On May 13, 2021, CCG hosted a dialogue between Huiyao Wang, CCG President; David Blair, CCG Vice President and Senior Economist; Anne Case, Alexander Stewart 1886 Professor of Economics and Public Affairs, Emeritus at Princeton University; and Angus Deaton, Senior Scholar, Princeton School of Public and International Affairs.

Anne Case is a world-renowned economist who has written extensively about health outcomes over the life cycle. She was previously awarded the Kenneth J. Arrow Prize in Health Economics from the International Health Economics Association for her work on the links between economic status and health in childhood. She was also awarded the Cozzarelli Prize by the National Academy of Sciences for her research on midlife morbidity and mortality.

Sir Angus Deaton is a leading authority on poverty, inequality, health, well-being, and economic development. In 2015, he was awarded the Nobel Memorial Prize in Economic Sciences for his analysis of consumption, poverty, and welfare. He previously served as President of the American Economic Association. His current research focuses on the determinants of health in rich and poor countries, as well as on the measurement of poverty and inequality in the US, India, and around the world.

For this discussion, we were also joined by CCG Vice President David Blair, an economist specializing in finance, macroeconomics, entrepreneurship, and healthcare. Before joining CCG, David was a professor of economics at the Eisenhower School of the National Defense University in Washington and a senior business columnist for China Daily.

Issues of inequality within and between countries are a subject of intense debate and also feed into policy discussions related to globalization. Case and Deaton are co-authors of the book Deaths of Despair and the Future of Capitalism (2020), which sheds light on factors that have made life more difficult for less educated working people in America and contributed to a fall of life expectancy. Our discussion covered major themes from this book, including the role of healthcare, education, globalization, market regulation, and social changes in rising inequality in the US. We also explored the lessons that can be drawn for other countries facing serious inequality, including China.

Huiyao Wang: The book I have in my hands is Deaths of Despair and the Future of Capitalism, co-authored by Professor Deaton and Professor Case and published last year. Before we get into that, maybe you can both say a few words and introduce the book to our audience.

Angus Deaton: When we first started this work in the summer of 2013, we noticed this reversal in midlife mortality, of people in their 40s and 50s. For more than a century, mortality had generally been in decline. But instead of continuing to go down from the mid-1990s until when we were writing, it had started to rise. This is something you really don’t expect to see at all. We didn’t know at the time that overall life expectancy was falling.

Anne Case: But this was only happening in the US. In other wealthy countries, other English-speaking countries, mortality rates continued to fall. Progress was continuing elsewhere. But in the US, in one particular group of whites, the most privileged group in the US in general, mortality rates had started to rise and this came as a surprise to us and all of the other people that we showed it to. It was a shock, so that was the beginning. We started to dig to try to find out what was going on here and why did progress stop—not just for a year, but for over two decades.

Angus Deaton: Right, it was such a shock at the time. We had a lot of trouble getting the paper published. Eventually, we did get it published and there was just a tsunami of interest in it. I like to tell the story that I got the Nobel Prize in October of 2015, and there’s a huge amount of publicity that comes with that, but this paper then came out two weeks later and the publicity around this paper was just huge, compared even with what had happened with the Nobel Prize. So, we knew we had really put our finger on a nerve and that people were very excited and distressed about it.

Huiyao Wang: Deaths of Despair and the Future of Capitalism is a fascinating book. So basically, life expectancy in the US fell for the first time in decades. It fell in 2015, 2016, and 2017. The US is one of the wealthiest countries in the world and has achieved a high life expectancy, so this trend brings lessons for other countries to learn. What can we learn from the US?

Angus Deaton: This might not be very helpful, but one of the things to say is that some of the things that happened in the US do not happen elsewhere. We draw an analogy in the book with what happened in China in the nineteenth century, when opium dealers from Britain forced their way into selling opium to the Chinese people, very much against local wishes. To some extent, there's a parallel with what happened in the US; very powerful pharmaceutical companies and pharmaceutical distributors distributed enormous amounts of opioids, essentially legalized heroin, which caused terrific trouble in the US, with many people dying.

