Bernanke on Globalization

Federal Reserve Chairman Ben Bernanke speech a few days ago on "Global Economic Integration: What's New and What's Not?" grabbed headlines for its rather frank expression of concern about people hurt by globalization, even while arguing that more open trade is a good thing. The speech is short and worth the read as a brief partial history of globalization. An excerpt:

...as in the past, the social and political opposition to openness can be strong. Although this opposition has many sources, I have suggested that much of it arises because changes in the patterns of production are likely to threaten the livelihoods of some workers and the profits of some firms, even when these changes lead to greater productivity and output overall. The natural reaction of those so affected is to resist change, for example, by seeking the passage of protectionist measures. The challenge for policymakers is to ensure that the benefits of global economic integration are sufficiently widely shared--for example, by helping displaced workers get the necessary training to take advantage of new opportunities--that a consensus for welfare-enhancing change can be obtained.

There were several other interesting papers at the conference (available here). One is entitled "The Rise of Offshoring: It's not Wine for Cloth Anymore." Do you know where "the wine for cloth" expression comes from?

UPDATE: in a recent column (subscription required) Martin Wolf of the Financial Times comments on Bernanke's speech and the paper on offshoring, or the growth of trade in 'tasks.' He summarizes its conclusions as follows:

Trade in tasks has three potential effects: productivity improving, as companies outsource activities that can be done more cheaply abroad; relative price or terms of trade altering, as prices of exports rise relative to those of the now cheaper imports from new suppliers; and labour-supply enhancing, as labour is released from its prior activities. The net effects are unpredictable, but the most important point is that offshoring of tasks is equivalent to technological progress. Being opposed to trade is no more reasonable than being opposed to other sources of higher productivity.

According to him the implications of all this include that:

developing countries have more reason to fear the entrenched advantages of the high-income countries than the other way round. A second is that there are big gains from the new entrants in world trade: between 1993 and 2004, for example, the prices of US exports rose by 16 per cent relative to those of its imports of manufactures from developing countries. A third is that relatively low-skilled workers may not lose from offshoring, after all. The last is that the rise in trade opportunities is equivalent to a boost in productivity and should be welcomed for exactly the same reason.