Globalization Without Tears
An economist debates the NGOs.
In Defense of Globalization, by Jagdish Bhagwati, New York: Oxford University Press, 308 pages, $28
One's first impulse on coming across yet another book on globalization, even (or particularly?) by a Nobel-caliber economist, is surely to keep on moving: Most turn out to be dry treatises that end up convincing readers they were right to hate their economics courses in college.
It's an impulse worth resisting in the case of Jagdish Bhagwati's In Defense of Globalization, a book that amuses as it instructs. The author, a professor at Columbia University and one of the world's leading scholars of international trade and development, has grappled in many arenas with nongovernmental organizations (NGOs)—the leaders in the fight against "globalization," the process of economic integration of nations through trade and international flows of capital and people. He understands why NGOs fear that globalization causes social ills. But while he concedes that some of the anti-globalizers' complaints have merit, he is bold enough to label their arguments "rubbish" when warranted.
Bhagwati concludes that fears of globalization deserve an "extended and careful response," not out-of-hand dismissal, but are in the end "a false alarm." He is mostly satisfied with what globalization has accomplished. But some of his recommendations for moving it to a next step, one more congenial to its current ideological enemies, are ultimately unconvincing.
Bhagwati's book starts by discussing the rise of the NGO movement because, as he generously acknowledges, the debates over the effects over globalization today owe their "salience, shape and content" to this movement. But he slyly suggests that the NGOs' rise might be more in the number of groups than in the number of citizens they represent. Take pity, he says, on poor Nigel Wilkinson, whose branch of the Radical Left Movement for Socialist Revolution had to be disbanded after the group's membership dwindled "by almost 70 percent over the last year from a peak of three members to just one—himself."
Wilkinson's sad fate notwithstanding, the NGO movement has grown into a global phenomenon. Bhagwati offers a variety of explanations. Among the poorer nations, the expansion in the education of women is a cause; in India these days, Bhagwati jokes, it's easier to attract a bride by offering her an NGO than by offering her a green card. In transition economies, he says, NGOs were a natural outgrowth of the "parallel politics" developed by Vaclav Havel and others as a "weapon for democratic progress in regimes governed by communists." But it is in the rich countries—and particularly among the young there—that the NGO movement has really taken off.
The young, says Bhagwati, see (or think they see) capitalism failing to deliver social justice. Lacking direct experience or historical knowledge of socialism, they don't realize it was in earlier systems that "the well-connected…could jump" queues, while capitalism allows "a larger number to make it to the check-out counter." Bhagwati also credits television images with increasing the empathy of the young in rich countries for the effects of poverty, famines, and civil wars in poorer areas of the world.
This book tries to show that major complaints about the adverse social effects of globalization are mistaken. Globalization in fact reduces poverty and the use of child labor, fosters women's rights, promotes respect for democratic norms, enriches culture, and even sustains the environment. Multinational corporations are not wreaking havoc by leveling wages and labor standards across the globe. In fact, they raise them. The "gotcha" examples produced by anti-globalizers of the occasional social harm done by globalization are exceptions and not the rule.
To show that globalization eases poverty, Bhagwati offers a tale of two continents. In 1970 average African incomes were 30 percent higher than average Asian incomes. Thirty years later, African incomes had remained stagnant and were then half of Asian incomes. While there were undoubtedly many causes of this reversal, Bhagwati documents that a primary one was that Asia opened itself and adapted to external markets while Africa did not. As a result, in 1970 Africa was home to about 10 percent of the world's poor and Asia to more than 75 percent, using standard measures of the absolute level of poverty. Thirty years later Africa had more than a third of the world's poor and Asia's share had declined to just 15 percent.
Looking more closely at developments within Asia bolsters the point. Who can doubt, Bhagwati asks, that the dramatic reductions in poverty in China and India came about only when these countries began integrating with the world economy, mimicking the tactics of Japan, Korea, and Singapore? Trade and foreign direct investment boost growth, and growth reduces poverty.
Growing incomes from globalization then translate into progress toward social and environmental goals. Child labor falls, Bhagwati writes, because "when incomes improve, poor parents can generally be expected to respond by putting children back in school." This is exactly what happened, for instance, in the 1990s in Vietnam. Households used extra income from liberalized rice exports to put their children, and particularly their older girls, in school. And increased foreign competition—like competition more generally—narrows the gender wage gap. Bhagwati laments the attempts of feminist NGOs such as Women's Edge to force multilateral institutions to analyze the "gender effects" of their actions. "Women, as a class, are not destined to lose from progress," he says. To demand, as the NGOs do, that every World Trade Organization (WTO) ruling be examined specifically from the viewpoint of women's welfare is, Bhagwati writes, "about as compelling as saying that the removal of potholes from New York's roads be subjected to a prior examination of whether women are more likely to fall into them."
A country's environmental quality also improves with sustained income growth because economic activity tends to shift away from pollution-intensive primary production and manufacturing toward service industries. At between $5,000 and $6,000 annual income per capita, income growth and environmental gains go hand in hand. Many countries are still far from this income level, but Bhagwati notes that because technology is constantly getting more environment-friendly, developing countries are starting to see their environmental quality improve at a much lower income threshold.