Anne Case: The three causes of death that were rising that caused mortality to turn the wrong way in the US were suicide, drug overdose, and alcoholic liver disease. As a shorthand, we call those “deaths of despair.” In those three causes of death, what we saw was a great deal of despair, because people don’t kill themselves with drugs, alcohol, or a gun unless something is going very badly wrong in their lives.

So, in the book what we did was first to document that this was indeed happening throughout the US—but only for people who were not well educated, people who did not have a four-year college degree. From there, we turned to economics to ask the question—what is it that’s happened in the US, that has happened only to people without a four-year college degree, that might be a powerful enough force such that people would start killing themselves in very large numbers?

Angus Deaton: A very important part of that story was that it wasn’t happening in other rich countries around the world. Or, if it was happening, and it is happening a little in Britain, Canada, and Ireland, it's not happening on anything like the same scale as in the US. Which means that stories about globalization or technical change, which many people tend to blame, can’t really explain why globalization and technical change are having such different effects in Germany and Britain than in the US.

David Blair: Could I ask you to delve a little bit deeper into the deep causes? I was very struck by your statement a minute ago that you want other countries to be able to draw on the lessons of what the US suffered and not to repeat the same mistakes. I never thought I'd be looking back on the 1970s as a kind of a golden age, but at that time, real median real wages were going up, and they haven’t risen since 1979. Do you think policy changes, environmental changes, or social changes were driving it? Was it a change in society, a failure to enforce anti-monopoly laws, or changes in the financial system? There are various hypotheses and I'd just like you to elaborate on what you think the major causes were.

Angus Deaton: Well, almost all of the above. A lot of bad things were happening, the question really is to establish what caused what. There’s been a lot of social disintegration, which Robert D. Putnam famously wrote about in Bowling Alone. He wrote to us and said that he thought the title of our book was the best title he'd seen in many years. Anne can talk about some of the other things that are happening—the morbidity, the pain, lack of marriage, churchgoing, and so on, but we tend to push it back to the labor market.

Anne Case: The high watermark for blue-collar wages in the US was in 1972. Since then, median wages for people without a college degree have been falling—for men first, for women with a lag, but they've been falling now for a couple of decades as well.

Angus Deaton: Wages rise in booms, so it's not a continuous fall. You get this ratchet effect that wages rise a bit in the boom and then they fall and never get back to where they were before. In the Trump boom, which many people pushed as being the best labor market seen in this century, real wages for people without a four-year college degree were lower than at any date in the 1980s.

Anne Case: Part of that was certainly globalization and automation, which made blue-collar workers more vulnerable. Part of it is a policy decision about whether or not the workers who were affected were going to be retrained, whether or not the pie that was getting bigger through globalization was going to be distributed to everyone, or if it was going to be just distributed among the people at the top.

So, part of that is policy. But the other part that's different about the US is the way that we finance our healthcare system. That plays an important role in the story, which is kind of happening behind the curtain because we tie health insurance to employers in the US, which is highly unusual. If you combine that with the fact that the healthcare industry got larger and larger and more and more expensive, what that meant was that employers had to pay a larger and larger premium to hire any worker, including blue-collar workers, and that came out of blue-collar wages. So, healthcare went from being not much of GDP back in, say 1960, to being one dollar in five by the time we get to 2020. That meant blue-collar wages fell as more money was spent on their healthcare.

Angus Deaton: And the jobs went with those wages. If you're an employer, and you offer health insurance, you have to pay an additional $20,000 a year for a family policy or $11,000 a year for a single policy to hire a janitor or a cleaner. This means very few large firms in America have any cleaning staff; the mailroom is gone, the security staff, the food service workers, the drivers—they're nearly all are contracted out to local firms that supply labor.

David Blair: I was struck by a number, the share of GDP going to capital and labor. Back when I was in graduate school 30 or 40 years ago, that was considered fixed. But it's been declining. The share of GDP going to labor has declined to 7 or 8 percent over the last 30 or 40 years in the US, which is a big change. Can you talk about what's going on there?

