Topic: Economics

As a young economist, Dean Ann Harrison traveled the globe for the World Bank, lugging home reels of magnetic tape from mainframe computers that she gathered from census bureaus in developing countries. She poured over the data she collected, asking questions like: Does freer trade and globalization help or harm workers? Do wealthy multinational corporations help local economies by raising wages, or is it the reverse, and do they exploit cheap labor? 

The academic work she produced, as a faculty member at Columbia University, Harvard University, UC Berkeley, and the University of Pennsylvania’s Wharton School, propelled her to become one of the foremost scholars in trade and development economics. She is now the world’s most highly cited scholar on foreign direct investment. 

In 2019, Harrison took on a more public role with her appointment as dean of the Haas School, adding a new dimension to a career of serious scholarship that also included serving as director of development policy for the World Bank.  

A new book, “Globalization, Firms, and Workers” (World Scientific Books 2022), collects Harrison’s path-breaking work on globalization, trade, and foreign direct investment into a single volume. 

We sat down with Dean Harrison to hear more about her work.

Haas News: In the introduction to your new book, editors Keith Maskus and Jed Silver note that your work “shone a light on workers who were not the focus of academic studies in the past, including those in sweatshop industries or multinational firms that were pursuing low-cost labor around the world.” Tell us the backstory of how you came to this work. 

Ann Harrison: I was always interested in international issues because I came from an international family. My father was American, my mother was French; I was born in France and French was my first language, and we always went back and forth between France and the U.S. As an undergraduate at Berkeley, I started off as a history major and I became fascinated by questions like: Why are some countries rich and other countries poor? Being a Berkeley undergraduate you naturally gravitate towards these kinds of questions. And then I became interested in the economics of these inequalities, and what we can do about them. By the time I graduated, my goal was to eliminate world poverty. I cold-called the World Bank, since that was their mission, and they told me the most effective thing I could do was to become an economist. So I got my PhD in economics and I started working at the World Bank.

You were working in developing countries at a time when data wasn’t all that accessible. How were you able to gather your data?

In the early- to mid-eighties when I started doing this research, you had to go to Washington and sit in Census Bureau offices to get national data. But as a World Bank staff member, we had more access to emerging market company data. The World Bank lends billions of dollars a year to emerging markets and we would go to countries to help them devise their policies. We supported them in their analysis, and they supported us in our research and data collection. That put me in a position where I was able to get access to census data sets that in the U.S. nobody had access to. 

First I went to Caracas and visited their census bureau. I signed documents saying I wouldn’t release their data and they handed me reels of tape from mainframe computers. In some countries, the data sets weren’t so big, so I could get them on floppy disks. Later, they started making PCs, but they were really big and heavy, and I had to get on planes with these heavy computers. I would carry everything back to Washington and the technical people would help me figure out how to read the data. We worked on it for months and even years. I still have some of those tapes— in my basement and I might even have some in the storage closet in the bathroom of the Dean’s Suite.

How many countries did you visit for your research? 

I don’t have a tally, but some of the places I went to are Guyana, Trinidad and Tobago, Saint Lucia, Morocco, Pakistan, India, Argentina, Chile, and Jamaica. I spent my 30th birthday in Saint Vincent and the Grenadines—that was nice. I’m sure there are more.

What’s your dinner party answer when people ask you, as a trade economist, has globalization left us better off or worse off? 

Economists usually just add up all the winners and subtract out the losers and if the answer is greater than zero, then globalization is good for you. And I think it is true that, on net, it’s been good for a lot of countries. It’s been good for China, which is much richer than it was before. It’s generally been good for the U.S. in terms of access to cheaper goods and more efficient supply chains and opportunities to buy and sell things that we couldn’t have done before. But it hasn’t been good for everyone. 

The big mistake economists made is that they underestimated how difficult it would be to compensate those who lost out from increasing global competition. The benefits of globalization hinge on us being able to use the gains to help those who are hurt. But that part of the policy package was not well executed. What could have been good for everybody just ended up benefiting parts of society and hurting others.

The term “globalization” has become a dirty word, synonymous with the loss of the working class, erosion of manufacturing jobs, and rising inequality. Right now we’re seeing a rise of right-wing populist leaders—such as Italy’s Giorgia Meloni—lashing out at globalization, gaining support from workers who feel left behind. How much can we blame the decline of manufacturing and good working-class jobs on globalization?

Technology and automation are replacing people beyond manufacturing—think Amazon fulfillment centers. If you’re educated, you’re doing pretty well, but if you don’t have a college education, you’re doing worse and worse. That inequality is largely being driven by automation. There’s no question that trade did play a role in undermining manufacturing wages. The pain is real. But I found that automation played a much bigger role. We know that’s true because even in China the percentage of workers engaged in manufacturing is declining and people are being replaced by machines. I would say about 75% of the decline is from automation and technology and 25% is from globalization.

