Globalization has hurt people and changes are needed

Globalization has left people behind. This is what we should do about it 

Diane Coyle, Professor of Economics, University of Manchester

It’s recently become fashionable to worry that the fabric of democracy is being undermined as people feel left behind by globalization and automation. I think these fears are to some extent well founded. But this isn’t a new problem: it goes back at least as far as the 1980s. Our failure to recognize it then, and act on it since, is why it has now reached crisis proportions.

Are there lessons we could learn from those decades-long failures of policy? Yes. Will we learn them? Perhaps not, although there are a few promising signs.

The most fundamental lesson is that to address a problem, you first need to notice it. One of the striking features of the Brexit vote, and the response in some other places to various manifestations of rising populism, has been the surprise of many voters in wealthy, cosmopolitan cities at discovering how differently some of their fellow citizens are thinking.

These tend to be people living in towns and smaller cities where traditional jobs began to disappear a generation ago and have never been adequately replaced. Whole communities have experienced their real incomes stagnating or falling since well before the financial crisis.

A decade ago, Benjamin Friedman made the case in The Moral Consequences of Economic Growth that democracy requires a growing economy to lubricate the necessary give and take. When people see their own lives improving, they tend to be sanguine about others’ lives improving more quickly. However, when their own living standards have declined, and they expect their children’s to be even worse, resentment against others who are doing better is inevitable.

For at least three decades, since automation and globalization started radically changing industry, whole swathes of geography have been struggling even as economies have grown overall. For the most part, this has barely registered on policy-makers’ radars.

Statistics existed that could have alerted us to the brewing crisis — but nobody was looking. It took Thomas Piketty, in his 2014 work Capital, to put in the huge amount of effort necessary to make the data clearly tell the story of how many workers were being left behind.

But all Piketty has done is start the conversation: we still need to develop a serious policy response. It’s not too late to start doing what we should have been doing since the 1980s — essentially, taking regional policy much more seriously. I see three main elements to this:

Infrastructure

Large cities will always be the best incubators of economic growth, because the more people you have in one place, the easier it is for their knowledge to spread to each other. But we can narrow the natural disadvantage of smaller cities and towns by improving the infrastructure that connects them to each other.

This recommendation implies making fast broadband universal, but it also points to the need for better transport, like high-speed rail, because virtual and physical communication are complements, not substitutes.

Education

I claim no expertise in how we should be educating our children for the technological state of the world they will face when they graduate, but I am fairly certain we’re currently getting it wrong. Most schools still resemble factories for turning children into expensive and not very good computers.

One obvious and much discussed improvement would be teaching more coding — something we struggle with, partly because we don’t have enough teachers with the necessary skills. Another improvement would be to help children develop the human skills that machines seem furthest away from mastering, such as creativity in problem solving.

Devolved power

Every region is different in terms of what jobs it could create, and the kind of education it needs, which brings me to the final priority: giving local levels of government more power. If education policy is being set by a bureaucrat in a distant city, it can’t reasonably be expected to equip students with the appropriate skills for the local economy.

The same is true of other policy areas. One clear lesson of last year’s electoral shocks is how many people felt a lack of agency. They see decisions that shape their lives being taken by people who aren’t like them, in places that feel far away, whether in central banks, multinational boardrooms or booming capital cities, and seem disconnected from their hinterlands. During the UK referendum campaign the slogan that resonated most was the promise to “take back control”.

If part of what’s undermining democracy is people feeling disconnected from power, part of the answer must be looking for ways to return power closer to people.

Public sector investment and political will

All of this is easier said than done. It would require a very serious redirection of resources to create opportunities in the regions or towns that have been left behind — high quality education and infrastructure do not come cheap. In addition, the initiative needs to come from the public sector, because public capital is the only kind of capital people in left-behind regions can access.

Some may see this as unrealistic given current fiscal challenges, but the problem is less about resources than political will. Get serious about ending tax breaks for corporations and wealthy individuals and the money for investment could be found.

Technological change also presents opportunities to ameliorate the societal disruptions it is creating. The Fourth Industrial Revolution can improve everyone’s lives, if we govern it wisely.

There are some, tentative signs — in the UK, at least — that politicians may be starting to understand. It is encouraging to hear the phrase “industrial policy” being mentioned again. A new acronym is gaining currency, the “JAMs”, describing people who are “just about managing”. It may sound inelegant, but at least it helps to name the problem.

History shows that when a significant proportion of people feel pessimistic about the future, crises that might otherwise be manageable can quickly spiral out of control. We can’t afford to take several more decades to get policy right.