Angus Deaton: This is a very hot area in labor economics and for those who study firms, and there's no agreement as to exactly what those forces are. And it’s not clear that the same thing is happening elsewhere. I'm working with a group in London and we’ve spent a lot of time looking at the British labor share of GDP and some people think it’s fallen, but others think it has not fallen as much.

One of the themes in this work, and I don’t really want to tell you the answer because I don't think we know, is that market power plays a much bigger role than economists used to think it did. So, there's a lot of wondering about whether there's more monopsony than we used to think, with firms having power over their workers, or a lot more monopoly, with firms having power over product prices. Another factor is the decline in unions, which has happened pretty much everywhere, but has happened very fast in the US, so there are almost no private-sector unions left.

David Blair: I’m struck by how much more competitive many market sectors are in China than in the US. I just bought a car and it's an extremely highly competitive market sector for cars here, and the price is maybe two-thirds of the price of an equivalent car in the US.

Anne Case: Car dealers are very well protected by local and central governments in the US. There are regulations that help protect those sellers. It’s not just cars, there are so many areas where corporations and heads of industry groups have gone to Washington or their state capitals and gotten protection. So, if you’re working within a politically protected sector, you do very well, but that means that the people who aren't protected are paying the price for that.

Huiyao Wang: The question I want to pose is on the future of capitalism, which is also covered in the book. You have raised many interesting points on education, such as how people with a four-year college education tend to earn more. In China’s latest census, data shows that 218 million people have a college degree or are currently in college. This will help their futures too, if we draw on the lessons of your book.

Second, on health. It is striking that the US spends almost 20 percent of its GDP on healthcare. China spends about 5 percent of GDP on healthcare and has almost 1.3 billion people with some kind of medical coverage. Life expectancy in China is only two or three years less than it is in the US and quickly catching up. Also, the role of the family. Regarding Chinese family values, there tends to be encouragement and support from the family, which may help to prevent some desperate outcomes. What do you think about how China has done and are there lessons we can draw from the US experience?

Anne Case: There are several things to pick up on here. Just to start with education, other countries don’t seem to have this strict divide in social and economic treatment between whether you have a college degree or you don’t, and if you have a college degree, you are protected from a deteriorating labor market, whereas if you don’t have a college degree, your opportunities are declining, and it's getting harder to get married, and it's hard to have a community life that's meaningful. In other countries, that's not happening to anything like the same extent. So, it seems like that is in some way special to the US. It may be that in other countries, there’s not the same stigma attached to having a meaningful job that you need skills for but you don’t need a college degree for. So that's one thing.

Angus Deaton: This education thing is very hard and there's a lot of controversy about it. What you were saying about the progress that China has made in educating people, that’s got to be good—we believe in education. You know, we are college professors, how could we not believe in education? Both of us grew up in pretty humble backgrounds, and for us, the educational system was our escape. It was what allowed us to do the things we’ve done in our lives. So, we're not going to say anything bad about education. Education gives people skills or allows latent skills to be expressed and that's good for them, and it's good for the country, and it’s good for everybody, so that’s a terrific thing.

But there’s another role of education, which seems to be as a marker of social status. Having a BA in America seems to increasingly have become what the philosopher Michael Sandel has called the key to respect, the key to social esteem, and the key to a good job. That has a big downside as well as an upside. So, we're not going to badmouth education, but it's more the role that this BA degree has come to play in the US which I think has been problematic.

Anne Case: To pick up on family values, in America, conservatives like to point to the erosion of family values; that people are no longer industrious and that people no longer have a moral compass that says, “we live in a family and we take care of our family.” Instead, they point out that we have people cohabiting, they break up, they may have had a child in their first cohabitation, and then they have a new cohabitation, they have another child, and their home life is often very fragile. But in the book, we point out that it's much easier to be virtuous if you have a good job—if you have a job where you have prospects, where there's on the job training, where you feel like you have a future—it’s much easier to support a lifestyle that’s stable if you feel that you have status, meaning you know that work is going to lead you to a good life.

