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Home » Opinion » Foreign Views

Improved communication will reduce wealth gap

By Robert J. Shiller | September 28, 2016, Wednesday | Print Edition

FOR the past several centuries, the world has experienced a sequence of intellectual revolutions against oppression of one sort or another.

I think the next such revolution, likely sometime in the twenty-first century, will challenge the economic implications of the nation-state. It will focus on the injustice that follows from the fact that, entirely by chance, some are born in poor countries and others in rich countries. As more people work for multinational firms and meet and get to know more people from other countries, our sense of justice is being affected.

This is hardly unprecedented. In his book “1688: The First Modern Revolution,” the historian Steven Pincus argues convincingly that the so-called “Glorious Revolution” is best thought of not in terms of the overthrow of a Catholic king by parliamentarians in England, but as the beginning of a worldwide revolution in justice. Don’t think battlefields. Think, instead, of the coffeehouses with shared newspapers that became popular around then — places for complex communications.

Thomas Paine’s pamphlet “Common Sense,” a huge bestseller in the Thirteen Colonies when it was published in January 1776, marked another such revolution. The same could be said of the gradual abolition of slavery, which was mostly achieved not by war, but by an emerging popular recognition of its cruelty and injustice.

All of the past “justice revolutions” have stemmed from improved communications.

The next revolution will not abolish the consequences of place of birth, but the privileges of nationhood will be tempered. While the rise in anti-immigrant sentiment around the world today seems to point in the opposite direction, the sense of injustice will be amplified as communications continue to grow. Ultimately, recognition of wrong will wreak big changes.

Strong competition

For now, this recognition still faces strong competition from patriotic impulses, rooted in a social contract among nationals who have paid taxes over the years or performed military service to build or defend what they saw as exclusively theirs.

Allowing unlimited immigration would seem to violate this contract. But the most important steps to address birthplace injustice probably will not target immigration. Instead, they will focus on fostering economic freedom.

In 1948, Paul A. Samuelson’s “factor-price equalization theorem” lucidly showed that under conditions of unlimited free trade without transportation costs (and with other idealized assumptions), market forces would equalize the prices of all factors of production, including the wage rate for any standardized kind of labor, around the world.

In a perfect world, people don’t have to move to another country to get a higher wage. Ultimately, they need only be able to participate in producing output that is sold internationally.

As technology reduces the cost of transportation and communications to near the vanishing point, achieving this equalization is increasingly feasible. But getting there requires removing old barriers and preventing the erection of new ones.

To achieve factor-price equalization, people need a stable base for a real lifetime career connected to a country in which they do not physically reside. We also need to protect the losers to foreign trade in our existing nation-states.

Ultimately, the next revolution will likely stem from daily interactions on computer monitors with foreigners whom we can see are intelligent, decent people — people who happen, through no choice of their own, to be living in poverty.

This should lead to better trade agreements, which presuppose the eventual development of orders of magnitude more social insurance to protect people within a country during the transition to a more just global economy.

 

Robert J. Shiller, a 2013 Nobel laureate in economics and Professor of Economics at Yale University, is co-author, with George Akerlof, of “Phishing for Phools: The Economics of Manipulation and Deception.” Copyright: Project Syndicate, 2016.www.project-syndicate.org

Foreign Views


 

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