The Divide: A Brief Guide to Global Inequality and its Solutions

by Jason Hickel

What do free-trade theorists have to say about such catastrophes? Well, they assume that the labour and capital ‘released’ from uncompetitive industries due to liberalisation will quickly be reallocated to other industries that align more closely with the country’s comparative advantage. This is the assumption of ‘perfect factor mobility’. But, as with many economic assumptions, reality almost never plays out according to theory. Workers who lose their jobs in one industry usually lack the skills necessary to quickly take up jobs elsewhere, and end up either languishing in unemployment or taking on very low-skilled, poorly paid work. The only way to ensure that some kind of productive transition takes place is to provide substantial unemployment benefits and training programmes – something that poor countries can rarely afford. Indeed, under structural adjustment programmes they are often denied the right to spend on this kind of social assistance.