Does globalization widen the income gap?

Question: Does globalization widen the income gap?

Peter Thiel: Yes.  I think it is the case that there has been a widening income disparity within the U.S.  It is not clear that this has been happening on a global basis.  If you look at the numbers of very poor people who have gotten _________ China as well as India, it is not at all clear that global wealth disparities are increasing or decreasing.  I think that’s much more open to debate. 

But in the developed countries, there does seem to be quite a bit of pressure – especially on people in the middle class who are competing for jobs with people who are asking for much lower salaries. Your car factory worker in Detroit versus a car factory worker in _________ in China. 

I think there are probably a whole set of different factors that are driving this.  There’s a technological shift from an industrial to an information age economy where knowledge is more important. 

There’s a globalization aspect certainly; which is a legacy of these massive disparities that have historically existed. 

There’s a whole set of different factors to this.  Whatever the analysis is, you then have another different set of questions as to what if anything one should do about it.  And it seems to me it would be a very big mistake to just end globalization. 

This is where the people who complain about globalization leading to greater disparities – why they’ve been so ineffective, at least thus far politically, is because if you actually end globalization, this would just be an unmitigated disaster.  And there’s no logic, there’s no peaceful way to end it.  If you imagine getting together a group of anti-globalization activists and politicians at some sort of worldwide conference to bring about the end of globalization, this would have to be like a self-contradictory farce.  Or perhaps a cover for some other version of globalization such as for a worldwide communist revolution or something like that. 

Globalization will not end by collective political action.  It will not end by individual choice, because it makes too much sense for individuals. 

The only way globalization will end is by world war.  And that’s how it ended in 1914, and that’s the risk of how it could end again. 

I don’t think there’s anything automatic about it, but I think the alternatives are very terrible.

Question: How can we ease these tensions?

Peter Thiel: Again, without having all the answers here, I think one of the challenges is that we have to we have to start by being honest with people; and we have to start by recognizing that a lot of these constituencies have expectations that are completely crazy. 

And so the expectation of the unskilled worker in the U.S. should get paid 10 times as much as an unskilled worker in China who is willing to work twice as hard, this is a crazy expectation.  And this is not really going to be sustainable at all. 

I tend to think there probably is a lot to be said for education reform.  I am somewhat pessimistic about reeducating adults.  They seem to be often not very prone to being reeducated and get pretty set in their ways, which is unfortunate. 

So I think we have a lot of problems with people in their 30s, 40s, and 50s in the U.S. where it’s going to be very hard to shift things around.  What I think we should try to do is focus on the next generation of Americans; make sure they get the best kind of education possible where they will either get a broad education where they can do things that are competitive professionally; or alternately get real vocational training where they can do high value-added jobs, and building very         complicated machines and things like that; the sort that Germany and Japan have done better than the U.S.  There’s a lot screwed up in those countries, but I think that element they’ve done somewhat better.  So I think that’s probably where the focus should be. 

I think that one of the things that drives so much of the cultural fears about it is a sense that the next generation of Americans will be worse off than the one that came before; or at least that many people in the next generation will be worse off than their parents.  And so I think if you can mitigate against that, that might ameliorate things a lot.

Recorded on:  Sep 05, 2007

It's not at all clear, Thiel says, that income disparities are growing globally.

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