% or so a year ( charts 3 and 4 ). we ’ ve seen the same broad stability, in both trade and prices, in the years since the financial crisis, during which global trade growth has also slowed. but the years in between saw a marked rise in import penetration and very rapid declines in real uk clothes prices, particularly over the second half of that period. tariffs began to fall in the 1950s, container ships, which materially reduced shipping costs, were first developed later that decade, and the first regional trade agreements ( notably the eec ) were made in the 1960s. all speeches are available online at www. bankofengland. co. uk / speeches chart 3 : import penetration started growing in chart 4 : real uk clothes prices fell steeply 1970s, rose strongly in 90s, stable post - crisis between mid - 1970s and the crisis clothing and textile imports, % of consumption 1965 1970 1975 1980 1985 1990 1995 2000 source : ons and un comtrade database source : ons cumulatively, those declines were pretty spectacular. even in nominal terms, clothes in the uk were on average cheaper in 2008 than they had been in 1975 ( chart 5 ). that ’ s quite something given the general rate of inflation in the 1970s and 80s. in real terms – relative to the rest of the consumer basket – they fell by over 80 %. this has brought significant benefits for consumers. it ’ s hard to say what would ’ ve happened in the absence of globalisation. but let ’ s suppose that, in that event, real clothes prices would have continued to fall at the 1 % - or - so pace we saw prior to the mid - 1970s ( and since 2008 ). by comparison the actual decline in prices over the past 40 years has added just over 3 % to real household incomes. at the same time the domestic production sector has clearly suffered ( chart 6 ). it didn ’ t start in a great position, it should be said. in 1975 it was a comparatively unproductive industry : per capita value added was 30 % below the uk average. it required and employed relatively low - skilled labour : the average full - time wage was £1, 730 a year – barely £5 per hour in today ’ s money and over a third lower than in the rest of the economy. even then the country was buying more clothes than it produced : the balance of trade in clothing and textiles was already in deficit. ricardo may have chosen british cloth as his quintessen

##tial example of a comparative advantage. but by the 1970s, if not long before, the position had been reversed. faster productivity growth in the same sector in other countries, and in other sectors at home, had turned that into a comparative disadvantage. whatever its starting position the subsequent declines in prices were far more than the domestic industry could bear. since the mid - 1970s domestic output has shrunk by two thirds, domestic employment by 90 %. if ever there was a loser from globalisation the uk ’ s clothing and textile industry would surely qualify as one. all speeches are available online at www. bankofengland. co. uk / speeches chart 5 : even in nominal terms clothes are chart 6 : globalisation crushed domestic cheaper than in the 1970s production of clothing and textiles price index, 1975 = 100 rest of consumption clothes source : ons source : ons what can we say about the balance of these effects? the red line in chart 7 plots the estimated gains to consumers from lower prices over this period, relative to an assumed “ non - globalisation ” path of 1¼ % per year. as i said above, the actual and more pronounced declines have delivered a real income gain for consumers of around 3 %. the blue line plots the estimated loss in labour income in the sector. because we ’ ve assumed real prices would continue to fall somewhat, even in the absence of globalisation, the industry would probably have to have slimmed down a bit ( falling prices have to be matched by falling average costs ). in a plausible scenario, consistent with the assumed 1¼ % - per - annum rate of ( real ) deflation, job numbers would have fallen by around a quarter. most would have been saved, however, and the simulated path of aggregate wages in the sector would now be materially higher, by around 1¼ % of household consumption. details of this “ no - globalisation ” simulation are available on request. with a sufficiently simple production set - up it turns out that, if productivity in one sector grows sufficiently fast to produce a relative price decline of 1 % a year, then in a closed economy its share of employment will fall by ( 1 - σ ) a year, where σ is the demand elasticity of substitution between the two goods. this makes sense : the greater the elasticity the bigger the response to demand to the drop in price for the good experiencing more rapid productivity growth ; if, in particular, σ > 1, employment would actually rise. as