Globalisation may have been viewed as a powerful force for worldwide economic growth. However, according to Eric S Maskin, Adams University Professor at Harvard's Department of Economics in Cambridge, Massachusetts, its evolvement has also brought several economic challenges, especially a rise in income inequality and market failures due to carbon emissions.
A 2007 Nobel Laureate in Economics for his work in laying the foundations of mechanism design theory, Prof Maskin recently sat for an exclusive interview with the Bangkok Post. He shared his thoughts on social inequality while explaining how the government should prioritise policies amid the economic slowdown and climate change.
He said that the job opportunities that have been created along with globalisation tend to benefit workers with higher skills, whereas the low-skilled ones are left behind. Hence, a more severe situation of income inequality arises.
To redistribute wealth from people with high incomes to people with lower incomes is one of the things that should be done. However, Prof Maskin said that income redistribution does not provide a long-term solution as it also creates a class of people who are financially reliant on others and does not promote self-sufficiency.
"A better solution would be to give unskilled workers job training that would enable them to earn better incomes," he said.
Then came the point of who is to pay for the training. Prof Maskin explained that employers may feel that once their employees are trained, they might leave the company and go work for competitors. "So we cannot expect the employers to sponsor the training because the investment is too risky. The government thus needs to get involved."
According to him, what the government can do is to offer incentives, such as a tax break, to employers who provide training to non-skilled workers.
Regarding the concern that AI will replace humans and eliminate job opportunities for people, Prof Maskin said that it would be just a short run.
"[Artificial intelligence] is not the first new technology to come along and take people's jobs away. It has been going on for 200 years since the Industrial Revolution in the 19th century when steam engines were developed and replaced many human jobs.
"However, after some time, new jobs for people to work alongside these technologies were created. The 19th century was the first century in which average wages of workers increased exponentially. Entrepreneurs figured out how to match people with machines and created jobs that would allow humans and machines to work together.
"Of course, we do not know for sure what is going to happen with AI. But considering the historical experience as a guide, I imagine that once again, entrepreneurs will figure out how to create new jobs to match people to the AI technology. I am relatively optimistic about that," he said.
The environmental impact caused by globalisation has also led to market failure, he said. "The carbon emissions have created long-term damage to the environment. But the people, companies and countries emitting carbon are not paying for the damage they are creating. And that is exactly what we mean by market failure, where someone is doing something damaging and does not have to pay for it."
For one particular country, reducing its CO2 emissions is costly because the process involves changing energy-producing technologies, shutting down old, outmoded technology and imposing taxes for CO2 emissions.
So, each country would prefer not to reduce its carbon emissions but have other countries do it instead.
"It is what we call, in an economic way, the free-rider problem where everyone wants someone else to solve the problems for them, and they do not want to solve it themselves."
To solve the problem, Prof Maskin said that it requires an international treaty in which all countries or most countries promise to make CO2 emission reductions in exchange for other countries making the same promise.
He also said that people need to pay for the damage they have done. And the straightforward way would be imposing a carbon tax depending on how the damage is measured.
"Just that simple measure would go a long way to solving the problem. Because now, let's say, an electricity generating company which tends to burn a lot of carbon in producing electricity will have greater motivation to switch away from carbon-based fuel which carries heavy tax."
The government should offer people incentives to switch from gasoline-engine cars to electric vehicles. Meanwhile, a greater incentive should be given to those developing technologies that aim to take carbon out of the atmosphere.
He explained that carbon tax in reverse will now allow many innovators to develop effective, scalable technologies to remove carbon from the atmosphere and sequester it so that it is no longer a source of climate change.