Angus Deaton: There’s an old Marxist belief that social relations depend on the means of production and that seems to be what's happening here. We see the disintegration of these patterns where people used to have good working-class blue-collar jobs as being behind this social disintegration.

Huiyao Wang: I’d like to raise another question about inequality. We notice inequality around the world as globalization deepens. For example, the wealth of the top 1 percent in the US is almost equal to 42 percent to 45 percent of the wealth of the whole population. Many developed countries show the same trend. As companies expand globally, it seems they're not sufficiently benefiting their home or host countries. For example, the North American Free Trade Agreement [NAFTA] was blamed for hollowing out the Midwest and not benefiting the US. Martin Wolf points out how capitalism is global, whereas democracy is local. So, if the local population is not happy, politicians seek out a scapegoat, which is often China.

What do you think about this inequality issue, particularly during the pandemic, when we see the top 1 percent getting even wealthier and the stock market at an all-time high? How can we explain this and what are the challenges for our contemporary world?

Angus Deaton: I think you have to be careful to separate different kinds of inequality. There's inequality in income, which is what perhaps we first think about, and then there is wealth inequality, which some politicians in the US such as Elizabeth Warren are increasingly focused on. As you say, there's been an explosion of wealth inequality during the pandemic, much more so in the US than in Britain for example. Because the US stock market has gone up so much, in part because of low interest rates, and because the big tech companies are here in the US and their enormous success during the pandemic has driven up the stock market. There's also the inequality we write about in our book, which is the “inequality of respect,” which in the US seems to come with education. To us, that's the deepest problem, because people without education have been left behind and are not politically represented.

What you say is exactly right, the major force today in international relations is what is happening within countries. That’s exactly like what Martin Wolf said, that democracy is local, and globalization is global. The threats to globalization today are coming from within countries, not from between countries. We think it’s the separation or leaving these people behind who favor populist solutions that are the real threat to globalization. If you get another decade of Mr. Trump, it's not clear how much will be left of globalization at the end of that.

Anne Case: Just to go back to what you said about NAFTA, speaking to some of the economists who were in the Clinton administration when NAFTA was passed, they knew that jobs would be lost in the US. But what they thought was that, well, this is a good time for the US to upskill, and so those jobs would be lost, but those workers would be retrained and that would lift everyone. But when NAFTA passed, the jobs were lost but the upskilling never took place, so those people were thrown out into the wilderness to fend for themselves. That's going to foment a lot of anger over a period of time as people feel like they're not participating when they see wealth increasing among some groups and they're not getting any part of that increase in the size of the pie. So that's a failure of policy and of democracy in the US.

Huiyao Wang: The US is home to around half of the world’s top 100 universities and attracts talent from around the world, making it a very innovative country. I think this is probably the core strength of the US and China is learning from that. China has over 3000 universities and 35 million students on campus in total. So, education is certainly a key area China is paying a lot of attention to.

I would like to have David’s comment on that as well. You've been living in China since 2016 and you are often contacted because of your studies on wages and labor economics. What’s your take?

David Blair: There's a term that I hear in Chinese, one used for taxi drivers, anybody that operates equipment, or any sort of skilled job. Calling them “Shifu” is the way people show respect to a manual worker. A lot of these people are much poorer than people doing equivalent jobs in the US, but I don't think they feel the same sort of pressure and despair.

Some delivery workers, usually young guys from the countryside, work extremely hard with very long days and they may be under a lot of pressure from their employers to do things rapidly. But even for people working in places like parks, I don’t feel like they think they are looked down upon. Whereas I think American working-class people now think they’re just flat-out looked down upon, and that naturally stokes anger and a feeling of hopelessness. Do you think that's the right interpretation of what’s going on?

Anne Case: Yes, absolutely. That's also something that separates the US from Europe. Go and travel in Europe, there's a lot of respect paid for people who do manual work that we don’t see in the US.

