Paul Krugman: What Economists (Including Me) Got Wrong About Globalization
Paul Krugman, an American economist who won the Nobel Prize in 2008 for his work in trade theory and economic geography, says that economists “all got it wrong” concerning globalization and its effect on trade and wages.
In a 2018 paper titled “Globalization: What Did We Miss“, Krugman delved into some important insights on how opening up countries to international trade put downward pressure on the wages of America’s unskilled and semi-skilled workers.
The effects of globalization
Globalization increased low-wage competition from abroad and put pressure on U.S. manufacturing workers, Krugman said. Hyper-globalization from the mid-1990s also contributed to the financial crisis.
“Freight containerization was not exactly a new technology, but it took time for business to realize how the reduction in trans-shipping costs made it possible to break up value chains, moving labor-intensive parts of the production process overseas,” Krugman wrote.
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“Meanwhile, there was a broad move away from import-substituting industrialization toward outward-looking policies; and of course China made a dramatic shift from central planning to a market economy focused on exports.”
In Krugman’s view, globalization was and continues to be a subtle threat to blue-collar Americans’ economic and social position. This is something that other scholars tend to disagree with.