Speech

Research Conference on Globalization: Managing Director’s Opening Remarks

October 11, 2017

Honored Guests, Ladies and Gentlemen—It is a pleasure for me to welcome you to our conference on the benefits and challenges of globalization.

I would like to thank you, Maury, and your team in the Research Department for bringing together some of the world’s leading thinkers—on a topic that lies at the heart of the IMF’s mandate.  

This conference is well-timed. The global financial crisis left many countries with lower growth and higher inequality—increasing doubts about the benefits of globalization, especially in advanced economies.

How can governments respond to this changing landscape? The good news is that the global recovery is now stronger—and more broadly based—than we have seen in a decade.

This means that governments have an ideal opportunity to act—both individually and together—to secure the benefits of trade, while ensuring that those benefits are more evenly shared among their citizens.

The distinguished speakers at today’s conference will focus on how best to achieve that goal.

1. Globalization Benefits

We know that our world is highly interconnected through a constant flow of goods, services, capital, people, and ideas.

We also know that this economic integration, or globalization, has delivered tremendous prosperity to the world.

It has fostered a sharp decline in global income inequality—that is inequality between countries. It has also, over the past two decades, helped reduce by about half the share of the world’s population living in extreme poverty.

Living standards have been boosted in all countries, including in advanced economies, where consumers and businesses are benefiting from lower prices and a greater variety of goods. Trade is particularly important for poorer consumers, because they buy relatively more low-price imports. That is also why they are most affected by trade restrictions.

A recent study shows that the poorest 10 percent of consumers would lose as much as 63 percent of their purchasing power if all borders were closed.[1] By contrast, people on high incomes would lose “only” 28 percent—still a lot, but less devastating if you are well off.

But this is not the whole story. Access to imported production inputs makes the economy more productive.

For example, recent analysis shows that one-quarter of Hungary’s productivity growth between 1993 and 2002 stemmed from greater availability of imported intermediate inputs.[2]

Of course, trade also promotes the spread of innovative technologies and production processes across borders. People learn from each other through trade.

Billions of people now enjoy longer, healthier, and more prosperous lives, largely because of our ability to harness the power of trade and innovation.

And yet we also know that these drivers of globalization come with negative side-effects, from job losses in shrinking sectors to social challenges in some communities.

The fact is that globalization has the potential to benefit all citizens. But countries have been facing a number of challenges.

2. Globalization Challenges

For advanced economies, a key challenge has been competition from lower-wage countries.

Almost three decades ago, China, India, and the former communist countries started to engage more deeply with the global trading system. This process had far-reaching effects:

The size of the global workforce effectively doubled, putting downward pressure on wages, especially for lower-skilled workers in advanced economies. This has contributed to a decline in manufacturing employment in the advanced world, although here, labor-saving technology improvement has played a bigger role.

At the same time, many advanced economies have been facing stagnating median wages and higher income inequality—all driven by a range of factors besides trade, but occurring as trade has expanded.

For emerging and developing countries as well, trade has come with negative side-effects. These include rising income inequality, increasing wage premia for skilled workers, and the need to support displaced workers who are looking for new jobs in other industries.[3]

Despite these challenges, citizens in emerging economies generally take a more favorable view of trade and its labor-market impact. Why? Because their incomes have been growing, even in the bottom deciles of the income distribution.

3. Policies for Inclusive Trade

The best policy response to all these challenges is not to turn our back on trade. Instead, we need to redouble our efforts to create a more inclusive global trading system that works for all.

As you know, the IMF cares deeply about fostering trade. This has been at the heart of the Fund’s mandate for more than 70 years. And we continue to help our 189 member countries extend the benefits of openness—so they can use trade integration to boost growth, employment, and real incomes.

Recent analysis[4] by the IMF, World Bank, and WTO shows that, when it comes to trade, we do not need to choose between inclusiveness and economic growth—as long as we have the right policies.

One focus of today’s conference is how we can better support workers. I am particularly interested in ideas on how governments can boost worker mobility across firms, industries, and regions.

For example, governments can step up investment in job search assistance, retraining, and vocational training. They can also strengthen social safety nets by providing appropriate unemployment insurance, health benefits, and portable pensions.

More broadly, there is a need for better education systems to prepare workers for the changing demands of the labor market. And there is a need to support affected communities more directly through relocation assistance and smart credit strategies.

Another focus of today’s conference is how we can strengthen the global trading system. This includes, for example, pushing for trade reforms to increase trade in services, from finance, to engineering, to education. It also means boosting trade in digital products to help realize the full potential of global e-commerce.

Concluding Remarks

Achieving better economic integration is not an easy task. Nor is it a uniquely modern challenge.

More than 200 years ago, Adam Smith wrote in the Wealth of Nations: “Commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity.” 

Today’s generation of policymakers will be measured by their ability to turn animosity into agreement.

I believe that, with the right policy mix, we can help create a lasting bond of union and friendship—a globalization that works for all.

I look forward to our discussions on this topic.

Thank you.

[1] Pablo Fajgelbaum and Amit Khandelwal, “Measuring the Unequal Gains from Trade,” Quarterly Journal of Economics, 2016.

[2] László Halpern, Miklós Koren, and Adam Szeidl.. "Imported Inputs and Productivity." American Economic Review, 2015, pp. 3660-3703.

[3] URL: https://www.kansascityfed.org/~/media/files/publicat/sympos/2017/pavcnik-remarks.pdf?la=en

[4] URL:  https://www.imf.org/en/Publications/Policy-Papers/Issues/2017/04/08/making-trade-an-engine-of-growth-for-all