A review of Why Globalization Works, by Martin Wolf;
In Defense of Globalization, by Jagdish Bhagwati;
and Globalization and Its Discontents, by Joseph E. Stiglitz
To think about globalization is to think about its controversies. Its critics see a set of beliefs and programs aggressively promoted by globalizers. Most of the latter, however, see only a natural process. They feel like Einstein in 1931 when the Nazis published One Hundred Authors Against Einstein; if he were wrong, one would be enough. In these books three distinguished economists enter the fray. Martin Wolf is an editor at the Financial Times, and once worked at the World Bank. Jagdish Bhagwati is a University Professor at Columbia University and has written prolifically on international trade and development. Joseph Stiglitz, also a University Professor at Columbia, is a Nobel laureate who chaired President Clinton's Council of Economic Advisors and served as chief economist and senior vice president at the World Bank.
Wolf 's book is comprehensive and systematic, and based on a long view of the liberal economic order that produced an earlier "globalization" in the 19th century. To him, the debate over globalization is but the next round in the age-old conflict between liberalism and its utopian adversaries. He focuses especially on the relationship between the market and democracy. While accepting some criticisms of rich nations, he finds economic and political liberty to be morally and practically superior. In a short space, he marshals a great deal of evidence, and he writes extremely well.
Bhagwati's book displays his mastery of economics, his skill as a communicator, and his eager generosity toward all arguments. He searches for rationality among the protesters so that he can meet their complaints with innovative policy ideas. In seeking, however, to convince them of globalization's "human face," he can go too far. For example, he wants to involve non-governmental organizations as well as corporations in "appropriate governance" for managing globalization. But he glides over the hard questions: What are the political and even practical implications of assigning such responsibilities to the self-elected? What is "appropriate" governance? How do we govern a market without killing it?
Stiglitz's book is worth reading because of his eminence in academia and in Washington, D.C., and because, rare among economists, he attacks globalization. He sees it as part of the "Washington Consensus" shared by the major international financial institutions, especially the International Monetary Fund (IMF). He blames them for a faith in markets that supplants the government spending that he, a loyal Keynesian, favors; and the result of such faith, he charges, is much suffering in the poor countries. He quotes Jacques Chirac, of all people, as an authority on how globalization has not fulfilled its promise.
Apart from Stiglitz's emphasis on the Washington Consensus, the three authors de- fine globalization similarly. Wolf describes it as the global integration "of liberalizing market economies at a time of rapidly falling costs of transportation and communication." He shows how economic nationalism ended the 19th century's comparable era of liberalization, and spoiled the interwar years as well, precipitating the Great Depression and World War II. It was with these disasters in mind that the U.S. hosted the 1944 Bretton Woods conference, the world's first attempt to formalize monetary relations among nations. The institutions it created—which would later become the World Bank and IMF—sponsored another worldwide liberalization of trade, which has accelerated in the last quarter-century due to technologies like the microchip, satellites, and the Internet, and the realization that economic freedom works.
But despite the manifest benefits of liberal trade, political resistance is growing. The collapse of Communism, far from ending support for the power of the state over the economy, "seems to have liberated utopians to dream, no longer constrained" by reality, according to Wolf. He recalls a banner at a London demonstration demanding that we "Replace Capitalism with Something Nicer." Wolf distinguishes three kinds of critics of globalization—one defending parochial interests, like American sugar growers or textile producers; the anti-liberal nationalists, like Jean-Marie Le Pen and Patrick Buchanan; and finally, the non-governmental organizations that "are often put under the convenient, if presumptuous, label of 'civil society.'" Bhagwati adds a complaint about the influence of universities in creating anti-globalization youth long on indignation and short on knowledge. He is, however, more willing than Wolf to give the NGOs credit for good intentions. Stiglitz, the odd man out, has been kindest about anti-globalization protests and finds it "unfortunate" that "we have no world government, accountable to the people of every country, to oversee the globalization process." He does not explain "accountability."
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Globalization's critics make disparate claims, which Wolf and Bhagwati review and, in general, refute—for example, that globalization impoverishes domestic industry, exports jobs, and encourages trade deficits. At the root of this objection is the notion that economic life is zero-sum, perhaps the central dogma of the mercantilist faith. Although industries suddenly facing new competitors do have problems, their societies are, as a whole, better off. Wolf notes that there is no example in the last half-century of a nation growing rich through protectionism. Bhagwati asserts that the evidence against it "is really quite overwhelming."
