A (32:43)

World War.

B (32:43)

II up until the circa 1980, distribution of income by most measures was highly stable in the U.S. and to the extent we have the data everywhere else. So there was no. The idea that trade could in principle have effects on income distribution was not something you worried about a whole lot in practice. Since then, I guess, as everybody knows, the United States to a very large extent, the UK to a somewhat lesser, considerably lesser extent, but still there and faint echoes in other English speaking countries have seen a really noticeable increase in inequality Actually, it turns out I've been learning more. I thought I knew everything about this, but I'm learning more than before. It's actually worse even than the standard numbers suggest because many of the numbers we look at don't look at workers by age. And because the workforce has been getting older and moving towards higher earning years, the aggregate numbers tend to look better for the typical worker than the reality. So, so here's what the numbers look like for the US for the earnings of standardized. We're looking at sort of prime working age, the age when people in general are trying to raise a family. And we're looking at men because there's a women. Discrimination against women has diminished some, so they've done better relatively, although absolutely, they're still much worse. And here's what you see. It's actually one of those classic things, right? The median is up. Sorry, the mean is up. Average wages are up, though not all that much over that period, but they're up around 10%. But the median earnings of prime age American men are down significantly, despite the fact that it's a more productive, richer economy. Everything is, you know, and this is of course typical when inequality rises, right? If Bill Gates walks into a bar, the mean wealth rises, but the median doesn't. And so what you're seeing is this situation where the large income gains at the top are not being reflected in the median. And in fact the distribution is worsening so much because that's a value judgment anyway. It's worsening so much that the typical worker is actually worse, worse off. Just side note, for the US These data don't really show you how much the mean is really going up because US, the data on which this is based are top coded so that incomes above 999,000 a year are truncated. And believe it or not, that actually makes a significant difference to the US data because, well, it. George Soros, who I see has done some. About to do another one here. George Soros is a poor guy because I think he's well down in the ranking of the hedge fund managers because he made a little bit under a billion last year. So anyway, okay, just to give you a sort of related. This is not just about education, but this is where the trade issue tends to be. We think a lot about education. This is just the U.S. the college, high school wage ratio, pretty much inexorable upward march since the late 1970s. Okay, this is pretty serious stuff. Now the thing is that upward march does correspond roughly to the period when for the first time we start to get large scale exports of manufactured goods from developing countries. And ever since the late 80s there's been a lot of discussion about how big a role is that, how big is the effect of those imports. And again there were a lot of people who just did not want to believe that there could be any. That's a position that some people still hold. But you know, James Mead would have told us different. It certainly could be in principle there could be an increase in, in income equality arising from trade. Now I said there's going to be some chastening here. So let me tell you about my own chastening. I was, I did not the most detailed studies, but I did some back of the envelope calculations and was a heavy consumer of studies that tried to assess the impacts of trade on distribution during the 1990s. And at that time what I felt was the right position was not to say nothing can't be. Not to say trade must be good for everybody because that's actually not what the theory says. But rather to sort of crunch the numbers and come up with the conclusion that it had to be fairly modest. And so we got numbers. I came up with 3%. Some other people, Bill Klein with the sort of last of that sequence came up with 6% on the wage differential. They were fairly modest numbers. The reason they were modest was that although there had been this explosion.

C (38:12)

Of.

B (38:13)

