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August 26, 2006

Fed Chief Gives Seminar on History of Globalization


JACKSON HOLE, Wyo., Aug. 25 — Ben S. Bernanke, chairman of the Federal Reserve, said on Friday that the pace of globalization today was faster and more sweeping than at any time in world history.

And while he generally lauded the expansion of global trade and finance, he warned that governments needed to help their citizens cope with the disruptions of new competition and “ensure that the benefits of global economic integration are sufficiently shared.”

Delivering the keynote speech at the Fed’s annual retreat here in the Grand Tetons, Mr. Bernanke stayed away from the battles at the top of the Fed’s agenda — rising inflation, high energy prices, a plunging housing market and worries about a possible economic downturn.

Instead, he focused on how today’s wave of rising global integration was different from what the world has seen before — a trend that is forcing the Fed and other central banks to change the way they think about monetary policy.

“The emergence of China, India and the former Communist-bloc countries implies that the greater part of the earth’s population is now engaged, at least potentially, in the global economy,” Mr. Bernanke said. “There are no historical antecedents for this development.”

Speaking more like the Princeton economics professor he once was, the Fed chairman surveyed previous expansions of global activity from the Roman Empire to the opening of the Suez Canal and European colonialism.

Those expansions shared many common themes with trends of today, he said, including the role of new technologies in opening up trade opportunities as well as similar social and political backlashes from groups whose lives were disrupted by new competition.

But while other experts have often cited the rapid economic integration before World War I as a precedent, Mr. Bernanke argued that the process today was faster, broader and deeper than earlier waves of globalization.

Though he did not mention the practical implications for monetary policy and central banking, other experts here are delivering papers that examine the role of Chinese goods in holding down global prices and that scrutinize major changes in global capital movements between rich and poor countries.

One of the most startling changes, which has helped fuel American growth and kept interest rates low, is that the United States and other wealthy industrialized countries are attracting huge volumes of capital from poorer counties in Asia, Latin America and the Middle East.

“Today, the world’s largest economy, that of the United States, runs a current-account deficit, financed to a substantial extent by capital exports from emerging market nations,” Mr. Bernanke noted.

Mr. Bernanke has previously argued that the United States’ huge indebtedness is merely the reverse side of a “global savings glut” caused by the fact that some other countries offer too few investment opportunities.

Other analysts take a much darker view. Kenneth S. Rogoff, an economics professor at Harvard University who has served as chief economist for the International Monetary Fund, warned in a paper here that the United States was becoming overly dependent on developing countries that might soon start using their excess savings for themselves.

“Even if these favorable trends continue, there are massive budget problems that most of the developed world is going to face as its populations age,” Mr. Rogoff cautioned.

The Fed and other central banks, he said, need to prepare for the “risk of an eventual slowing down or reversal” of the so-called savings glut.

Mr. Bernanke steered clear of that issue. But he was blunt in declaring that the current pace of globalization, though part of a trend that is thousands of years old, is also something the world has never seen.

“The scale and pace of the current episode is unprecedented,” he said. Though Columbus’s voyage to North America ultimately transformed the world, he noted, that change took centuries to occur. By contrast, he said, the emergence of China as an industrial dynamo and export powerhouse has altered the world economy and geopolitics in less than 30 years.

The patterns of global trade and finance have changed as well, he said. The old distinction between core rich countries that exported manufactured goods and poorer periphery countries that exported natural resources has broken down.

Production is becoming more geographically fragmented, he noted, citing chip makers like Advanced Micro Devices that do production in Texas and Germany and final processing in Thailand, Singapore, Malaysia and China.

If Mr. Bernanke had a message to political leaders, it was that they needed to acknowledge the downsides of globalization in terms of lost jobs, disrupted livelihoods and wrenching change.

“The challenge for policy makers,’’ he said, “is to ensure that the benefits of global economic integration are sufficiently widely shared — for example, by helping displaced workers get the necessary training to take advantage of new opportunities — that a consensus for welfare-enhancing change can be obtained.”