Monday, 1 Jun 2020

IMF: Technology, not trade, the culprit in 'left behind' areas

DENVER (Reuters) – The growing divide between successful and “lagging” regions within developed nations has been largely driven by automation and productivity trends, not global trade, the International Monetary Fund said in a report released on Wednesday in advance of its upcoming annual meetings.

“Trade shocks…do not appear to drive the differences in labor market performance between lagging and other regions, on average,” the IMF found. “By contrast, technology shocks…raise unemployment in regions that are more vulnerable to automation, with more exposed lagging regions particularly hurt.”

While the results may differ by country – the IMF specifically said its findings were not inconsistent with research finding large trade dislocations in U.S. manufacturing hubs – in the developed world as a whole “shocks from import competition…from China’s economic rise do not have marked average effects on regional unemployment in a broad sample of advanced economies.”

The issue is at the core of the debate over globalization, how it has affected politically influential groups of voters in some countries, and whether the protectionist cure sought by some politicians will pose risks to global growth that leave everyone worse off. That is certainly what IMF officials worry is in the midst of happening as global trade flows ebb.

While the concentration of jobs and wealth in parts of a country may be a “normal feature of growth” that would eventually bring “catchup” benefits to other areas, the IMF said that as it stands the process of “convergence” in the developed world has slowed or stopped.

Areas suffering from “persistent inefficiencies” may be at risk of being left behind for good, the IMF said, a situation that “can fuel discontent and political polarization, erode social trust, and threaten national cohesion.”

That has arguably been the case in the United States, where disaffection among workers feeling displaced by trade or immigrant labor played a role in the election of Donald Trump as president.

Trump has attempted to respond to their concerns with trade and tariff policies he argues will return manufacturing jobs to the United States.

But according to the IMF, trade may be the wrong issue to address since the forces leading to regional economic divisions may be more rooted in technology and automation. Rather, the fund endorsed the emerging focus among economists on “placed-based” policies that target economically ailing areas.

If designed well, those sorts of efforts could help, and have particular impact in the United States given the fact that the country’s social safety net is less robust than in European nations, and that its poorly performing areas are concentrated geographically.

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