Laureate urges creative learning and retraining to counter inequality from globalisation

The Nation
January 10, 2017

In his speech delivered at an event hosted by Thammasat University and the International Peace Foundation, Maskin explained why global markets have failed to reduce inequality and proposed an alternative to the centuries-old theory on comparative advantage to tackle the issue.

While many countries have adopted educational and retraining measures over the past decades, the efforts are still not enough to combat inequality, which will worsen when more robots are used in factories unless human labour is more effectively trained to work with the smarter machines.

Brazil is an example for devising creative measures, such as conditional cash transfers to poor families to make education and training programmes more effective.

These families are required to send their children to school to receive state welfare.

This has led to positive results, especially better jobs for the next generations, over the past 15 years.

On US president-elect Donald Trump's trade policy, Maskin does not think the new US leader would be successful in adopting the anti-globalisation policy as promised during his election campaign.

However, if the policy is implemented, there would be major consequences to the global trade system resulting in a smaller pie for everyone.

Even though some unskilled US workers may benefit, the overall price would be enormous.

It would be better for the US to allow the pie of global trade to grow and tackle the plight of unskilled American workers with more creative education and retraining.

Many US workers with low skills voted for Trump out of dissatisfaction with the dis-benefits of globalisation or free trade, which for the first time in the past two centuries has resulted in greater inequality instead of reducing it.

Maskin attributed the "wrong" consequences of free trade to the globalisation of production factors. The matching of cross-border labour skills has greatly improved, allowing multinational companies to hire low-skilled workers around the world to match the higher-skilled and managerial skills of labour in developed countries.

The biggest implication from this process is that low-skilled workers get the same or lower wages while unable to move up to higher-skilled jobs unless they are retrained.

This pattern of growing inequality also has happened in China and other developing countries as evidenced by the widening wage gap among those with the lowest and higher skills.

It would be a big mistake to stop or reverse globalisation, as free trade has produced on average prosperity in the global economy.Instead, the focus should be on raising the skills of low-skilled workers around the world with proper incentives.

These efforts should be paid for by governments and international agencies.