Exports of manufactured goods from third world countries, it was still quite small compared with the first world economies. So this is the US imports of manufactured goods from, from developing countries, they were still under 2% of GDP in 1990. And so working with data around in the early 90s, you put that through and it did not seem to be a really huge effect. These are what the estimates actually looked like. So Vorhas, Katz and Friedman came up with quite small numbers, although their numbers were affected. Technical stuff about the trade deficit. I said 3%. Bill Klein the dates on here are not the dates of the papers but the days of the data. So the. Bill Klein, although it was actually published in 97, he had trade data through 93 and it looked. That's significant. That's certainly not something you would just wave away as being nothing. But it's not at the core, not something you could say. That's a secondary issue in the story of trade and distribution. And again, just go back here for a second. This is because this is what the trade numbers looked like. Time has marched on. These are, I've been trying. It's pretty, I don't quite haven't quite managed to put it together, but this number would be above 5 now the imports, well this is mainly China driving this. It's some other countries as well, even India by the way, although the, the cutting edge, the thing that caught everybody's attention was the service exports, the manufactured exports are coming along and of course we're missing the new outsourced service issues. So it's starting to look, well, it's much bigger than it was. If you just did this in the most straightforward way, you would have to be saying that the impact on distribution is two plus times bigger than the estimates that people had in the 90s. So if we took the Klein estimate, we'd be saying 12, 15% might be worse than that. And the reason is that the new kid on the block, the new player China is not just huge but also much further down in terms of wages, much more labor abundant than the previous players. So in 1990, the newly industrializing Asian economies, which were what everybody thought of as the trade as the source of increased inequality, had wages that were about 25% of the US level at this point. The Bureau of Labor Statistics has now started to try to put together China estimates which they never did before and they are estimating China at about 3% of US level on terms of wages. By the way, that does not mean that China is super competitive, that it's not true that the Chinese are as productive as we are and they pay 3% of wages. For the most part that is offset by low productivity. But the point is that the kinds of goods, the low wage is a sign of a very labor abundant, still quite skill scarce economy that is going to be exporting goods that very much compete at the low end do in effect displace low wage labor in the US and in the EU and therefore do tend to exacerbate the income inequality. And you can no longer say in a, you know, you can no longer credibly say look, yes, I agree in principle, but quantitatively it's not a big deal. That's just not a, I don't think that's now a tolerable argument. I'll come back in a little bit to what, what do you do about that? Given that we now got a problem. But I think that's pretty clear I should say also, I'm not trying to give you a chart for it, but that I had two tricks, two more lines of defense back in the mid-90s against worries about the impact of trade on inequality. The first was to say, well look, these countries that are exporting may grow and they may export more, but they'll also be moving up the skill ladder themselves. That as South Korea becomes an even bigger economy, will also become a richer, more skilled economy. And therefore its exports will place, although they may be larger in quantitative terms, will actually place less downward pressure on unskilled wages in the U.S. and that's true. There's actually been a dramatic upskilling of the exports of the original Asian tigers. The trouble is along comes China and that's where you come back. Instead of getting these exports from upskilling South Korea, now we get huge imports from China, which is far lower wage relative to the advanced countries now than South Korea has been since the early 1970s. So the China emergence undermines that argument. The other argument that I had was, and this is very straight median trade theory was well, this median with an A in it, not middle of the distribution. It was that there's eventually you run out of labor intensive industries to lose that you in terms of the trade theory that you get full specialization at that point, no further effects on income distribution. Well, what's turned out is that the range of labor intensive industries keeps on expanding because we can break up the production process, because we can fragment the industries. So that to take an example, I was just looking at a bit to try and just get some real world anecdotes. The semiconductor microprocessors are undoubtedly a skill intensive high tech thing. But at this point intel has broken up the production process. The fabs which produce the actually get the circuits onto the disks of silicon are all in high wage advanced countries, mostly in the us, Ireland and Israel. But the actual cutting of those disks into individual chips and the testing is all done in China, Malaysia and the Philippines. So that's in effect created a new labor intensive industry that can be moved abroad. The whole business about outsourcing of services is really just best, I think seen as part of the same phenomenon. You now take the non physical parts of production and get to shift them back and forth internationally. And that means both taking labor intensive stuff and moving it to the third world and in some cases taking skill intensive stuff and moving it to the first world, which also has the effect of enlarging the range of possible income distribution effects. So that Lenovo, the Chinese computer manufacturer actually has its executive headquarters in North Carolina. But again that's a process of further expanding the range of trade. So you know, it's, we're now in a position where textbook trade theory applied to the real world data can easily justify a belief that international trade has widened the skill differential in the United States by 15%, maybe higher than that, and still rising with no obvious end in sight. Again, if we were some of us, I think I was a little bit less sinning than others. But we fell into the trap of thinking that trade must always be good for everybody. Because that's kind of what chapter two of the book says. But it's not true once you go beyond that. Let me turn just briefly to my third chastening, which is question about trade and the third world. And it's interesting because the passions on trade, I would say that the political debate on trade is really two pieces. There's one which is actually fairly pragmatic and probably is the one that matters most for electoral politics, which is what does it do to workers in first world countries? What does it do to workers who by a global standard are actually doing quite well. But that's not easy enough for fairly well paid academics to say. But if you like, if I want