Winners and losers: Indian
farmers protest against the effects of globalization.
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Nobody forces you to eat at
McDonald’s.
Paul
Krugman,
U.S. economist (1953-)
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A leading international
trade theorist argues that free markets and integration into the world economy are
key to making a dent on poverty
 “Globalization”
has become today’s buzzword. It has also become a battle ground for two radically
opposed groups. There are the “anti-globalists” who fear globalization and stress
only its downside, seeking therefore powerful interventions aimed at taming, if not
(unwittingly) crippling it. Then there are the “globalists” (a class to which I belong)
who celebrate globalization instead, emphasize its upside, while seeking only to
ensure that its few rough edges be handled through appropriate policies that serve
to make globalization yet more attractive.
Many anti-globalists consider the central problem of globalization to be its amorality,
or even its immorality. But these critics have too blanket an approach to globalization.
The word covers a variety of phenomena that characterize an integrating world economy:
trade, short-term capital flows, direct foreign investment, immigration, cultural
convergence et al. The sins of one of the above cannot be visited upon the virtues
of another. Some are benign even when largely unregulated whereas others can be fatal
if left wholly to the marketplace.
In particular, the freeing of trade is largely benign: if I exchange some of my toothpaste
for some of your toothbrushes, we will both be better off than if we did not trade
at all. It would require a wild imagination, and a deranged mind, to think that such
freeing of trade leads to debilitating economic crises. But only ideologues would
deny that the hasty freeing of short-term capital flows, under pressure from what
I have called in Foreign Affairs (May 1998) the US-Treasury Complex, was what
helped to precipitate the huge Asian financial crisis. Equally, it is illogical to
believe, as non-economists who fear globalization do, that freeing of trade is bad
because the freeing of short-term capital flows led to a debilitating financial and
economic crisis and could do so again. In fact, while there are some obvious similarities
between free trade and free capital flows—e.g. that segmentation of markets creates
efficiency losses—the economic and political dissimilarities are even more compelling
and policymakers cannot ignore them.
Anti-globalist critics are in fact often reacting viscerally to a much larger issue:
the victory of capitalism over its arch rival, communism. For campus idealists who
have always looked for alternatives to what they conventionally consider to be the
greed and lack of social conscience that characterize capitalism, the situation is
psychologically intolerable. Some have turned to street theatre, nihilism and the
anti-intellectualism that has been manifest in the last few years. The more sophisticated
have succumbed to a stereotypical representation of corporations as the “evil” forces
of capitalism that have captured the state, democratic institutions, and even international
bodies such as the World Trade Organization.
What these critics often forget is that certain economic freedoms are basic to prosperity
and social well-being under any conditions, and are thus of the highest moral value.
Property rights and markets, for instance, provide incentives to produce and allocate
resources efficiently, and can in turn strengthen democracy by allowing a means of
sustenance outside pervasive government structures. The quality and breadth of democracy
can then be enlarged as excluded groups, such as women and the poor, are pulled into
literacy, gainful employment and better health through higher public spending or
the spread of economic incentives.
Critics nevertheless go on to maintain that the global spread of free markets and
free trade is responsible for continuing poverty in poor countries, and for alleged
growth in inequality between and within countries. Labour unions in the rich countries
also fear that their workers are being hurt by trade in cheap labour-using goods
from poor countries.
But I do not think these concerns are well-founded. In India which has almost a quarter
of the world’s poor, there is good evidence that autarchic and anti-market policies
produced abysmally low growth rates at 3.5 per cent annually over a quarter of a
century, with a correspondingly negligible impact on poverty. Since growth rates
picked up since the 1980s, poverty has declined. Higher growth rates in turn depend
on several factors; but openness to trade and direct investment and a skilful use
of markets are definitely an important contributory factor.
As for inequality among nations, it is precisely those countries that embraced integration
into the world economy, i.e. the Far Eastern Four and then the Asean countries, which
raced ahead with dramatic growth rates whereas several countries of Africa, Latin
America and Asia that looked inwards failed to deliver growth and also made little
dent on poverty.
The evidence on trade and investment impoverishing our workers is also flawed. My
own research suggests that the downward pressure on workers’ wages due to technical
change has been dampened, not magnified, by trade with the poor countries. Research
also shows that big corporations use abroad technologies similar to those at home,
instead of exploiting lower standards or forcing them yet lower through their financial
clout.
One result of these mistaken arguments against globalization has been an insistent
clamour for certain environmental and labour standards to be linked to rules on international
trade. But by seeking to create new “obstacles” to free trade, you undermine the
freeing of trade, while mixing up trade with a moral agenda undermines that very
moral agenda. It gives other countries the definite impression that you are using
ethical rhetoric to mask protectionist self-interest.
The notion that global free trade and investment are responsible for poverty, inequality,
lowering of standards and harming social progress is little short of astonishing.
Yet it is given currency by national politicians and international bureaucrats who
think that going along is a way of getting along. In denying the virtues of globalization,
they actually harm the very causes they profess to embrace.
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