Angus Deaton: But some of it is common with Britain, too. There is a new book, Fulfillment, about Amazon, [which describes how] people who used to work for Bethlehem Steel in Baltimore now work in Amazon warehouses. Where my grandfather died in a mining accident in Yorkshire, in that village where my father grew up, that coalmine is no longer there. The unions are no longer there. The solid Labour voters who used to vote for the Labour Party are not there, they're voting Conservative, and there's now an Amazon warehouse near the site where the mine was. Many people have written about how hard it is to work in an Amazon warehouse, in Fulfillment, but it is not dangerous like working in a mine, or dangerous like working in a steelworks was. These jobs are relatively well paid—Amazon is paying something like $15 an hour in the US. But there is a sense of despair that this is meaningless work, just working to the clock.

There are sociological accounts and individual accounts of these people’s lives and there's a feeling that the meaning of life is not what it was back then and that there's been a lot of loss of society. For example, back then, Yorkshire mining towns had famous brass bands and famous soccer clubs; there was a social life built around those jobs, dangerous and dirty though they were. There's no similar social life built around an Amazon warehouse.

David Blair: That’s the story that Robert Putnam [author of Bowling Alone] told for his hometown in Ohio, too. One thing that worries me is the next generation. Once one generation loses their jobs and the children don't get well cared for, or they may have psychological problems when they are young, how do we solve this problem for the next generation? Do you have any thoughts on that?

Anne Case: We are really worried about that too. If you've grown up and your mother is addicted to drugs or your father committed suicide, you don’t have a stable home life, and the school that you attend isn't as good as the school would have been a generation ago because industry pulled out, the tax base imploded, and the school is not well funded. In this situation, your options for the future look pretty grim.

So, what do we do about this? This is a heavy lift, but we need to think about changing the educational system, which right now in America is laser-focused on the kids who are going to college. If you're going to high school but you're not college-bound, you're sort of on your own. We need to think about ways in which kids who are not going to go to university are going to get a skill set that's going to put them on a good career track where they could become skilled plumbers, or electricians, or learn to provide the different computer needs that we will have. We need to be thinking about how we make that happen, but that's going to be really difficult.

Angus Deaton: Actually, there is a lot of interest on both the right and left in the US in vocational education, of turning the educational system into something more like what they have in Germany. Also, to come back to the drum we like to beat, a lot of these local authorities are paying enormous sums of money for health care, and it's making it very hard for them to fund local schools, local education, and local universities.

David Blair: Just a point on China. There's a lot of interest around China in looking at the German apprenticeship system. But I still think there's too much attention, especially among parents, on forcing them to spend [very long hours studying] to get on the track for Tsinghua University or Peking University.

I’d like to follow up about the causes of this evolution in inequality. As I see, there are three major ideas out there. One is globalization—“let's blame Mexico,” then “let’s blame China,” because it increases competition in the labor market and that has a negative effect. Another idea is that it is due to domestic policy changes. I notice there's a quote in your book which says that rent-seeking is a major cause of wage stagnation among working-class Americans and has much to do with the “deaths of despair.” I'd like you to elaborate on that, and for the non-economists in the audience, explain what you mean by “rent-seeking.” The third explanation is that it's just technological change and automation and there's nothing we can do about it. It could be a mix of those three things, but I'd like to know what you think the most important cause is.

Angus Deaton: Let’s take globalization and technological change off the table. They exist and are very important; all countries face these changes in one way or another. But you're not getting the “deaths of despair” in most of Europe that we are getting in the US.

A few words about rent-seeking. What businesses should be doing is making stuff and selling stuff, as well as innovating, to get rich and make us all better off. That’s a wonderful thing, it’s what capitalism is good at, and what markets are good at. But there’s another way that people can make money, which is that they can go to the government to get a special rule or regulation passed which makes them rich at the expense of everybody else, and that’s rent seeking. Rent seeking is unproductive capitalism at its worst. The real danger in the story we’re telling is that in many industries, including healthcare and banking, business interests have been very good at getting special regulations passed which protect them from market competition so that they can get rich at the expense of everybody else.

