Traditional trade theory, based on the ideas of David Ricardo, a 19th-century economist, argues that economies gain from trade by specialising in products where they have a comparative advantage. Developed economies have lots of skilled workers, whereas emerging economies have lots of low-skilled ones, so according to the theory advanced countries will specialise in capital-intensive products requiring skilled labour and emerging economies in low-tech products. Competition from cheaper imports will reduce the wages of unskilled workers in developed economies, but workers as a whole will be better off.

Yet, according to the evidence above, the average worker does not seem to be enjoying his fair share of the fruits of economic prosperity. Richard Freeman, an economist at Harvard University, points to several reasons why the traditional theory may need modifying. The first is that the sheer size of the emerging giants' labour forces has shifted the global capital-labour ratio (which determines the relative rewards of capital and workers) massively against workers as a group. The entry of China, India and the former Soviet Union into market capitalism has, in effect, doubled the world supply of workers, from 1.5 billion to 3 billion. These new entrants brought little capital with them, so the global capital-labour ratio dropped sharply. According to economic theory, this should reduce the relative price of labour and raise the global return to capital--which is exactly what has happened.

Over time, competition should reduce profit margins and distribute benefits back to consumers and workers in the form of lower prices. But downward pressure on wages in rich countries could continue for a long time. China still has perhaps 200m underemployed rural workers who could move to factories over the next two decades, so wages for low-skilled workers are rising more slowly than productivity, reducing China's unit labour costs.

A second reason why the traditional trade model needs modifying has to do with a rise in emerging countries' skill levels. It used to be thought that only rich countries had educated workforces able to produce skill-intensive goods, but poor countries have invested heavily in education in recent years, allowing them to start competing in more sophisticated markets. Every year, 1.2m engineers and scientists graduate from Chinese and Indian universities, as many as in America, the European Union and Japan combined and three times the number ten years ago (see chart 7). In 1970 America accounted for 30% of all university enrolments worldwide; now its share is down to around 12%.

The McKinsey Global Institute estimates that only one-tenth of engineering graduates in China and one-quarter in India would meet the standards expected by big American firms. But this will improve over time. A report by the World Bank also points out that a large share of engineering graduates in China and India become civil and electrical engineers, needed for the boom in domestic construction. There are not enough engineers and scientists to produce high-tech goods across the board. But it remains true that there has been a big increase in the global supply of educated as well as unskilled workers.

A third flaw in the traditional trade model, says Mr Freeman, is its assumption that rich countries would make high-tech products and developing economies low-tech ones. In fact, rich countries no longer have a monopoly on high-tech capital and know-how. The OECD says that in 2004 China overtook America as the world's leading exporter of information-technology goods. This exaggerates China's move up the ladder: laptop computers, mobile phones and DVD players are no longer cutting-edge technology, and they are typically only assembled in China by foreign firms, with most of their high-value components being imported. Even so, the faster spread of technology to poor countries is weakening the rich world's comparative advantage in high-tech sectors. As emerging economies start to export high-tech goods and services, this reduces the prices of such products in world markets, and hence the wages of skilled workers in the developed world.