## Righting Globalization’s Wrongs

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## Bibliographic details
- Authors: Gordon Hanson
- Published: June 2, 2026

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### Summary of thesis
- Free trade delivered efficiency gains and lifted hundreds of millions out of poverty after the 1990s, but policymakers underestimated and under-addressed its concentrated regional and distributional costs.
- Rising economic nationalism around 2016 (United States’ higher import tariffs, China’s industrial policies, United Kingdom’s exit from the European Union) reflects backlash to these unaddressed dislocations.
- Restoring confidence in global integration requires a credible alternative to economic nationalism that directly remedies regional distress caused by globalization.

### How globalization became disruptive
- Key historical policy inflection points called out:
  - Formation of the EU in 1992
  - North American Free Trade Agreement in 1994
  - China’s accession to the WTO in 2001
- Three misunderstandings by economists that obscured localized harm:
  - Industrial specialization: long-standing geographic concentration of manufacturing exposed industry towns to rising import competition when China’s manufacturing exports expanded in the 1990s.
  - Scarring from job loss: manufacturing paid a persistent pay premium, and concentrated factory closures produced aggregated local income shocks that lower spending, housing prices, and local tax bases.
  - Lack of geographic mobility: spatial equilibration via migration is slow—interregional migration can take decades and is particularly limited among less-educated and older workers.

### Lasting local effects
- Regionally concentrated manufacturing decline produced:
  - Large negative local income shocks as displaced workers failed to replace lost earnings.
  - Reduced demand for nontraded goods and services, depressed housing markets, and lower local tax revenues.
  - Persistent high joblessness and few well-paying jobs for less-educated workers in many former industry towns.

### Policy options considered (four broad approaches)
- Laissez-faire (let markets adjust)
  - Outcome: regions shrink; businesses close; outmigration and retirement gradually reduce regional disparities.
  - Drawback: adjustment is likely to be very slow; local economic opportunity is circumscribed during transition (example: transformation of Pittsburgh took more than a full generation).
- Means-tested individual programs (social insurance)
  - Instruments: unemployment insurance, income support, housing and energy subsidies, subsidized health care.
  - Strength: cushions consumption declines and insulates individuals.
  - Limitation: does not directly address local labor-market causes or speed regional adjustment.
- Trade protection (tariffs)
  - Rationale: block imports to restore manufacturing jobs.
  - Critique: targets distress indirectly; does not prevent job loss from technological change or AI; recent US tariffs have done little to restore manufacturing employment or earnings growth in regions harmed by the China trade shock.
- Place-based policies (targeted local development)
  - Objective: subsidize human and physical capital to raise productivity, earnings, and economic structure in distressed regions.
  - Theoretical justification: high social returns on investment in communities with elevated joblessness and low wages.
  - Practical controversy: concerns over rent capture by special interests and informational challenges in program design.

### Evidence on place-based policy effectiveness
- Less-effective approaches:
  - Tax subsidies to attract major investment by large firms—often result in a winner’s curse with high tax expenditure per job created.
- More-effective design features:
  - Condition subsidies on local distress.
  - Monitor compliance with program objectives.
  - Design programs for specific contexts via ongoing experimentation.
- Examples of effective place-based measures:
  - Tax incentives for investing in low-income communities (enterprise zone programs with rigorous selection and auditing).
  - Sectoral worker training initiatives (active labor market programs applied in many high- and middle-income countries).

### Case study insight
- Pittsburgh:
  - Once a global center for steel manufacturing through the first half of the 20th century.
  - Post-1970 industrial decline due to import competition and technological change produced prolonged joblessness and hardship.
  - Transition to health care, life sciences, and robotics succeeded but required more than a full generation; many other former industry towns did not recover similarly.

### Policy recommendation and conclusion
- Of the options considered, place-based policy uniquely targets the outcomes needed to alleviate regional distress:
  - Move out-of-work adults into employment.
  - Bring well-paying jobs to underserved regions.
  - Make regions more attractive for future investment.
- To prevent geoeconomic rupture and counter the appeal of economic nationalism, correct past policy mistakes by implementing credible, well-designed place-based programs that directly address localized scarring and adjustment failures.

*Source: Righting Globalization’s Wrongs, GORDON HANSON, F&D Magazine, June 2026.*

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_Source: https://www.imf.org/en/publications/fandd/issues/2026/06/righting-globalizations-wrongs-gordon-hanson_