The story we tell, which some people agree with, and some people don't, is that in addition to the automation and globalization that is threatening the jobs of many working-class people in America, we've got rent-seeking, especially in the healthcare sector, which is twice as large as anywhere else in the world. China spends about 5 percent of its GDP on healthcare, the US spends 20 percent, and the median in Europe is around 10 percent. Yet other countries have a higher life expectancy than the US. America’s healthcare industry is not “producing” more health, we have the worst health of any rich country in the world. Yet the business executives who run the hospitals, the device manufacturers, and especially the pharmaceutical companies are making enormous sums of money. The trouble is, that money can be used for further rent-seeking. The administration is trying very hard to undo some of these things. [US Secretary of the Treasury] Janet Yellen is a good friend of ours and has studied our book. Or Cecelia Rouse, our boss at Princeton and chair of the Council of Economic Advisers—they all know about this issue, but the politics is very difficult so it is a great challenge to tackle healthcare.

Anne Case: The hard part about the healthcare industry is, we don't think that this is a sector where you want the free market to work. Kenneth Arrow, who proved Adam Smith’s theorems about how a market can work well, looked at the healthcare industry and determined that this was not a sector in which the necessary conditions hold for the market to work well. We shouldn’t pretend that healthcare is an industry that can work well as a free market. The government will be needed to help organize what happens in the industry.

Angus Deaton: We understand the benefits of markets, we're not anti-market in any capacity at all. China really began to get rich when it deregulated markets and deregulated agricultural markets. We’re all in favor of markets, but you need a muscular government to regulate the abuses that will happen if you don’t.

Huiyao Wang: There are different forms of capitalism, such as casino capitalism, rentier capitalism, crony capitalism, democratic capitalism, and state capitalism. What is the ideal form of capitalism? China has a market economy in which the private sector accounts for about 65 percent, multinationals 15 percent, and state-owned enterprises around 20 percent. What is the best form of capitalism, and how can it be governed to serve the people well at the same time?

Angus Deaton: The struggle of people to make money is a very powerful force, what some people just call “greed.” But it has to be channeled in ways that are socially productive. There's always a danger that greed will get out of hand and that danger exists in China, too.

Innovation is a big part of the story too, and something capitalism is very good at. In “creative destruction,” new ideas come along and push aside old ideas, and people that were previously making money lose money, so there's a lot of churn going on. The danger is that people who become powerful from one set of innovations will try to stop the next round of innovation. That's not something specific to America, China, England, or anywhere. That's always going to happen and it's a danger in any system. You have to make sure that markets work for people and not just for the capitalists.

Anne Case: Part of that is if you want there to be evolution, there is creative destruction, and there are going to be people who lose. But those people need to be brought along too; if you want this evolution to happen peacefully, there needs to be a safety net for the people who lose out as innovation occurs. In the US, there was real pushback against helping people who lost out due to globalization or innovation. People were left on their own when these things occurred and their jobs disappeared. You can play the game that way, but it’s not going to support a peaceful economic transition. I think we have to think about social safety nets as part of running a market system.

David Blair: I wanted to follow up with a couple of specific questions that China is dealing with right now. I went to graduate school in the late 1970s when the deregulation movement was in its heyday. People were arguing that you really don’t need an active anti-trust policy, because the market will take care of things. And it was argued that you can deregulate the financial system because people can assess risk by themselves. China is now assessing where to go with both those issues, so I wonder if you could talk about them and whether you think they were a major cause of what's happened in the US economy over the last 40 years.

Angus Deaton: I think they were right then, but wrong now. Deregulation was not crazy, because regulations do generate a lot of rent-seeking. I knew American economist George Stigler when I was young, who noted that regulators were getting captured by the people they are supposed to regulate and that both sides joined together to exploit the people. So, there was a lot to be said for that deregulation and it generated a lot of growth in its time.

But in the situation now, I think there's widespread agreement that something needs to be done with the big tech companies, and how you regulate those while retaining the incredible benefits they’ve brought to us. I think China is struggling with that in exactly the same way now. Those companies are very big and powerful and they’re bringing huge benefits to us, but we're concerned about them and what they might do in the future.

