Davos’ WEF may be the congregation of the world’s globalization elites but, a little paradoxically, this year some of the main themes discussed in Davos is that of the growing income and wealth inequality, the middle classes anxiety about job security, trade and globalization, the rising backlash against globalization and what to do about it to prevent trade and asset protectionism and a retreat from globalization. I myself recently wrote a presentation on this topic (available here to RGE Premium subscribers) and I was one of the panelists in a Davos session where these issues were discussed (see here and here and here and here for some news reports on this Davos debate). The same issue of the challenges that globalization entails have been discussed in recent month by a wide range of thoughtful analysts including Martin Wolf, Larry Summers, Ben Bernanke and many others.

Globalization has, in the long run, beneficial effects for individual countries and the global economy. Over the last 50 years the countries that join and integrated themselves in the global economy have done well and those that did not join the globalization train have tended to lag behind. But the current backlash against globalization derives from the fact that trade and globalization creates both gainers and losers; the net gains are positive but losers will rightly resist change that makes them worse off.

Gainers include skilled workers in advanced economies whose jobs cannot be easily outsourced, Chinese, Indian and other emerging market workers who are joining the global economy and whose incomes are rising, owners of scarce resources such as commodities, owners of real and financial capital and financial assets in general.

But the list of losers is also quite long: unskilled workers in advanced economies, skilled workers whose jobs can be outsourced, anxious middle classes whose real wages have grown less than productivity and whose jobs are not as secure as in the past; middle income countries (such as Mexico, South Africa, etc.) whose competitiveness is threatened by the rise of China and other Asian low cost low wage producers; poor farmers in China, India and other developing countries whose relative and absolute poverty may be increasing; Africa that has not enjoyed yet the benefits of globalization.

Add to this rising income and wealth inequality in the US, Europe, Japan, China, Latin America and other emerging markets: rising inequality as the share of capital/profits in income is rising and that of labor is falling; rising inequality as highly skilled workers real incomes are rising and that of lower skill workers are falling; rising inequality of wealth as financial and real wealth is concentrated and becoming more concentrated with returns to financial assets being high.

How much of these changes are due to technological change rather than trade and globalization is an open debate. But the distinction between technology and trade is becoming fuzzier as technological change that allows to have global supply and production chains or that allows offshore outsourcing of services (more generally the growth of trade in tasks) is effectively a form of international trade and it sharply fosters it. So, the distinction between the two is becoming fuzzier.

As there is general agreement that trade and asset protectionism and a severe backlash against globalization would be dangerous and lead to loss of global growth and welfare, the issue is what policy actions can be taken to prevent a reversal of globalization.