to be concrete, from my point of view, the political problem is what do I say to the workers of Ohio? Or more directly, what do I say to Senator Sherrod Brown, who's a good guy and I share a lot of values with. But how do I answer his concern that trade is hurting his constituents when the reality probably is that it is. But the passions, the real passions of trade are about what happens to third world countries, what happens to the poor. And that's where actually my passionate and only slightly chastened advocacy of globalization is not about believing that it does wonderful things for the US or the European economy, but about believing that's the only hope for Bangladesh, that's the only hope for the really poor nations of the world. And that hope is a bit diminished, but it's still the reason I believe so much. On the other hand, the anti globalization advocates are, again, they're not. They may have some concern about the wages of blue collar workers in Ohio, but mostly they're concerned about the belief that globalization is doing terrible things to the poorest of the earth. Now there's no hint that in anything I've seen that globalization is a bad thing for growth in the third world. It may not be as good a thing as some of us were temporarily able to believe, but there's no sign that it's negative for growth. There is some evidence that there are problems of distribution. And so, for example, this is not the, this is. Well, even the Wall Street Journal noticed this. Okay? Actually the Wall Street Journal has two papers of Course, one quite good and one bat crazy. But anyway, unless Rupert Murdoch buys it, in which case it becomes one paper again. So what they noticed is that in Mexico the Gini coefficient has gone up since liberalization, although not since nafta. It's really that early phase of liberalization that's really associated with increased inequality. And of course China has become gone from being quite egalitarian, if highly repressive society to one that is now reaching or surpassing Latin American levels of inequality. Now in the case of China, of course, there's lots of things going on. So it's not just trade. In the case of Mexico, it mostly is trade. What about that? And the evidence is, I'm not sure this is a picture of skill premiums. It's sort of corresponding to the American one, but it's actually done by. This is the Inter American Development Bank. They've just taken points of liberalization. They've chosen a year, which they believe is the sort of center of gravity of the liberalization. And by and large, though not everywhere there have been increases in inequality. Mexico tends to that Mexican experience in the 80s is the clearest cut case. There's a substantial increase in Chile and Colombia as well. Not enough to say that it looks on average, though not everywhere, as if inequality is actually rising in Third World countries. Now there's a temptation to say that that's contrary to economic theory. The same theory that says that liberalization ought to be raising wages in the first World countries, raising inequality and ought to be diminishing it in the Third World. There are actually ways around that comes back to the. Any smart. Actually this was beyond, I think smart graduate students. It took some smart associate professors to come up with this one. But you can come up with stories particularly this fragmentation of production offers some opportunities because it's not just like a reduction in tariff. If you make something that wasn't tradable, you can get some interesting effects. In particular the story with Mexico. There's a fair bit of evidence that what's actually happened is sort of intermediate range goods, goods that are moderately labor intensive have shifted production from the United States to Mexico. And those are goods that are more labor intensive than most of what the US Is producing. So they're actually making the US more unequal, but they're actually somewhat less labor intensive and more capital and skill intensive than what Mexico is producing. So they're actually also raising the. It's a little bit like the, you know, the. I'm trying to think of a department. I hate the guy who moves from Princeton to Chicago and raises the average in both places. Sorry, I don't actually have anything against Chicago. Not as it is now, as it was once. The evidence on trade and poverty is mixed also, but certainly not uniformly encouraging. We certainly have in Mexico, again especially into some some extent Colombia, evidence that trade has actually. That globalization, trade liberalization has actually worsened poverty. I'm not sure I regard it as an intellectual puzzle. I did for a while, but the more I look at it, I think we can more or less make sense of it partly because the picture is sufficiently mixed, but it's another reason. Now if you had asked me, I think I'm actually on paper saying this in 1990 I was quite sure that trade liberalization would equalize income in developing countries, that it would actually be good on all accounts. It would not only promote growth and I thought would do these wonderful things for growth that we all believed at the time trade liberalization did, but it would also be equalizing because I thought it would increase the demand for labor relative to capital and it would have all these favorable distributional effects. And the picture is in fact at best mixed. It has not uniformly had favorable effects. The original Asian economies again, excessive faith in the power of historical experience is a big part of the story. The original Asian industrializing economies did have a remarkable combination of growth with equity. In the early phases things went very well both in terms of income distribution and of course in terms of growth. That experience has not been replicated anyplace else. And in some cases, as you can see, it appears to have gone wrong. So again, my third chastening. So in this kind of apologetic mood, what do we do now? And let me say again the. I don't actually think we're on the verge of a wholesale return to protectionism. Very hard for me to see another Smoot hauling. It's been interesting that even in countries that have very vocally rejected the Washington Consensus and there has not been anything like a return to import subsidies substituting to the bad old policies of the seventies. Argentina certainly had some pretty stiff rhetoric, but not the whole not back to Peronism. So I don't think that's a likely prospect. But in any case, let me just say that I think a pretty open global trading system is a very important thing to maintain, not because it's terribly important to the economy of the United States or Western Europe. The fact of the matter is that even a full out trade war would make the United States or the European Union a few percent at most poor. It's just not that big a deal. But because there are very large numbers of people who are very poor and depend desperately on the ability to export based on really no advantage other than low wages. So I always think when somebody says, well, shouldn't we roll back globalization? I always say, think of Bangladesh. What do you expect them to do if they can't export apparel based on wages at 30 cents an hour? What else can they do