David Blair: Tech is also more competitive in China. Alibaba is the equivalent of Amazon, but it has lots of competitors such as JD, while you really have Amazon by itself in the US.

Anne Case: With the financial markets and whether they can assess their own risk or not, and whether we can just let that roll forward without any oversight—I think we've seen what that led to in the US, which is people “lean into the wind” and then fall over, and ultimately the US government has to come in to shore them up because we can't let them fail. It’s kind of a “heads we win, tails you lose” situation. I think it's kind of naive to think that the financial industry can just manage itself.

Angus Deaton: I agree with that. But again, deregulation in the 1970s wasn't entirely wrong. We got benefits from it, but it went too far. These things go through cycles. But something has to change, and I think both China and the US and everyone else is wrestling with that now.

One of the things that's happened in the US is that the countervailing power of democracy has weakened because rent-seekers heavily influence the government. If you go back to 1970, there was very little lobbying by firms in Washington. But lobbying has exploded over the past 50 years, and I don’t think it’s coincidental that that's the period over which the profit share has gone up and worker share has gone down.

China has a much more muscular government that tends to be more independent of interests such as industry or banking. That separation is very important, and democracy is supposed to be able to keep these interests separate, but it's not been doing it very well in the US. And not just in the US; there are a lot of people in Europe, with the development of populist movements and so on, who feel they are not well represented by parliaments that are dominated by people who have done well from globalization, people who are better educated and have little respect for their traditions or traditional ways of life.

Huiyao Wang: In terms of globalization, from which China benefits enormously, this year marks the 20th anniversary of China joining the WTO. What is your take on globalization? And if China rises peacefully, how can China, the US, and the EU work together toward greater economic prosperity?

Angus Deaton: I think we're in a really worrying situation where there's a real danger of “throwing out the baby with the bathwater.” You could swing away from complete deregulation to a situation where there is total regulation and a stifling of everything. There’s a lot of people in America who don’t believe in capitalism in any form anymore. I don’t think they're powerful enough to do huge damage, but they could be.

Anne Case: Regarding globalization, when you first study economics, you are taught that there are gains from trade, and indeed we've seen the pie getting bigger and bigger. But as the pie gets bigger and bigger, the question becomes, how does it get distributed—who “wins” or who benefits from globalization? In the US, too little attention was paid to distribution. A few people became very wealthy from this increase in the size of the pie that globalization brought. But a lot of people's lives were damaged, their communities were destroyed, and their families saw no prospects for the future, and no one took care of that. So, I think you need to make sure that things continue to work for the polity as a whole. If you don’t pay attention to that, if you don’t tend that garden, then bad things can happen, as we've seen happen in the US now.

Huiyao Wang: This has been a fascinating discussion. I think that the US and China, as the world’s two largest economies, have a lot to learn from each other. You have offered a lot of valuable lessons and advice for us. So, to conclude, maybe each of you can say a few words on how these two countries can work together for a better future.

Anne Case: I think we need to look at the parts which are good and not throw those away. We need to work to build on these successes. I think a lot of the problems with globalization going as far as it has are domestic problems—about how we take the benefits of globalization and distribute them locally within our own countries. If we focus on that, I think we could make quite a lot of progress.

Angus Deaton: I think the big message of the last five or ten years is that countries need to put their own domestic house in order and not blame outsiders for what’s happening. If they don’t look after the people who've been left behind, which is a domestic policy issue, they run the risk of terrible things happening domestically, but also really bad things happening internationally. Because if people feel they are being exploited, they will look for scapegoats and they will blame anyone who happens to be around, whether it's China, or automation, or artificial intelligence. If you have a large fraction of your population whose life expectancy is falling, that’s a domestic problem.

Huiyao Wang: That’s sound advice and not only true for the US, but for China and other countries. We have to concentrate on domestic issues and handle our own situation well. Thank you, Professor Deaton and Professor Case for this fascinating discussion.

Angus Deaton and Anne Case: Thank you very much. Thank you, friends in China.