“Globalization And Inequality” by Elhanan Helpman

Globalization, arguably, has to be the most confounded paradox staring into the face of a seamlessly interconnected humanity (a factor in itself an inescapable outcome of globalization). Reviled and Revered, loathed and lauded, and most importantly misperceived and misjudged, globalization has spawned what has to be one of the most topical, vigorous, and unending debates in the history of economics and trade.

On one side of this vertical divide stand its most steadfast proponents, the torchbearers of global trade who are vehement in their views that it is globalization or nothing. On the other side of the cleave stand those advocates who are equally firm in their belief that globalization results amongst other things, in definite ruin. The backlash against globalization has at its core, the insidious vice of inequality. Touching a raw nerve, this opposition to globalization is based on social and political concerns such as cultural autonomy, child labour & domestic sovereignty.

So is globalization the scourge of mankind and the one unabashed purveyor of income and wealth inequality? Elhanan Helpman, the Galen L. Stone Professor of International Trade at Harvard University, in his insightful book “Globalization and Inequality”, urges us to exercise caution before jumping to conclusions and pinning down the source of all inequality upon Globalization. Mr. Helpman, at the outset provides us an overview of the evolution and drivers of globalization. Drawing from the works of Richard Baldwin, Mr. Helpman guides us through the three phases of globalization. “In the first phase, referred to as the ‘first unbundling’, declining costs of shipping drove the process. In the second phase, which Baldwin called the “second unbundling”, the costs of situating parts of the manufacturing process in different geographical areas declined…The third phase, or the ‘third unbundling’, still in its infancy, is dominated by declining costs of face-to-face interaction between individuals in different parts of the world.”

Mr. Helpman argues that the gradual but definite dismantling of barriers to international trade in developing economies has inflated the price of all such goods whose production depends upon highly skilled labor, thereby leading to large wage gaps between high- and low-skilled workers in affluent nations. However, notwithstanding the strong foundation underlying such an assumption, empirical research demonstrates that the degree of the effect is rather non-material.

So what is the link between globalization and inequality? Is such a link strong enough for a complete attribution? Mr. Helpman in an ingenious manner the compatibility between workers and firms, workers and managers, along with the lifecycle of firms, and the attendant technological changes that may have been influenced by international trade, and consequently, inequality.

The debate on globalization is not going to fade away into oblivion. However, books and research such as the one by Mr. Helpman would enable the triggering of an informed debate and a logical and holistic analysis of all the factors surrounding globalization.

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Venkataraman Ganesan

Venkat is a Chartered Accountant, originally from Bangalore and currently residing in Kuala Lumpur. Venkat, or Venky has amaniacal penchant for books, more books,& still more books- when not watching cricket! He loves his Scotch & scribbles for fun! He engages in the esoteric realm of Transfer pricing for a professional living.
Venkataraman Ganesan

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