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How Trade Made the Richest 0.1% Even Richer

Among the alleged ills of globalisation, few have dominated the headlines in the past decade as much as worsening inequality.




Among the alleged ills of globalisation, few have dominated the headlines in the past decade as much as worsening inequality.

From the Occupy Wall Street movement to the rise of US Senator Bernie Sanders and President Donald Trump, the resurgence of nationalism in Europe and South America, to burgeoning populism in much of Asia, the yawning rich-poor gap looms large, be it in the forefront or background.

Existing economic research does not draw a clear link between globalisation of trade and the income of the very rich.

Researchers usually focus on the wage difference between skilled and unskilled workers in the economy, or what is termed the “skill premium”. However, this premium cannot easily explain the income of the richest of the rich, the top 0.1%, whose earnings usually consists of executive compensation, business profits and capital gains.

Lin Ma of the National University of Singapore and I sought to fill some of this knowledge gap of the interplay of globalisation and top income shares, a subject that is becoming increasingly important in the design of public policies around the world. Our paper examines how globalisation shapes the income gap between the ultra-rich and the rest of the population.

We found that inequality in firms in the United States – measured as the difference between CEO compensation and the average wage in the rest of the firm – was 50 percent larger among firms that exported overseas compared to those that sold only domestically.

We showed that this larger inequality came from export-driven growth: With globalisation, the exporters increased in size and became more unequal in terms of compensation. This globalisation-driven increase in inequality accounts for 44 percent of the income surge for the very top earners in the US.

The exporter premium

For this project, we combined firm-level data from three sources: tax records from the US Internal Revenue Service combined with the US Census Bureau detailed each firm’s payroll expenses; data from the US Border Customs provided firm-level exports; and data from Standard & Poor’s described executive compensation.

Our matched firm-level data comprised 17,233 firm-year observations between 1992 and 2007, with 2,561 unique firms. The combined dataset covered around half of US public firms, and about three quarters of those firms exported abroad.

With this new dataset, we documented how globalisation disproportionately benefits the top executives relative to the workers within the same firm. We found that the CEO-to-worker pay ratio was 50.7 percent higher among exporters than among non-exporters, rising to 73.3 percent in the manufacturing sector. A 1 percent increase in firm exports was associated with a 0.12 percent increase in within-firm inequality.

We then showed that this “exporter premium” for within-firm inequality is mediated through firm size: Exporters in our study had a higher CEO-to-worker pay ratio precisely because they were larger than non-exporting firms. A 1 percent increase in headcount was associated with a 0.39 percent higher CEO-to-worker pay ratio. More…

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INSEAD Knowledge is the expert opinion and management insights portal of INSEAD, The Business School for the World. Knowledge showcases the latest business thinking and views from award-winning faculty and global contributors



Mainland China is in no position to take Taiwan by force

Unlike his predecessors, Chinese President Xi Jinping has demonstrated greater intensity in the desire for reunification.





The situation across the Taiwan Strait has seemed to be on the brink of crisis since 2018. Beijing has sent numerous sorties of military aircraft to conduct exercises near Taiwan and frequently crossed the median line of the Taiwan Strait.

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How can Biden win over a still sceptical Asia?




The United States abandoned economic leadership in Asia four years ago.

Rather than promote and strengthen the multilateral institutions and frameworks that underpin Asia’s prosperity, the United States under President Trump began systematically undermining them: from the WTO, WHO and Paris Agreement, to military alliances with Japan and South Korea, bilateral trade ties and cooperation in regional forums.

The message that Asian policymakers received was crystal clear: Asia is too reliant on an increasingly unreliable America. The damage from the Trump presidency is likely, sadly, to be permanent.

While President Biden is a refreshing change, three things still weigh on the minds of Asian policymakers.

First, Asian policymakers recognise that Trump was not an accident. He was the product of long-standing deep structural challenges in the US economy and society.

Addressing those challenges will be a difficult, long-term proposition. The Democrats winning the White House, House of Representatives and Senate means Biden has more room to manoeuvre in addressing those challenges.

But failing to secure a majority big enough to defeat the filibuster means cooperation with the Republicans — a party suffering a deep identity crisis — is still essential.

Second, Biden is swamped with domestic problems. American presidents in the past have had to deal with race riots, pandemics, recessions, political polarisation and the alleged criminal acts of their predecessors before, but never has a president had to deal with all of them at once.

With so many problems at home, Asian policymakers fear Biden will be too preoccupied and have too little political capital to spend on foreign policy issues in the region.

Finally, although Biden has begun reframing US foreign policy, there are still plenty of signals from Washington that worry Asian policymakers: from aggressive ‘Buy American’ rhetoric to a continuation of a hyper-securitised approach to China that under-weights the economic role China plays in the region and the role that economic prosperity plays in Asia’s national security.

Biden has his work cut out winning over a sceptical Asia.

The reality is that both need each other: Asia needs the counterweight of America, and Biden needs Asia if he is to deliver on his foreign policy objectives. What can Biden do to instil confidence in a region still battered and bruised from four years of the Trump administration waywardness?

In our lead article this week, Adam Triggs suggests one answer: using Indonesia’s upcoming G20 host year in 2022 to strengthen the multilateral institutions that Asia relies upon and which underpin long-term US influence in the region. In turning its back on multilateral institutions, the United States surrendered one of the most powerful weapons in the US arsenal: the ability to shape global rules and institutions. The problem is that too many multilateral institutions are in desperate need of reform. As these institutions atrophy over time, so does US influence as a patchwork of competing institutions emerge.

There are several major global institutions that need reform, Triggs suggests. The global trade rules need updating while the IMF and World Bank’s outdated governance structures weaken their legitimacy, funding and effectiveness. The World Health Organization’s budget is smaller than that of most big hospitals and too much of its funding is earmarked, while the International Energy Agency’s membership still excludes a majority of the world’s energy consumers.

‘The consequences of these out-of-date institutions are the same: more fragmentation and less US influence’, says Triggs. ‘As the funding, legitimacy and effectiveness of these institutions dwindles, regional competitors emerge’. For the WTO, it’s a plethora of plurilateral and bilateral trade agreements. For the IMF, it’s the European Stability Mechanism, the Chiang Mai Initiative and hundreds of bilateral currency swap lines. For the World Bank, it’s the Asian Development Bank, the Asian Infrastructure Investment Bank and many others.

For the first time in more than 10 years, President Biden has a window of opportunity to fix this. With the White House and both houses of Congress in alignment, the United States can lead reform in these institutions and create new rules where they are lacking today.

‘Historically, successful reforms in global governance have required at least three things’, says Triggs: ‘leadership from the President of the United States, approval from the US Congress (at least when funding is required) and a quorum of major countries that support the change. For the first time in more than a decade, all three pieces of the puzzle…

Author: Editorial Board, ANU

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IATA’s Boss Calls for a more balanced approach to air travel

IATA’s Director General and CEO, Alexandre de Juniac, has stressed that the industry’s situation is still perilous and called the pace of progress in reopening borders “frustrating.”

Boris Sullivan



The near-term picture for aviation remains bleak. “Instead of a boost from the year-end holiday period, we got even more restrictions,” said de Juniac in a media briefing. “Governments tightened borders in a knee-jerk response to a virus mutation.

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