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August 25, 2006

Fed Chief Sees Faster Pace for Globalization


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

While he generally lauded the expansion of global trade and finance, he warned that governments need to help people 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 elite annual retreat here in the Grand Tetons, Mr. Bernanke stayed away from the battles at the top of the Fed’s agenda — rising inflation, soaring energy prices, a slowing housing market and worries about a possible recession.

Instead, he focused on how today’s wave of rising global integration 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 like the Princeton professor he once was, the Fed chairman surveyed previous expansions of global activity in history, from the Roman Empire to the opening of the Suez Canal and European colonization.

Those expansions shared many themes in common with what is happening today, he said, citing the role of new technologies in opening trade opportunities as well as the social and political resistance from those whose lives were disrupted by new competition.

Mr. Bernanke said the process today was faster, broader and deeper than earlier waves of globalization. And though he did not touch on the practical implications for monetary policy and central banking in his own remarks, other experts here are presenting papers 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 keep 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 extend by capital exports from emerging-market nations,” Mr. Bernanke noted.

Mr. Bernanke has previously argued that the United States’ huge indebtedness is merely the flip side of a “global savings glut,” caused by a shortage of investment opportunities in other countries.

Other analysts take a much darker view. Kenneth Rogoff, an economist at Harvard University, warned in a paper here that the United States is becoming dependent on developing countries’ excess savings — capital that they may soon start to use for themselves instead.

“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 flow of savings.

Mr. Bernanke steered clear of that issue. But he was blunt in declaring that though the broad trend toward globalization is thousands of years old, the world is transforming itself faster now than ever before.

“The scale and pace of the current episode is unprecedented,” he said. The changes wrought by Columbus’s voyage to North America were hugely important, he noted, but they took centuries to occur. By contrast, he said, the emergence of China as an export powerhouse has altered the world in less than 30 years.

The patterns of global trade and finance have changed as well, he said. The old distinction between rich “core” countries that exported manufactured goods and poorer “periphery” countries that exported natural resources has broken down. Production is becoming more geographically fragmented, he said, citing chipmakers like Advanced Micro Devices that manufacture components in Texas and Germany and perform 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 costs of globalization, in terms of lost jobs, disrupted livehoods and wrenching change and help their constituents come to terms with them.

“The challenge for policymakers is to ensure that the benefits of global economic integration are sufficiently wide-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,” he said.