Research Conference on Globalization: Managing Director’s Opening Remarks

IMF News, October 11, 2017

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By Christine Lagarde, IMF Managing Director
IMF HQ, Washington, DC, October 11 2017
Remarks delivered at a conference on the benefits and challenges of globalization organized by the IMF Research Department.

Globalization defined as economic integration through flows of goods, services, capital, people, and ideas.
Documented gains:
- Fostered a sharp decline in global income inequality—that is inequality between countries.
- Helped reduce by about half the share of the world’s population living in extreme poverty over the past two decades.
- Living standards boosted in all countries, including in advanced economies, via lower prices and greater variety of goods.
- Trade is particularly important for poorer consumers because they buy relatively more low-price imports.
- A recent study shows:
- The poorest 10 percent of consumers would lose as much as 63 percent of their purchasing power if all borders were closed.
- People on high incomes would lose “only” 28 percent.
- Imported production inputs raise productivity; example:
- One-quarter of Hungary’s productivity growth between 1993 and 2002 stemmed from greater availability of imported intermediate inputs.
- Trade promotes diffusion of innovative technologies and production processes across borders; “people learn from each other through trade.”
Acknowledged downsides:
- Job losses in shrinking sectors and social challenges in some communities.

Competition from lower-wage countries has been a key challenge for advanced economies.
Historical shifts:
- Almost three decades ago, China, India, and the former communist countries started to engage more deeply with the global trading system, effectively doubling the size of the global workforce and putting downward pressure on wages—especially for lower-skilled workers in advanced economies.
Labor market and distributional effects:
- Contributed to a decline in manufacturing employment in the advanced world (noting labor-saving technology improvement has played a bigger role).
- Many advanced economies have faced stagnating median wages and higher income inequality—driven by a range of factors besides trade but coinciding with trade expansion.
- Emerging and developing countries have also experienced negative side-effects, including rising income inequality, increasing wage premia for skilled workers, and the need to support displaced workers seeking new jobs in other industries.
Public sentiment:
- Citizens in emerging economies generally take a more favorable view of trade and its labor-market impact because their incomes have been growing, even in the bottom deciles of the income distribution.

Core principle: Do not turn away from trade; create a more inclusive global trading system.
IMF’s role and mandate:
- Fosters trade as part of its mandate for more than 70 years.
- Helps its 189 member countries extend the benefits of openness.
Evidence point:
- Recent analysis by the IMF, World Bank, and WTO shows that inclusiveness and economic growth need not be a trade-off provided the right policies are implemented.
Policy measures to support workers and communities:
- Boost worker mobility across firms, industries, and regions.
- Step up investment in:
- Job search assistance
- Retraining and vocational training
- Strengthen social safety nets via:
- Appropriate unemployment insurance
- Health benefits
- Portable pensions
- Improve education systems to prepare workers for changing labor market demands.
- Support affected communities with:
- Relocation assistance
- Smart credit strategies
Policy measures to strengthen the global trading system:
- Push for trade reforms to increase trade in services (examples given: finance, engineering, education).
- Boost trade in digital products to realize the potential of global e-commerce.

Achieving better economic integration is difficult and not uniquely modern.
Quoted historical perspective: Adam Smith on commerce as both a potential bond of union and a source of discord.
Charge to policymakers: Success will be judged by the ability to turn animosity into agreement.
Optimistic closing: With the right policy mix, it is possible to create “a globalization that works for all.”

Source: Research Conference on Globalization: Managing Director’s Opening Remarks, Christine Lagarde, IMF, October 11 2017.