the poor must have gotten
richer—if only more slowly than
the rich have.
14
Percentage increase in Average
After-Tax Income: 1979-2000
250%
201%
200%
150%
100%
50%
9%
13%
15%
24%
36%
53%
0%
Source: Center on Budget and Policy Priorities, 2003
15
So, globalization is increasing
American wealth, but those
increases fall into the hands of a
very, very small group.
This causes income inequality to
rise in the US.
Is globalization causing this rise?
16
Let’s examine the US in a global
context.
Keep the following question in
mind: is there high correlation
between the level of globalization
and the level of income inequality?
17
II. Globalization’s Winners & Losers
1. Income Distribution: Cross-Temporal
Variation
2. Income Distribution: Cross-Sectional
Variation
3. The Role of Globalization
The World’s Most Equal Countries
Country
2005 Gini
Coefficient
Gini Rank 2007 Globalization
(out of 136) Rank (out of 122)
Sweden
23
1
3
Denmark
24
2
11
Slovenia
24
3
34
Iceland
25
4
35
Austria
26
5
2
Czech Republic
26
6
10
Finland
26
7
9
Luxembourg
26
8
25
Slovakia
26
9
27
Sources: CIA Factbook; Foreign Policy Magazine
19
The World’s Least Equal Countries
Country
Gini Coefficient
(Various Years)
Gini Rank 2007 Globalization
(out of 136) Rank (out of 122)
Zimbabwe
56.8
127
107
South Africa
57.8
128
49
Paraguay
58.4
129
80
Bolivia
59.2
130
86
Haiti
Central African
Republic
59.2
131
119
61.3
132
121
Sierra Leone
62.9
133
117
63
134
93
Lesotho
63.2
135
NA
Namibia
70.7
136
66
Botswana
Sources: CIA Factbook; Foreign Policy Magazine
20
What about the United States?
21
The US and Some “Neighbors”
Country
Gini Coefficient
(Various Years)
Gini Rank 2007 Globalization
(out of 136) Rank (out of 122)
Nigeria
43.7
90
69
Kenya
44.5
91
85
Philippines
44.5
91
55
Cameroon
44.6
92
105
Côte d'Ivoire
44.6
93
119
United States
45
94
19
Uruguay
45.2
95
51
Mexico
46.1
101
61
Rwanda
46.8
102
118
China
46.9
103
37
Sources: CIA Factbook; Foreign Policy Magazine
22
II. Globalization’s Winners & Losers
1. Income Distribution: Cross-Temporal
Variation
2. Income Distribution: Cross-Sectional
Variation
3. The Role of Globalization
What patterns emerge?
24
Predictors of Income Inequality
• GDP per Capita
– Higher GDP per Capita  Greater equality
• Continent: Europe vs Africa
– Europe: Most equal
– Africa: Least equal
• Level of Globalization
– More globalization  Greater equality
25
But there is a conspicuous
exception to these rules: the
United States.
The US has high per capita GDP
and high globalization but
considerable income inequality.
What gives? What divides the US
from Europe?
26
 Transfer payments.
The United States has a much,
much smaller “welfare state” than
do the Europeans.
27
Social Expenditure as % of GDP
Source: OECD, “Welfare Expenditure Report” (2001)
28
Rodrik: Soften the Blow
• Most developed states have coupled
integration with social safety nets
– US is the exception to the rule
• Rodrik: this coupling is vital
– Normative: spread the gains around
– Positive: globalization will cease without this
mollification
(See Rodrik, “Sense and Nonsense”)
29
The story here is clear…
30
The last 40 years have seen radical
increases in the wealth of the richest
Americans.
This has hollowed out the American middle
class. And considerably increased income
inequality.
The US government has been reluctant to
intervene and either slow these changes or
counter their effects.
31
Now we’ll consider whether this is
a good thing or a bad thing.
32
Agenda: End of IPE
I. Globalization’s Winners & Losers
II. Evaluating Globalization
III. Course Evaluations
33
II. Evaluating GLOBALIZATION
1. Globalization’s Critics
2. In Defense of Globalization
What could be wrong with
globalization?
35
Rodrik: Globalization not a
Substitute for Development
• Liberalization can distract from actual
development policy
– Education, public health, social cohesion, &c
• Liberalization can hurt development
– Africa, Aids Drugs, & TRIPS
• “High Tariffs Don’t Mean Low Growth”
•  Remember: Developed states didn’t follow
the Washington Consensus
36
Stiglitz
• More people are impoverished than before;
markets aren’t any more stable
• Globalization benefits developed countries the
most
– Terms of trade
– Vital products (pharmaceuticals)
• Institutions are designed to serve the
developed world
• Institutions have tried to reinvent themselves,
but they have failed
37
II. Evaluating GLOBALIZATION
1. Globalization’s Critics
2. In Defense of Globalization
Williamson: Convergence with
Inequality
• Examines influence of globalization on income
inequality within countries and between
North & South
• Globalization causes convergence between N
&S
• But it also exacerbates inequality within the N
• This produces potent political backlash
•  Does globalization sow the seeds of its own
destruction?
39
Freeman: It’s not So Bad
• Investigates apparent immiseration of lowskilled labor in North
– US: lower wages
– Europe: higher unemployment
• Results
– Demand for unskilled labor is down all around
– Technology and other factors matter more than
trade
40
Krugman, et al: Bad Jobs are Jobs
• Rural poverty vs “jobs” in export industry
• “biggest beneficiaries are…Third World
workers”
• “A policy of good jobs in principle, but no jobs
in practice, might assuage our consciences,
but it is no favor to its alleged beneficiaries.”
41
Another Perspective
• Postwar order was designed to prevent WWIII
– Lesson from Versailles: create integrated order
acceptable to major powers
 This order has been remarkable successful!
• Unclear, new-fangled model for North/South
– Development was much lower priority than
reconstruction
– Self-determination: political independence 
guilt free economic domination
 We need to rethink our model of int’l
organization. (PS 0456!!!)
42
Agenda: End of IPE
I. Globalization’s Winners & Losers
II. Evaluating Globalization
III. Course Evaluations
43