You had a counterintuitive finding in one of your papers about Mexico. The assumption was that free trade would benefit workers in Mexico, but it was only the most skilled workers who benefitted while low-skilled workers lost out.

Yes, that’s right, because in order to benefit from globalization you need a lot of knowledge, skill and education. What happened is that Mexico’s unskilled workers were undercut by even lower-wage workers elsewhere in the world. It was a race to the very bottom.

It’s a really interesting case because Mexico put a lot of weight on going global. The leaders really believed that globalization was going to make them richer. The jury is still out.

What are some of your other surprising findings? 

Here’s one that is surprising—at least to proponents of globalization. When multinational firms went into a country like Venezuela, the multinationals took away significant market share of the local companies. It may sound obvious, but a lot of governments still welcome investment by foreign firms because they think it will make them better off. What some of my research showed is that this market-stealing effect could be really big and it could hurt you. 

The Chinese government figured this out a long time ago. They decided to only let in foreign firms if they partnered with domestic companies. And then eventually policy makers phased out all the benefits that they accorded to the foreign firms. Today foreign companies get no benefits at all in China. So while China understood this from the beginning, a lot of other countries, including the U.S., provided all these benefits like tax subsidies to incoming multinational firms. We thought about the benefits of investment but we didn’t think about the costs in terms of the foregone market share for domestic firms.

You also studied sweatshops.

I did a series of papers on the anti-sweatshop movement. The question was: If you target global companies that set up “sweatshops” and shut them down, what happens to the workers? Are they better off, and is it possible to get to a win-win outcome? What my research showed is that a win-win is possible if you encourage the companies that are already making huge profits to share more of those profits with the workers. But if you force companies that are barely profitable to share more of the meager profits they have, they might go under and workers will lose their jobs. 

Another unusual finding looks at what happens when you get rid of special protection for very small firms. In India, 80% of workers work in really small enterprises, and intuitively you would think that removing protection for those firms would not be good for employment, wages, and investment. But it turns out that removing protections was really good for employment and wages because the government had been protecting firms that were so small that they wouldn’t ever get to economically efficient sizes. There wasn’t enough employment growth, wages weren’t high enough, productivity was low. When these laws, called small scale reservation policies, were phased out, wages and employment overall grew.

That was a form of industrial policy, which is another area you’ve studied closely. What is your overall conclusion about industrial policy?

I think there are good kinds of industrial policy and there are bad kinds. You don’t want to promote declining industries. You want to promote the emerging growth areas that are going to create a lot of great jobs tomorrow. What China has shown is that if you systematically promote advanced industries, you can move much more quickly. And so what China has done is given a lot of sectors an artificial advantage. China is not trying to prevent its steel industry from going under. They’re thinking about what are going to be the leading sectors tomorrow and trying to get a leg up there. 

You’ve managed a rare career combining serious academic scholarship with public service and leadership. How has your academic work influenced your leadership as dean?

Great question. It has turned out that my three top priorities, innovation, sustainability and inclusion—which I refer to it as my ISI agenda—are the very things I focused on in my research. I don’t think it’s by accident. A lot of the research that I did over the decades was about what happens to people’s livelihoods when they’re exposed to trade and globalization. Who’s helped and who’s hurt?  So I’ve always been interested in this question of inclusion and that’s something I’ve brought to my role as dean by prioritizing DEIBJ. 

My long fascination with companies is based on questions such as how to identify the companies that are successful, and how to measure innovation at the company level. How do you create something better? So this focus on innovation and the creation of new companies or better ways of doing things is something that I’ve brought to my role as dean. 

Right now I am really prioritizing sustainability. When you travel, you see first-hand the huge environmental issues that we’re facing. Access to clean water and access to clean air are fundamental challenges that countries face. Earlier in my career, I became a professor at UC Berkeley’s College of Natural Resources in Agricultural and Resource Economics. And before I became Dean, the last project I worked on looked at how you make environmental policies effective in emerging markets where compliance and enforcement are big challenges. I became interested in green industrial policy, which is industrial policy focused on sustainability and environmental economics. And then when I moved back to California, the first things I noticed were wildfires, drought, blackouts. That just reinforced the importance of sustainable policies. I’ve really taken all that research and background and I’ve used it here as Dean. I’ve gone back to my old contacts at the  World Bank and the College of Natural Resources, and we’re partnering with them, and we are building sustainability into our core curriculum so that every Haas graduate can lead in this area. 

You’ve talked a little bit about some of the mistakes that were made with globalization, and we’re now in a period of even greater inequality. Do you see any hope of reversing that?

That’s one of the reasons I took this job. I think public education is the solution. That’s the hope. We’re sitting on top of part of the solution right here.