in that country? So that's the core reason. And then as a secondary thing, some lingering hope that we may well not lingering hope because we do see it, that we may see more South Koreas, that we may see more things like India. It's not clear that globalization was essential to what happened. But do you really want to chance taking away that possibility? But what do we do as a political matter? So we have now a very difficult situation in, in politics. And here it gets a little, it gets really quite American in orientation. Can't help that. It's the place I know better. I don't have any sense of what the balance looks like on this side of the Atlantic. We had in the United States a kind of hiatus in the globalization debate. And well, no, I did do a lot of Bush bashing. And I will say that one of the things that George Bush did do for us was in effect to give us a vacation from arguing about globalization because lots of people who might have different views on that were united in the sense that something really bad was happening. And so we can. In fact, there was an extended period when if I would write about international economics for the New York Times, I would actually get a barrage of mail from loyal readers saying we're not interested, go back to bashing Bush. So we have. But now we're somewhat, we're emerging from that. We have a change in the United States in power in the Congress, reasonable, though not certainly the change in the executive at the end of next year. And the debates are, and there are debates now that are between people who broadly share the same values. They all share reasonable concern for the state of the world. They're all concerned about incomes of working people in the United States. There's no fundamental difference in world in what I and the protectionist wing of the Democratic Party care about. But there is a difference in weight and in particular, they have to answer to constituents who are reasonably actually on the losing end of some of what's been happening. So here's what does a chastened globalist do? So, three things. First, I think it's really important to be Honest. If you go out and try to claim that there are marvelous, wonderful things as a result of trade liberalization and no harm is done, all you're going to do at this point is just lose credibility. You'll be missing, people will say, you know, you're just not in touch. So being pretending that it's still 1990 and none of these chastening experiences have happened is not due. Don't waive off the concerns. Don't claim that there are no concerns effects. And you have to offer some kind of way of compensating the losers from the process. If you want to preserve this, there has to be something to waive off the losers. Right now the favor proposals are things that will not work. They might buy you some time because people think they will work, but they won't. Labor standards. That's the current, the current view of the people who want to go about doing trade negotiations is that we're going to go and we're going to negotiate labor standards. We're going to have things that rule out slave labor. We're going to right to organize. So on down the line, why won't that work? It won't work because the reasons for the income distribution problem are fundamentally linked to the comparative advantage of the countries involved. Even if we have full rights of organizing in China, China is going to be a labor abundant country exporting labor intensive goods and it's not going to go away. Maybe we'll get rid of some of the more outrageous things that happen, but we won't deal with the fundamentals. So the only way labor standards can actually be effective is if they become what the critics of labor standards accuse them of being, which is just a backdoor route of protectionism. You know, go out there and try and impose a $2 minimum wage on Bangladesh and that will work because it'll just destroy Bangladesh's export industries. But that's not what you want. Trade adjustment assistance. It's the other thing that people talk about. Let's help the workers who are displaced by jobs by trade, give them temporary cash training. But if it's really stopper Samuelson broad income distribution, that's not the problem. I mean, sure, fine, but it's not going to actually. The real problem is a broad pressure on the relative wages of different skill levels of labor. It's not the world where the problems are just transitional. I mean, I guess in the very long run you're going to have new generations that are more highly educated and won't be exposed to these pressures. But this is not. You're not going to be able to take the 40 year old man whose job has been lost to imports and, and train him as a. I'm trying to come up now with a high wage occupation that's not possibly threatened by competition. I can't even come up with one. Right. Train him as a software engineer. Whoops. So that's not going to do it. Things that might work, things that involve strengthening social insurance while making the tax system more progressive. I think you want to think of this as being really. The distributional impacts are hitting a substantial part of the lower part of the wage distribution. If you can have any policy measures that broadly help that part of the wage distribution then that's a partial offset. Now you could argue that these are things you should do anyway regardless of whether trade is causing problems on inequality. But the case becomes more acute. And if you want something that is more specific, we have this thing which has now been emulated in the uk, the Earned Income Tax credit, which is a wonderful way of actually saying we are going to reward work at lower wage rates in a way that helps offset income inequality. The problem with, in the US is that it's clearly at this point, from the point of view of dealing with these problems, it's pitched way too low. The tax credit tops out at, I think on current numbers about 15,000 a year and fades out completely by the time you get to the mid-30s in income. And that's below the point if I believe what we're seeing. It is actually the median worker is actually being somewhat hurt by trade. So an EITC that actually disappears before you even get up to the median is not adequate. So you need something bigger and that's again part of where you can offer some compensation. It's going to be really difficult. I'm not going to be able to defend free trade with the same kind of cheerfulness. I was about to say clean conscience. I think my conscience is clear, but my attitude is a little more depressed, a lot more depressed than it used to be. Be that it's going to be much, much harder to make this case honestly, but it's going to have to be done. The fact of the matter is that the last 15 years have been, to go back to my word, a pretty chastening experience for free trade advocates. We haven't been proved wrong, but things have turned out to be not nearly as easy, not nearly as good, not nearly as uniform in their benefits as we hope to be. And if I were going to sum it up I'd say that the world is actually not a simple place that requires just a few slogans. It's a place that requires detailed, careful analysis. Sort of thing that James Mead wrote once upon a time. Thank you.

