Are There Winners and Losers of Globalization?

Instructor: Ian Bremmer

While globalization has helped lift over a billion people out of extreme poverty in the last 20 years alone, some of the world has seen little to no movement—most notably the working- and middle-classes in developed economies like the USA, Canada, Europe, and Australia. 

Tyler Cowen and Ian Bremmer examine who has benefited most from globalization and automation through a detailed examination of Branko Milanovic’s famous elephant graph. Will the next decades resemble the same outcome? How will robots change this? 

About the series:
Globalization and Robots: The Future of Work 
Globalization and robots dominate the discussion of jobs, politics, and more. We’re donning our scuba gear and diving in deep to better understand where the economy is going, how students should navigate it, and how these forces shape our society.

A topic of this magnitude requires a bit more firepower than usual. That’s why we’ve partnered with Eurasia Group Foundation and enlisted two intellectual wizards to help us out: Ian Bremmer, expert political scientist, bestselling author, and Twitter extraordinaire; and MRU’s own Tyler Cowen, expert economist, bestselling author, and iron man of blogging. They’ll lead you on a rollicking adventure that explores the rise of the Avengers, the fall of Kodak, and a graph so famous it has its own mascot!  
 

Teacher Resources

Transcript

Narrator: Are there winners and losers of globalization? That's a big question you could tackle in a variety of ways. Are we talking about who's making more or less money? Whether inequality is better or worse? The environment? We'll tackle all these questions in upcoming videos. 

Let's start with the question of money -- who's making more or less of it. It's a bit complicated, but with the help of Tyler, Ian, and an elephant -- yes, an elephant -- we'll get to the answer.

Tyler: So I think globalization has been good for virtually all groups, but the very biggest winners are the previously quite poor people. Big winners have been the wealthy and the very wealthy. People in the middle have gained, but, in percentage terms, by not nearly as much.

Narrator: What is Tyler talking about? The elephant, of course. Let's take a look at a chart so famous it got its own mascot. 

This chart looks at the entire world, broken down by income. Over here, on the left, are the poorest of the poor. Remember, this is of the entire planet. Over here, on the right, are the most wealthy. If you're poor in a developed country, like the United States, you're not here, not even close. You'd fall somewhere around here. On the vertical, we're going to plot how much these people's living standards grew in 20 years, from 1988 to 2008. 

1988 to 2008 are the transformative years of the information revolution. 1988 was still Globalization 2.0. The internet was tiny, the domain of a select few nerds, and a mobile phone looked like this and cost a fortune. The information revolution exploded over the next two decades. By 2008, we had graduated to Globalization 3.0. Companies leveraged this technology to slice and dice their factories into global supply chains and automate tasks with robots and software. The elephant visualizes the impact of this 20-year technology transformation. 

Let's start with the tail of the elephant. This is the poorest 5% of the world, and we don't see much growth -- only a 20% improvement in living standards over 20 years. These people live in countries too remote or too violent or too unpredictable to become integrated into global supply chains. 

As we move to the right, we can see the story changes quickly. There has been dramatic growth of 50, 60, even 70% in just 20 years. This is the back and the head of the elephant. Here we see the developing nations who were incorporated into these supply chains -- India, China, Mexico, Brazil and the like. For people who study the global economy, this development has been both exciting and inspiring. 

Ian: That's been the biggest development, not just in terms of globalization, but the entire planet for the last 40 years, is that a whole bunch of countries that we used to call "third world" -- they weren't even on the same planet as us! 

Tyler: There's a village in Mexico I visited many times. In that village, people could starve if they didn't have a good rain and a good harvest. They just grew corn, and hoped each year that they could grow enough corn to eat. People in that village, over time, they've diversified a way from growing corn. One thing they do is they make pottery and they paint pictures, and they sell these pictures and pottery abroad. They use email. They use Federal Express. And, every year, the income of that village has climbed steadily. So, today, there's a school in the village. No one in the village dies of starvation. Life is much more comfortable. There's electricity. People are much happier.

Narrator: This sort of rise out of extreme poverty has been experienced by 1.1 billion people in the past few decades. 1.1 billion! That number is so big, it's hard to wrap your head around. To get to 1.1 billion people you'd need all of the U.S., Mexico, and Canada... twice! Plus a side of France and Saudi Arabia. Seriously. Of course, getting out of extreme poverty isn't the ultimate goal, but it's a good first step. Back to the elephant. 

