How has globalization affected mining?

IMF discovers the dark side of globalization

Washington - From her small office on 19th Street in Washington, D.C., Mitali Das has been preparing the revolution for the past several months. The economist works for the International Monetary Fund (IMF). It collected data from dozens of countries. A team under their leadership carried out the calculations, and every result was meticulously checked. Mistakes weren't allowed to happen, the matter was too delicate for that.

In a study that has just been published, Mitali Das investigated the question of how global trade and technological progress have affected income and income distribution. Where the IMF stands ideologically on this issue is clear: For decades, the Fund's experts have preached that liberalization and market opening are the best way to more prosperity for everyone. Inequality and distribution issues did not play a role in these considerations. The work of Das, an Indian-born former professor at Columbia University, has changed that.

Wage share

The economist and her colleagues looked at how the share of labor income in relation to economic output (GDP) has developed. The development of this wage share in 50 countries since 1991 was scrutinized. The result: worldwide workers and salaried employees now receive a smaller portion of the generated prosperity in the majority of countries than in the early 1990s. On the other hand, a larger portion of the cake is accounted for by investment income. This also applies to Austria, where the wage share fell from 50 to 48 percent.

The largest losses by sector were in industry, transportation and mining. Unskilled workers and those with intermediate training (vocational schools etc.) have lost the most. In contrast, highly qualified people, people with a university degree, get more of the pie.

In a second step, the IMF people analyzed what these changes have to do with. The strongest correlation is with the degree of automation: workers have been replaced by machines. If you take technical progress into account, the prices for machines and computers have fallen sharply in all industrialized countries over the past decades. Those economic sectors in which it has become particularly cheap for companies to replace people saw the greatest slump in the wage share. According to the IMF study, more than 50 percent of the loss can be explained by automation. The second big factor is global connectivity. In industries that have opened up and are now more dependent on world trade than they used to be, workers have also lost more. So jobs were relocated abroad. A quarter of the losses in the wage share can be explained by globalization. The IMF experts cannot justify the remaining losses.

Break with old certainties

For a long time it was a certainty for economists that people in rich countries who lose their industrial jobs due to trade liberalization will find good paid jobs elsewhere. "The study shows that that did not happen in many cases," says Das in the STANDARD conversation in Washington. Industrial workers have often been pushed into lower-paid sectors or struggle with stagnating wages.

There are objections to this interpretation: A falling wage share does not have to be a major problem. When labor income increases, just not as much as GDP, the wage share falls, and everyone gets richer nonetheless. But Mitali Das does not want to accept this argument. In many industrialized countries, growth has recently been weak. This little plus was less concentrated in the hands. Because many people have no capital, stocks or real estate, they have not been able to make up for their wage loss, unlike the wealthy, according to Das.

She interprets developments in emerging countries such as China and India differently. There, too, the wage share fell. But there, globalization has brought great prosperity for all strata of the population, especially for the poor.

Free trade versus protectionism

The study, which was presented in the run-up to the IMF spring meeting that began this Friday, sparked heated discussions in Washington itself. The Monetary Fund, as the most important multilateral financial organization, has not dealt with the dark side of globalization for a long time. Today one would like to change that. The dispute over free trade vs. protectionism is currently playing an important role in all major election campaigns in Europe and the USA - currently in France. Expertise would therefore be required. But this is exactly what the monetary fund lacks, says an insider. "For decades, the dominant attitude was: Globalization is good. The end," says an IMF diplomat. There was no systematic research on trade or distribution problems. "If you tell an economist in the IMF today to explain to you what the effects of the North Atlantic Free Trade Pact are, you will get no answer," said the IMF representative.

The gap can be seen where the IMF seeks answers to identified problems. Inequality is addressed in the current World Economic Report of the Fund - but there is nothing more for politicians than the general advice that states should do something about it and better redistribute the fruits of globalization. (AndrĂ¡s Szigetvari from Washington, April 20, 2017)