A (65:12)

Well, thanks very much, Paul, for extremely stimulating and interesting talk. We now have some time for some questions. So there are roving mics, I believe, around the hall. So if you identify yourself, then we'll start off the questions. Okay, so let's start off with Danny, the first front.

C (65:37)

Thanks. Danny kwa, Economics Department, lse. I wonder if the chastenings that you've taken upon yourself are a little bit more severe and a little bit more subtle than a different reading of the facts might suggest. I'm thinking in particular of the chastenings that you refer to as the increasing income inequality in the developed countries. Your point number two. And then. Sorry, in the developed countries. And then in the developing countries, number three. Now, your evidence for saying why inequality has risen and is a bad thing for the developed countries hinges on, among other things, the behavior of this median worker. Not. But not to get too technical, the median is just one part of an income distribution. And we know that an income distribution is a very complicated thing. It can do weird things in different parts of it. So, for instance, from the perception of the outside world, while the median worker has had their income fall, the bottom 40% of the income distribution in the United States has actually seen real incomes rise despite the share of national income has fallen, but real income falls for the bottom 40% has actually risen. Now, it might be that by marshaling different facts about the income distribution in the rich countries, the United States and elsewhere, we can come up with a more nuanced, less chastening version of your point number two. Similarly, your point number three, which has to do, and the way I've read your presentation, the strongest piece of evidence there is what happened in Latin America post trade reform. But Latin America is not, I think, what one might naturally immediately point to as where the strongest effects of opening up to trade have occurred. You've made mention of China several times in the presentation, but your single piece of evidence on China, if I understand, was this increase in the Gini coefficient. But we know that that increase in the Gini coefficient in China came at the same time as a dramatically rapid increase in per capita income. And as far as I can tell, all the literature that's tried to mesh those two pieces of evidence have actually said that China has succeeded in removing from states of poverty hundreds of millions of people over this time. So I might suggest that your points 2 and 3 might be more subtle than you seem to want to want us to believe. And then let me conclude with what seems to be a 500 pound gorilla sitting in the room that you've alluded to, but that you don't make very much more of. And this is that you've talked about inequality within the developed countries within the United States and inequality within Latin American countries and you've said how? Well, to bring Bangladesh along, we do need globalization. But the Bangladeshes of the world, the Chinas of the world, the cross country income inequality dynamics of the world, that's the 500 pound gorilla that's experiencing these waves of impact from globalization. And there the evidence seems to be that we do see a convergence from the very rich, from the very poor parts of the world to converge towards the very rich parts of the world even as inequality within those two parts of the world continue to increase.

B (69:04)

Okay, let me actually, on the last part I agree completely.

A (69:08)

From the.

B (69:09)

Is this on?

D (69:10)

I doubt that it is.

