Bernanke calls for fairer globalisation
By Krishna Guha in Jackson Hole
Copyright The Financial Times Limited 2006
Published: August 25 2006 15:18 | Last updated: August 25 2006 23:37
Ben Bernanke, the chairman of the Federal Reserve, on Friday called on global policymakers to do more to ensure the benefits of globalisation are widely spread within their countries.
The Fed chairman said it was essential to build a “consensus for welfare-enhancing change” in order to avoid a resurgence of protectionism.
He urged governments directly to address the plight of workers whose livelihoods are threatened by changing patterns of international production and trade, for instance by helping them retrain for new jobs.
“Further progress in global economic integration should not be taken for granted,” Mr Bernanke told the Fed’s annual symposium at the mountain resort of Jackson Hole in Wyoming.
“Geopolitical concerns, including international tensions and the risks of terrorism already constrain the pace of worldwide economic integration and may do so even more in the future.”
The Fed chairman said that in this episode of globalisation, as in previous episodes, “the social and political opposition to openness can be strong.”
He said much of this arises “because changes in the patterns of production are likely to threaten the livelihoods of some workers and the profits of some firms, even when these changes lead to greater productivity and output overall.”
Mr Bernanke said the challenge for policymakers “is to ensure that the benefits of global economic integration are sufficiently widely shared” to provide the political underpinnings for integration to continue.
His comments come at a time when there is widespread public angst in the US at the apparent stagnation of median wages, which many attribute in part to greater global competition and offshoring of production.
The mainstream US political consensus in favour of free trade has come under increasing strain, with a growing swathe of the Democratic party turning hostile to further liberalisation.
Mr Bernanke said the effort to build a consensus in favour of further integration is “well worth making, as the potential benefits of increased global economic integration are large indeed.”
The Fed chairman said the current episode of globalisation had many similarities with past phases of international integration. As in the past, “technological advances continue to play an important role in facilitating global integration.”
This results in a “continued broadening of the range of products that are viewed as tradable” – which now extends to services as well as goods.
Government policy also plays a “critical role.”
However, Mr Bernanke said the latest phase of globalisation is unique in several respects.
The Fed chairman said there are “no historical antecedents” for the rapid integration of China, India and the former Communist bloc into the world economy in the space of just a couple of decades.
Moreover, he said “the traditional distinction between the core and the periphery is becoming increasingly less relevent.”
Wheras in the 19th century the core countries of western Europe exported manufactured goods and surplus savings to the colonial periphery, today emerging markets export manufactured goods to the developed world in general, and surplus savings to the US.
In addition, Mr Bernanke said, global capital flows are increasingly sophisticated, while “production processes are becoming geographically fragmented to an unprecedented degree.”
Mr Bernanke’s comments were echoed by Stan Fischer, governor of the Bank of Israel, who said: “Part of the anxiety in the west must derive from the discomforts of the adjustment process forced by the dynamism of Asia, and part from the fact that the wages of unskilled workers in the west may be adversely affected by such competition.
“Policy can deal with these consequences through adjustment aid and through education, but unless this is done then negative fallout from . . . competition will likely continue.”