## Globalization by the Book — Keynote Address (Prakash Loungani, February 5, 2007)

_IMF News, February 5, 2007_

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## Bibliographic details
- Published: February 5, 2007

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### Definition and framing
- Globalization defined as an extension of economic freedoms beyond national boundaries.
- Five fundamental freedoms of globalization:
  - Freedom to cross borders (immigration).
  - Freedom to sell and buy across countries (international trade).
  - Freedom to seek capital abroad and invest savings abroad (capital mobility/financial globalization).
  - Spread of scientific knowledge and technology.
  - Diffusion of ideas and culture (including cuisines).

### Historical context and trajectory
- Pre-World War I globalization: extensive cross-border commerce (John Maynard Keynes quote describing global delivery).
- Reversal triggered by events beginning June 28, 1914; partial recovery over the past 60 years.
- Since 1990, substantial increase in capital mobility (though by some measures not back to pre-World War I levels).
- Immigration for the U.S. is “just getting back to prewar levels.”
- Political diffusion: electoral democracies now represent 120 of the 192 or so existing countries, constituting nearly 60 percent of the world’s population.
- Shocks to globalization over recent decades:
  - Mid-1990s financial crises disrupted capital markets; lessons learned about volatile capital flows.
  - September 11, 2001 posed a severe challenge, but international integration has proven resilient.
  - The global economy recorded the fastest five-year pace of growth in recent decades.

### Material benefits (empirical findings and statistics)
- Higher incomes and poverty reduction:
  - Average incomes in the United States are now about $40,000 a year, a “huge multiple” of average Chinese or Indian incomes (as noted in the address).
  - The number of people living in abject poverty has fallen by nearly 500 million.
  - There has been greater reduction in poverty over the last 50 years than in the previous 500 years.
- Health and life expectancy:
  - From Roman times through early 19th century, average human life expectancy was less than 30 years.
  - In 1950, average life expectancy in developing nations was just 40 years.
  - Today, average life expectancy in the developing world has risen to 65 years; in the developed world it is about 75 years.
  - The life-expectancy gap used to be 30 years but is only 10 years today.
- Inequality:
  - Global inequality has declined when treating every individual as a citizen of Planet Earth (much driven by China and India’s income gains).
  - Within-country inequality patterns vary; in some countries (e.g., United States) income inequality has increased over the last 30 years — consensus attributes much of this to technology rather than trade.
- Environment:
  - Historical evidence that some of the worst environmental abuses occurred under central planning in the former Soviet Union.
  - In market economies, once average incomes cross a threshold of about $3000 to $4000, rising incomes and cleaner environments tend to go hand in hand.
  - Technological progress and environmental advocacy enable some countries to begin clean-up at lower income thresholds than earlier advanced economies.

### Social and moral benefits
- Globalization associated with greater tolerance and improved moral dimensions of society as living standards rise (Ben Friedman’s thesis).
- Market interactions foster cross-cultural engagement (Voltaire anecdote about the London Stock Exchange).
- Access to information and knowledge reduces isolation in the developing world and increases opportunity (Joseph Stiglitz quote paraphrase).
- Competitive global pressures can discipline poor governance and prompt policy change (Martin Wolf, Tom Friedman examples including IT industry pressure in Bangalore).

### Concerns and criticisms (three main worries)
- Job churn and displacement:
  - Globalization contributes to job turnover, but technological progress is a much larger driver.
- Unequal distribution of gains:
  - Globalization creates many winners but also many who lose or do not share benefits; displaced workers need support and retraining.
  - Policy prescription highlighted: “Protect people, not jobs.”
  - Gordon Brown’s formulation: focus on “lifetime employability” rather than lifetime employment.
- Weakness or absence of supporting global institutions and rules:
  - Effective institutions and broadly supported rules are needed to underpin cross-border economic freedoms (analogy to U.S. inter-state transactions being supported by national institutions).

### Political dynamics and outlook
- Globalization is continually “put to the vote” through consumer, business, and electoral choices.
- Recent U.S. electoral history cited as supportive of globalization’s political durability:
  - Ross Perot’s “giant sucking sound” rhetoric did not prevail in presidential elections.
  - Protectionist or anti-immigration candidates (e.g., Richard Gephardt, Pat Buchanan) failed to gain decisive political traction in primaries and elections cited.
  - 2004: John Kerry dropped rhetoric about “Benedict Arnold CEOs” amid criticism.
- Globalization’s future depends on democratic choices worldwide; people should be free to choose globalization and the pace at which they wish to globalize.

### Policy implications and recommendations
- Mitigate adjustment costs for displaced workers via unemployment benefits and retraining to support “lifetime employability.”
- Strengthen institutions and rules that underpin cross-border economic freedoms to ensure broad-based support and effective governance.
- Leverage technological diffusion and knowledge transfer to accelerate poverty reduction, health gains, and environmental improvements.
- Recognize and respond to legitimate criticisms by making globalization’s benefits more broadly shared.

*Source: Globalization by the Book, Keynote Address Given at the American Association of Publishers, by Prakash Loungani, Chief, Policy Communications, External Relations Department, International Monetary Fund*

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## References

- [India and the IMF](http://www.imf.org/external/country/IND/index.htm)
- [United States and the IMF](http://www.imf.org/external/country/USA/index.htm)
- [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp020507_