B (69:12)

Okay, I agree completely that from the point of view, from a ruthless cosmopolitan point of view, what matters most of all is the income of the poorest in the world. And so the growth, this convergence of parts of the third world, rapid growth in there, which narrows global inequality is the most important thing. The world as a whole is a much better off place than it was in the 1970s. It was one of. I could give you my globalization sermon, which really comes back to people look back to the world before globalization looked back to the world around the time that I was in grad school. And they imagine it as this kind of happy place of self sufficient economies and cheerful peasants singing their songs. And it's nothing like that. It was a desperate feeling of hopelessness in the world. So this is a very important thing. But the problem is again, we have a number of disappointed countries. In effect, I'm taking that as a given and saying, but what do I say to the Latin Americans who say to me, you people from Washington came down and gave us all these promises and they didn't deliver. What do I say to the senator from Ohio who says, what do my constituents say? So it is at some level, it's a political economy problem rather than a global values problem. About the inequality. I actually don't think that if you look, certainly if you look at the distribution of earned income, if you look at the distribution of wages, there's any ambiguity, it's clear cut and it's been falling at the bottom and it's a. There really, there could in principle be complicated things happening to income distribution, but in practice it's pretty much univariate. And so, I mean there's a long. I could get too far into this, but I'd even say, look, median family income in the United States is up, although the earnings of the median prime age worker are down. And then we get into all kinds of questions about if you have higher income because of increased female labor force participation and so on with how do we evaluate the welfare. The fact of the matter is that the inequality is clearly increasing and it's a problem and it's a real, it's again, it's in global human welfare terms it may not look that large. But in terms of how do I defend a basically free trade position when talking with a group of senators or congressmen that basically I agree with on most things? That's where my problem is.

A (72:13)

Adair Turner and then gentlemen, behind.

B (72:19)

Yes.

D (72:20)

Adair Turner, among other things, until recently I was chairman of the UK Low Pay Commission, which sets our minimum wage. And we were very aware in setting that minimum wage that the, as it were, pre intervention level of wage inequality was increasing with both the upper end moving away from the median and the median moving away from the lower end. And that's well documented. The question I wanted to ask was this. You said that one of the arguments that you used to believe to say that the quantitative size of these effects was either small or limited was that we'd reach a point where everything in which other countries had a comparative advantage had moved over there already because there'd be a limit to the traded sector of the economy and a limit to the areas which were based upon low skilled labor and therefore would move, and that that limit has been moved by the phenomenon of the disaggregation of the value chains, that you can outsource particular slices of what overall looks like an untraded good or a good where the UK or the US actually has comparative superiority and you can trade that. The other thing that you used to argue, and I also argued it as well, is that it was limited because quite a lot of the economy isn't traded at all. There's a non traded, face to face service bit of the economy. You know, having a haircut, buying a coffee off somebody. But of course that is effective by globalization, not by free trade, but by immigration. And you could have drawn a simple relationship between the rising inequality of the last 25 years in the US that from 1980 onwards not only did you have a dramatic increase in the extent to which there was trade into the US but it was also a turning point in the immigration. There was a length of period of time in the middle of the 20th century when there wasn't much immigration into the US and that turns around in the 80s and 90s. So my question is, what's your take on the immigration side of globalization argument? Is that also one of the things that's driving increased inequality?

B (74:36)

Okay, yeah, as you probably know, this is, this is a hot issue. Let me say it's actually, it's a hot issue in a slightly enjoyable way. Because what's interesting is that both sides of the political spectrum in the US are split over the issue. But on the progressive side the split tends to be individual agonizing. You're concerned about possible increase in inequality, you're concerned about political economy of having large numbers of disenfranchised voters. But on the other hand, you actually like the immigrants and like to see people making these gains. And it tends to be the same person experiencing both those, both those feelings. And on the other side of the political spectrum there is a division between the people who like cheap labor and the people who dislike brown people. And it's been been kind of enjoying to watch them tear themselves apart over that. Now there's a real academic debate, serious people on both sides about the impact of immigration on wages in the US We've had the immigration is very low education levels. So we're getting immigrants primarily from Mexico and Central America who are well short of a high school degree. And if you just treat them as being equivalent to native born workers with the same skills, then it ought to be a quite substantial negative wage impact, circa 8% negative real wage impact from the immigration. There is an argument that says that they are not actually close substitutes, that the immigrant workers are working in very different fields and that they are highly imperfect substitutes, which lets you bring that number way down. I go mostly with my old student Gordon Hanson, who works on these issues and tells me that he thinks the methodology of some of those low estimates is flawed. And so he's more on the 8% negative side. So that's where I would fall at the moment, but not from any independent judgment. I mean the presumption probably is you get a lot of low education workers coming in. Unless it's very special circumstances, it is going to be a negative and it is a source. I think that quantitatively it's smaller than the trade issues and it's also immigration. We do have restrictions on immigration and the real question is only about exactly how we're going to go about trying to make them more or less actually binding. And terrible debate about that, but it's not. We're not going to be tearing down a system. Whereas the concern on trade is we essentially have global free trade on everything but agriculture. And the question is about backsliding and that's a very different issue. So. But yes, the immigration thing, you know, if we had. If we were like the United States in 1919 with very, very open immigration policies and we're having this problem, then it would be a comparably agonizing debate but also impossible to stop the restrictionist position. So anyway, yeah, it's. I'm having enough problems on trade.