Another common complaint about globalization—generally from Westerners rather than the cultures allegedly despoiled by Westerners—is that it spreads an unlovely cultural homogenization. Bhagwati observes that the fear of "McDonaldization" is prevalent in all strata of French society, from the radical farmer José Bové to Alain Rollat of Le Monde, who declared that "resistance to the hegemonic pretenses of hamburgers is, above all, a cultural imperative." But the evidence is that McDonald's is quite responsive to local sensitivities. The golden arches have disappeared in some of the branches around Paris, the company's traditional red-and-yellow colors have been replaced by more muted tones, and espresso and brioche are now offered where culturally appropriate.
While generally indulgent toward globalization and skeptical about its opposition, Bhagwati is not a markets-above-all ideologue. He is unhappy, for example, with unregulated global flows of short-term capital, which he thinks devastated many Asian countries during the financial crisis of 1997?98. He rejects notions that Asians were in any way to blame for the crisis, calling it a "scapegoating of victims" put forward by those "with a desire to…maintain ideological positions in favor of…free capital flows."
The premature opening of capital accounts undoubtedly played some role in triggering the Asian crisis. But Bhagwati's analysis gives short shrift to other causes, such as the fixed exchange rate systems maintained by the Asian countries, the build-up of debt during the boom years, weaknesses in their corporate and financial systems, and, in the case of Indonesia, the corruption of Suharto's regime. Bhagwati's analysis runs the risk of providing false comfort to developing countries that financial crises can be staved off by throwing sand in the wheels to slow the entry of short-term foreign capital and imposing capital controls to keep it from flowing out.
So Bhagwati thinks multinationals' capital shouldn't necessarily be able to flow wherever it wishes. He also thinks ideas should flow freer than those companies wish. He condemns lobbying by multinationals for intellectual property protection through the WTO, arguing that trade and intellectual property should be separate issues. He says their forced union in the Trade-Related Aspects of Intellectual Property Protection agreement was a triumph of lobbying over logic.
"Pharmaceutical and software companies muscled their way into the WTO and turned it into a royalty-collection agency simply because the WTO can apply trade sanctions," Bhagwati writes. Intellectual property is now one of the three legs of a tripod—the other two being trade in goods and trade in services—on which the WTO is supposed to rest. Now other lobbies in rich countries want to inject their own agendas into the WTO. The trade unions want a social clause that would trigger trade sanctions against countries if Western labor standards were not met, and the environmentalists want the same done for nature.
Bhagwati suggests some ways to keep globalization going while easing its opponents' concerns. Unfortunately, these ideas are vague, and there's little evidence they'd do much good. Bhagwati wants, for example, to take steps to "accelerate the pace" of progress on social issues. That globalization delivers progress on social goals is no reason, he says, not to do more by deploying "additional policy instruments." But the major instrument he recommends is "a good tongue-lashing." He says "our ability to zero in on morally offensive practices has increased hugely. Embarrassment, if not shame and even guilt, allow tremendous leverage." He favors strengthening the review and monitoring functions of international agencies toward this goal of shaming malefactors, but he doesn't provide any convincing examples of where these sorts of instruments have worked as he posits they might.
Bhagwati also says we must "put in place institutional mechanisms to cope with the occasional downsides of globalization." He notes that in principle there's no reason to single out trade as a cause of grief; he thinks all displaced workers should be supported through general, comprehensive schemes such as unemployment insurance and retraining programs. But because job loss from foreign competition evokes more outrage than job loss from domestic competition, he says, governments must "intervene with special support" when trade causes distress to preserve globalization's benefits. And the World Bank, he thinks, must be mobilized to provide the cash to do this for poor countries.
Bhagwati does not come to grips with evidence that existing trade adjustment assistance programs are ineffective. In the United States, for instance, many studies, including a comprehensive October 2000 investigation by the Government Accounting Office (GAO), have shown that such programs end up being very expensive and ultimately ineffective.
They act as a disincentive for workers to find new employment quickly. And there is little to suggest that workers use this time to undergo the training that is supposed to shield them from moving to jobs that pay considerably less than the ones they lost. The GAO found that only one in five workers actually signed up for training, that three in five workers ended up in jobs where they had to take substantial pay cuts, and that weaknesses in administering the programs resulted in payments to ineligible workers.
Bhagwati also thinks we must manage "the speed of transition" to globalization. Far better to lower tariffs at a rate that does not endanger a country's political stability, he says, than to lower them to the floor right away and risk a backlash against the entire reform process.
Bhagwati faults Western "shock therapists" for wreaking "havoc" in Russia by recommending too fast a pace of reforms. But he does not acknowledge that the danger with moving slowly on reforms is that the pace often comes to a full stop. This is what has happened in countries such as Ukraine and Moldova, where gradualism has in effect meant little reform and prolonged misery.
Bhagwati is equally unrealistic in his apparent belief that his proposals would win over globalization's strident enemies, bringing pro-globalization and anti-globalization forces together over "a shared success." He ignores his own suggestion that many NGOs have an emotional stake in their anti-globalization positions: They protest to fill the void in their hearts created by the failure of socialism. NGOs may also have a financial stake in continuing to protest. Bhagwati notes that Lori Wallach, a noted anti-globalizer, refused to release the list of contributors to an NGO with which she was associated, despite allegations that its anti-trade activities were funded by the protectionist textile magnate Roger Milliken.
Bhagwati has held out a hand to the NGOs in friendship but, to paraphrase one of his own lines, they have too much incentive to continue to bite it.