Other critics worry that globalization undermines national sovereignty. If citizens see alternatives to homegrown policies and products, they may switch. A variant is the complaint that globalization extends the economic dominance of the "Anglo-Saxons" or the U.S. "hyperpower," in particular. And of course, those who enjoy a 35-hour workweek gripe about others who work 40 hours. Those paying high taxes to support large government complain of companies investing in places with lower taxes. To be sure, the nationalist complaint goes further, arguing that globalization undermines local ideas, language, and culture. Some of the reactions, like those of the Islamists, are grim. Others, like those of the French, are entertaining.
Bhagwati and Wolf deal conclusively with the idea that globalization creates economic inequality and poverty. They pay particularly close attention to China and India, which together account for one-third of the world's people. Global inequality has been declining since 1980, especially following China's entry into the global economy (its real gross national product quadrupled between 1980 and 2000; India's doubled). Data show that trade had a dramatically positive impact. Bhagwati concludes that "trade enhances growth, and that growth reduces poverty." The anti-globalization movement also claims to speak on behalf of the voiceless—women, children, farmers, even the environment. But Wolf and Bhagwati show that all these are better off in market economies, though Bhagwati acknowledges the problem of human trafficking and the predicament of especially vulnerable migrants. He cautions, however, against blaming globalization for conditions that have always existed.
Along the same lines, critics argue that globalization enhances the malignant sway of multinational corporations, which exploit poor countries and create a "race to the bottom" by investing where tax and labor costs are lowest. But Wolf finds that multinationals actually do little business in the countries they are said to oppress. The "problem of the world's poorest countries," he writes, "is not that they are exploited by multinationals, but rather that they are ignored by them."
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Stiglitz's book takes a different tone and argues that globalization creates financial instability and increases the dominance of rich-country lenders over poor-country debtors. He blames financial crises on excessive financial liberalization pushed by the Washington Consensus, especially the IMF. Loosening capital controls in poor countries, he claims, benefits Western banks but causes harm where "hot money" quickly moves in and then out, leaving behind "collapsed currencies and weakened banking systems." When borrowers then get into trouble, the lenders impose "conditionality" to change the debtors' behavior. He objects to these enforced spending reductions because they can hit local social services. Bhagwati and Wolf agree with much of this. But Stiglitz goes to extremes, concluding that "globalization… often seems to replace the old dictatorships of national elites with new dictatorships of international finance." Bhagwati counters that Stiglitz, a "splendid economist," overrates the impact of lender conditionality. In a financial crisis, after all, the borrowers know very well that the lenders are also in a bind. (Owe your banker enough and you make him your partner.) Yet Stiglitz also wants to hedge his bets. Consider this web of eight qualifiers (emphasis added): "There is little doubt that IMF and Treasury policies contributed to an environment that enhanced the likelihood of a crisis by encouraging, in some cases insisting on, an unwarrantedly rapid pace toward financial and capital market liberalization."
In effect, Stiglitz wants the developed world to subsidize debtor-countries' government spending and pay scales, and to forgive their debts. But such solutions have problems. Who wants to lend to someone who does not pay debts? He pays lip service to the contributing sins of local elites in poor countries— including greed, stupidity, and a willingness to accept reform only when outsiders can be blamed—but passes over problematic regimes such as have afflicted Argentina, Ethiopia, Indonesia, and Mexico. He praises how the World Bank under Robert S. McNamara (1968-81) sought to understand "how markets failed in developing countries and [therefore] what governments could do." Wolf, in contrast, who was there, objects that McNamara had "frighteningly little common sense" and a "Stalinist vision of development" that put the Bank "under great pressure to lend money, regardless of the quality of the project."
For a big-time Washington operator, Stiglitz seems a little too shocked that staff at lending institutions think that the world needs more of what they have to offer; that the countries putting up the money want the institutions to follow their priorities; and that government involves politics, about which people differ. He complains of his Washington experience "that decisions were often made because of ideology and politics. As a result many wrong-headed actions were taken, ones that did not solve the problem at hand but that fit with the interests or beliefs of the people in power." Stiglitz likes labels: His view is "balanced"; the others' are "simplistic."
Globalization increases individual choice and bypasses local authority, giving people more choice in what they buy, sell, read, and watch. Often those most likely to be downsized or underemployed as a result are those who make a living trying to direct other people's choices, like traditional middle managers, government officials, clerics, and intellectuals. In a globalized world, surely we can find better things for them to do.