D (78:09)

Easy question.

A (78:10)

I'm going to take a couple of. Lots of people their hands up. So I'm going to take a couple of of questions and then give Paul a chance to answer. So there's a gentleman at the back there who's been waiting a while.

E (78:23)

My name is Raju. I'm a London Metropolitan University student who doing international economics. My request is that I'm sure Professor Krupman have been writing so many articles in economics. Of course his contributions very great to global wealth. But what I my humble request is that why not the next article should be disabled people's economic development in the developing country and developed country. Why not you write some article on. So this will boost our profile in the global world. Because I think we also facing a lot of unequality.

B (78:58)

I think I'm not quite sure I got what the question was.

E (79:02)

The question is that it will time for professor to write disabled people economic development.

B (79:08)

Disabled people. Yes. Oh my.

E (79:10)

I'm reading a lot of your article.

B (79:12)

That's a good point. Wow. Okay.

E (79:15)

Can you give us some chance as well?

B (79:18)

Yeah.

A (79:20)

Do you have your hand up at the back there? Yes, you can wait too long. A lady at the back.

F (79:26)

Hi, my name is Anna, I'm a journalist. I'd like to know your view on fair trade. Is it just an adjustment that won't work or is it something good?

B (79:33)

I'm sorry, on fair trade. On fair trade, yeah.

F (79:36)

What's your view on that?

B (79:40)

Here's the position. I think there are certainly there are rents in the system, there are margins. It's not true that what the market gives you is exactly what has to happen. So it's not the kind of total skeptical view on fair trade that says nothing can be done that things like certification of treatment of laborers or certification that farmers receive a reasonable price for their output is meaningless. That's the hard line view. I think that that's wrong. I think they certainly don't want to be dismissive or hostile, but it is going to be at the margin. I mean, the fact of the matter is that the reason wages are low and working conditions are terrible in a Bangladeshi apparel factory is not ultimately that there is mistreatment by the employer, although there may well be and that may be making things worse. It's the fact that the opportunities for those workers elsewhere are so poor and there's not. So there's a limit on what you can do. You can certify that, that all of the. That your T shirts and your shoes and all of the many consumer goods that come from the third world are.

E (80:59)

Being.

B (81:02)

Produced in as best conditions as you can reasonably hope for. But it's going to be marginal. It's going to be a few percent here and there. And that's so I'm not opposed to it. This is again. Well, I've also made a kind of decision that being scornful and hostile towards people who are worried about globalization is not a productive strategy at this point. So I'm all for making some. You know, I'm looking for what can be made of it. But don't expect. It's like the labor standards issue. Should we be making sure that union organizers are not shot? For sure. And that's not entirely abstract. Right. But will that solve the problems?

G (81:48)

No, it won't.

A (81:50)

We have a question here, please. Could we, given time, could we try.

B (81:55)

My question short accumulating maybe.

A (81:57)

Well, never mind.

B (82:00)

Thank you. While one could imagine that the inequalities in the developed countries can be managed because they have fairly strong and efficient governments. But in developing countries, which are what you call, characterized by what you call Uyghur governments and also the pressure from the market of race to the bottom, how do they manage their inequalities? Thank you. Oh boy. First of all, that's an enormous subject. Secondly, it's something that really you take a better expert in. I mean, I mean, I think the point on all of these, the general attitude we have to have now is that there are no perfection is so far out of reach. You just look for little things that can be done. And the thing I've always about developing countries is that because so many people are so poor, quite small things, quite small amounts of money can make a huge difference. And so you do what you can. I mean, I don't think. It's certainly not true that it makes no difference what the governments try to do. The difference between third world governments that do try to do something for the poor and those that don't is quite substantial. That's not a very good answer. And you really want people, there are people who devote their lives to trying to out figure, figure out those small interventions that can really make a big difference. And I'm not one of them.

A (83:32)

Okay, we really will try and accumulate a few now. So there's a lady at the back who's been waiting for a long time.