If we keep moving to the right, the story gets less rosy. Now we're moving into the working and middle classes of developed countries like the U.S., Canada, and Western Europe. As you can see, many of them have seen low or even no growth in a generation's time. It doesn't go negative, so, in that sense, on average, these people didn't lose money. But it's far below what was expected. This is the trunk of the elephant.

Tyler: These middle-class workers in the developed economies, they're not only competing more with cheaper labor abroad, but they're also competing more against their own automations in their own countries, so this too has, to some extent, held down wages for some classes of workers.

Narrator: Does this mean these workers make less than those in China, Mexico, and Brazil? No. Remember, the vertical axis doesn't compare income, but rather growth in income over 20 years. 

So while these middle-class workers in developed countries have seen much less income growth, because they had a much higher income to begin with, they still make far more than most workers in developing countries. 

What about the rest of the trunk? The higher you go up the income distribution the better it gets. The very richest have seen a 70% increase in their incomes over the span. Remember how "The Avengers" made a billion dollars in just 11 days? Those who reach global markets reap unprecedented rewards. 

Take a highly successful company like Apple. On the one hand, you have the designers, engineers, and marketers who have seen their fortunes rise as Apple's products sell across the globe. On the other hand, Apple products used to be manufactured in the U.S., but those jobs are gone -- either moved overseas or automated. When these middle-class workers look around, they see prosperity for everyone but them. On one side are places like China, India, and Mexico growing rapidly. On the other, they see the wealthy getting much wealthier. 

Ian: And that is the working and middle class in rich countries -- here in the United States, and in Europe, Canada, Australia, even though no one ever talks about them, but they're a whole damn continent. All of those people suddenly are not getting the opportunities that they were. They believed that their lives were going to get better, and yet over the last 40 years, on balance, they've made no more money. 

And so as a consequence, you have a large number of people living in the wealthy countries that are really angry about globalization and free trade and open borders, and they're angry with that 1%, the 0.1%, the 0.01% that were telling them that globalization was great but that didn't actually benefit them. 

Yeah, they still were able to buy cheaper stuff, but if you no longer have a job and no one's making sure that you still have opportunities, then why would you want to support those people? And that's not just happening in the United States, that's actually happening all over the developed world today.

Narrator: The natural question is to ask, "What's next?" Is the next 20 years going to be a repeat of the same elephant? Some other animal? Looking back, the story was the information revolution. Looking forward, it appears to be one of robots and artificial intelligence. 

Ian: I talk to a lot of business people, and they all tell me that if they need to, they can make more money in the next ten years with fewer people, that almost every company you can think of is getting transformed by processes of automation that makes it easier for them to get things done. And that's true with banks that don't need as many tellers or as many financial analysts to determine where you should and shouldn't put your money. It can be done by algorithm and trading. 

Adidas has a new big sneaker company in Germany that has almost no people in it, because they can make all of these customized sneakers through a robotic process. Today, the vast majority of manufacturing jobs in the United States that go away are not being stolen by a cheaper worker in China. In fact, one estimate shows almost 90%, 88% of all manufacturing jobs in the U.S. that are displaced are being displaced by robots.

Narrator: The rise of automation is a source of much consternation in places like the U.S. and Europe, but it might actually impact those countries at the head of the elephant more than anyone else.

Ian: So a country like China, or like Brazil or Mexico, benefitting enormously from jobs in the United States that went to them in the last 40 years, suddenly will be more vulnerable to the robots and the automation than the United States will be over the coming 10 to 20 years. That's a really significant change in how we think about globalization.

Narrator: It's time to say goodbye to our elephant. Aggregating the lives of the entire planet into a single graph gives us a window into which groups won big and which did not. However, trying to represent hundreds of millions of lives with a single dot can feel disconnected from what the real impacts are. 

Tyler: Globalization -- it's a big concept. And it's important to realize, for any concept that big the correct way to think about it will be highly complex, and there will be many negatives. But, overall, the ledger, I think, is strongly positive on behalf of globalization. It's spread health improvements. It's given people longer lives, greater opportunities for children, overall higher wages. Many more countries are democracies, and the world today, largely because of globalization, is simply a much better, richer, and freer place than the world I initially grew up with.

Narrator: In the next videos, we'll go beyond money to talk about inequality, the environment, and more.

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