Trade, inequality and education

Observations that inequality is rising as wealth rises have circulated recently with the publication of the International Monetary Fund’s latest World Economic Outlook which shows that while global income inequality has fallen, within countries, both rich and poor, inequality has been rising almost everywhere. As the IMF put it: “This recent experience seems to be a clear change in course from the general decline in inequality in the first half of the 20th century”.

While the antagonists tend to parrot the orthodoxy of capitalism vs anti-globalisation, all voices seem to end up with the same conclusion: education is the key. This quote from the FT makes the point:

They say the answer is to raise educational standards, and to mitigate the pain for the losers with social protection programmes to compensate their lost income and education to help them find another job.

Professor Paul Krugman of Princeton University wrote on that the problem of inequality “doesn’t mean I’m endorsing protectionism”.

“It does mean that free-traders need better answers to the anxieties of those who are likely to end up on the losing side from globalisation.”

The IMF agrees, arguing: “The appropriate policy response is not to suppress FDI or technological change but to make increased access to education a priority.”

Education is the holy grail as it reduces the benefits the already-rich derive from new technology and FDI. But as Jim O’Neil and Erik Neilsen of Goldman Sachs observe: “This, of course, is easier said than done.”