F (83:39)

Rua Biji. I'm an alumna of the school you only touched briefly at the end on the issue of political will in all of this. And I acknowledge it's the Mead lecture, so it's very much based on kind of trade patterns and comparative advantage. But there's a number of issues I think, where, you know, political will and government action are actually fueling inequality. So for example, the Bush administration with a very regressive social tax policy, developing countries that would subsidize or incentivize developed country multinationals to invest in their countries at artificially low rates if you like, rather than investing in their homegrown industries, which would encourage high skilled industries as opposed to subcontracting of kind of very labor intensive simplistic industries. Also successive meetings of the World Trade Organization which don't support developing economies as they should, which the fair trade question touched upon. To what extent do you see that political will shifting to address global inequality? Or is it just going to have to be a question of civil society placing that pressure on governments? Thank you.

A (84:45)

Okay, and a question here.

H (84:56)

Just where it would have been interesting and I'm terribly glad that I don't have to deal with your senator from Ohio. But what might you say if you gave him a tranquilizer and can and try to deal with him non emotionally. I think you would have to go into detail about the tax and social insurance deals that you mentioned and especially the earned Income Tax credit. You say it would be very much bigger and I'm inclined to agree. But on this side of the pond, which you rather quickly dismissed, the best thing that Chancellor Gordon Brown has done has been to introduce tax credits which would directly model on the eitc. And yet it's the least popular thing he has done, judging by a lot of the discussion. But it isn't only a political issue. If you were to ask those economists who don't like these devices for a reason, why they would say that the tax and transfer rates you would need would have a substantial disincentive effect on willingness to work and might reduce the GNP to such an extent that it would offset the advantage from having free trade. Now, I don't know whether you think that or not, and I don't actually think this matters very much for the total of human happiness, but I'd very much like what you said in the earlier part of the lecture is not all that controversial if you really think of it. The difficult part is the last two lines and I wish you would enlarge.

A (86:43)

Okay, we'll take one more and then you've been waiting a little while.

B (86:47)

So.

G (86:54)

So my name is Dmitry. My question is about your data that you use for illustrating the effect of reforms in Latin America and the income inequality in Latin America after reforms. Do you think if there is a effect of political action or inaction on the part of the local government in terms of ineffective anti corruption measures and failing redistributive policies, what can the first of all do in order to incentivize these countries to adopt the more effective policies and abide by them?

B (87:33)

Thank you.

H (87:35)

Okay.

B (87:37)

The political will issue or just the politics of it? I mean, it's. I guess this is what happens at a certain point in your career. You start to think a lot about. So I think a lot about the fact that unfortunately the way that the world works is not as Mead might have envisaged to me, not that he really believed this, but just his way of doing it. That there's a council of wise men deciding what you should do and making those decisions. There are in fact political interest groups that are struggling. And in the. I wouldn't quite characterize it as a problem of political will. There's a problem of there are quite strong political wills trying to accomplish ends that are not those that I share and in some cases quite nefarious ends. So. And I have a book coming out about all of most of the US centered but with some international about that. So in the US we clearly have something that we call movement conservatism. It's not a movement that lacks the will to fight inequality. On the contrary, it's a movement that's very strong willed and well organized to promote inequality. And that's a long story. And to some extent that's part of why I'm trying to think so much about my senator from Ohio, because I'm trying to think about he's somebody who's on my side of that fight, but he's got a problem with trade. So what do I do? How Do I give him some answer? Samuel Britton. In a perverse way, the US has an advantage because we start from such a so much smaller a welfare state that the incentive issues are at this point quite small. So that we are if we did everything that was on my wish list we would still have a public sector that was 7 or 8 percentage points of GDP smaller than the UK's. So it's of course then my wish list would expand but at this point the fact is that we are so that may be more of a problem here now I understand that and I am looking some at Gordon Brown's efforts and they are they do carry lessons for the US and they do say that there are good things you can do but it's not that easy. This is in some ways the Blair Brown government pursued a program on the domestic side that looked like much of what a progressive administration in the US might try to do, although starting from again a much the British welfare state at the end of the Thatcher era was far more comprehensive than the United States has ever had. So it's starting from a very different base but and it does show that you can do things but it's not that easy and by all means, I mean I think you probably want someone else to give that lecture but you're right, those will be the hard things. But first there are some hurdles to cross boy creating incentives for developing countries to do the right thing. We have not been notably successful successful in that, I think and particularly I have to say in the whole Washington Consensus era. Again, my thoughts are mostly about Latin America, which is and it's an old joke that's been recycled in various versions but now it's very current among the Latin Americans. What's the scariest words you can hear? I'm from Washington and I've come here to help you so this is I think they're going to have to reach their own way on this.

A (91:47)

Well, we could really carry on talking for many more hours but unfortunately I have to bring this to an end so I'd just like to thank Paul once more for a really excellent and really stimulating thank you very much.