In Defense of Globalization By Jagdish Bhagwati, Oxford University Press, 296 pages, $28.00
When N. Gregory Mankiw, chairman of the president's Council of Economic Advisers, declared in February that the outsourcing of jobs to foreign countries was a good thing, he was only saying what advocates of free trade have always believed. But his statement unnerved the leaders of both political parties because of its starkness and timing. While the economy has picked up in the past year, employment has been slow to respond. Private payrolls are running about 8 million workers below the path of the average recovery, and many people are wondering whether free-trade policies are working for them.
No one has crusaded more zealously on behalf of free trade than Jagdish Bhagwati, professor of economics at Columbia University. In Defense of Globalization sums up his case, and for free-trade advocates under siege, it arrives not a minute too soon. The book is certainly engaging. While skewering anti-globalization organizations and arguing that globalization reduces poverty, narrows inequality, supports democracy, enriches culture, helps the environment, and is good for workers both north and south, Bhagwati quotes, among others, Shakespeare, Balzac, Auden, Achebe, Rilke, Dr. Johnson and, to an annoying degree, himself. But for all its charm, the book is a disappointment.
If you are looking for reassurance that, whatever problems bedevil the world, globalization is part of the solution, read Bhagwati. If you are looking for serious engagement with critics who are not against globalization but oppose the particular version of it favored by the world's financial elites, you will be disappointed. Bhagwati does not rebut their arguments, nor does he address critical facts or research findings that do not support his own case. He claims to offer "a total war" on behalf of globalization, and in that war there is little place for nuance or complication. His zeal to put an unrelenting happy face on globalization makes for an unpersuasive book.
Bhagwati's claim that free trade leads to faster growth, which in turn reduces poverty and inequality, is at the heart of his argument. It is also wrong. Bhagwati never confronts the awkward record of the globalization era, which has been characterized by a drastic slowdown in economic growth. A study by the Center for Economic Policy and Research compared the rate of growth in real gross domestic product from 1960 to 1980 with the rate from 1980 to 2000 for 116 countries. Dividing the countries into quintiles according to per-capita income, the study found that the growth rate fell for every group from the earlier to the later period. Among the poorest countries, the 1980-2000 growth rates turned negative.
As a result of globalization, trading volumes in developing countries have grown faster than the world average since the 1980s. Developing countries now account for almost a third of world merchandise trade. Manufactures account for 70 percent of developing-country exports after hovering at around 20 percent in the late 1970s and early 1980s. Yet the United Nations Conference on Trade and Development notes that this massive increase in the volume of exports has not added significantly to developing countries' income. And a report by the Economic Commission on Latin America and the Caribbean, titled "Globalization and Development," concludes, "Historically, the periods of greatest export expansion have tended to coincide with lackluster economic growth, especially in Latin America and the Caribbean."
Why haven't developing countries benefited from increased openness to trade? Bhagwati doesn't appreciate that manufacturing faces the sort of chronic overcapacity problems that agriculture has endured for most of the last century. Because many countries are now similarly positioned in the international economy -- producing apparel, toys, and electronics for export -- they must compete feverishly for investment by multinational producers. The result is an unending cycle of wage depression, decreasing benefits, and a dearth of investment in education. In addition, workers lack the most basic rights (especially the right to organize) and are therefore unable to form unions and bargain for their fair share of productivity increases.
The contradictions of export-led growth stand to become sharper with China's membership in the World Trade Organization (WTO). China's huge supplies of labor at rock-bottom wages will last for decades. It is not clear that any developing country can now enter the system with production costs below those of China, making it impossible for newcomers to climb the hierarchy of export-led growth.
To demonstrate the connection between globalization and growth, Bhagwati cites a World Bank study that divides countries into two groups -- "globalizers" and "non-globalizers" -- and then attempts to show that the first group did much better than the second.
The economist Dani Rodrik has demonstrated that the way the World Bank measures whether or not a country is "globalized" is deeply flawed. First, it takes the trade share of GDP as a measure of globalization. But trade share is an outcome, not a policy variable. It tends to increase with growth. So all the World Bank has shown is that faster-growing countries tend to increase the proportion of their economy devoted to trade. Second, the World Bank's favorite "globalizers" include China, India, and Vietnam, countries that are among the most protected domestic markets in the world. And while they have liberalized trade in recent years, their growth spurts began about a decade earlier. These countries are not examples of free trade leading to growth, yet the World Bank cites them as evidence on behalf of free-trade policies. Bhagwati ignores this criticism of the evidence he relies on.
According to Bhagwati, the preoccupation with measures of global inequality is "ludicrous." But because others play at this "lunacy," he cites studies arguing that global inequality declined during the last two decades and concludes, "[G]lobalization cannot be plausibly argued to have increased poverty ... or to have widened world inequality" (my emphasis). Bhagwati doesn't take seriously studies showing an increase in global poverty and inequality by the World Bank's Branko Milanovic, James Galbraith, and two of the author's Columbia University colleagues, Tom Pogge and Sanjay Reddy. Pogge and Reddy make a persuasive case that global poverty is underestimated and that once corrections are made for the problems in the World Bank's methodology, the number of persons living in absolute poverty might increase by 30 percent to 40 percent.
Bhagwati's discussion of attempts to link trade and labor rights is particularly confused. First, he mischaracterizes the issue by referring to the protectionist motivation behind the attempt to impose "labor standards." There is an important distinction between labor rights and labor standards. Labor rights are basic human rights that all countries have pledged to support regardless of their level of development. Labor standards, on the other hand, refer to such outcomes as wage levels or specific health and safety rules. The global labor movement is attempting to make labor rights part of the ground rules of the global economy.
Finally, as Ha-Joon Chang, assistant director of development studies at Cambridge University, explains in Kicking Away the Ladder, the ideology of free trade fits awkwardly into the history of economic development. During their early development, today's developed countries did not practice free trade. They promoted their national industries through tariffs, subsidies, import quotas, local-content requirements, and patent infringements -- all of which are currently prohibited under the WTO.
So Bhagwati is faced with the Chang paradox: Developing countries grew much faster when they used "bad" policies during the 1960s and 1970s, and the countries that are doing the best today tend to be still using the same policies. These policies were also the ones that most developed countries originally followed. The solution to this paradox is that the supposedly good policies -- free trade -- are not so good. Robert Lawrence, a staunch free trader and a member of Bill Clinton's Council of Economic Advisers, captured the feelings of many when he told BusinessWeek, "I still have faith that globalization will make us better off, but it's no more than faith."
In Defense of Globalization may bolster that faith. But that is all it will do.