Engine of Growth

In Defence of Globalisation
Jagdish Bhagwati Oxford University Press, 324pp, £17.99
ISBN 0195170253

Why Globalisation Works
Martin Wolf Yale University Press, 398pp, £19.99

These two books offer a defence of globalisation against its critics. Both cover much the same ground, though with differing emphases. Martin Wolf, a noted economics columnist at the Financial Times, has written the more comprehensive, better organised and (despite its greater length) more concise book. It is a necessary and compelling read for all who want to understand the logic of unfolding events. Jagdish Bhagwati is one of the world’s leading trade theorists. His book has its moments, but he is not at his best. It is intellectually self-indulgent, and his style – with its mixed metaphors (“white elephants making gargantuan losses”), ponderous jokes, linguistic tics and exclamation marks – often seems like a parody of good writing. For this kind of book it is surely better to keep one’s language as unadorned as possible.

Globalisation became one of the vogue words of the 1990s. Anthony (now Lord) Giddens emptied it of meaning by identifying it with postmodernity. For anti-globalists (some of whom took to the streets in Seattle in 1999) it was the Great Satan, destroying jobs, breaking up communities, exploiting the workers, disempowering the people. Wolf offers a necessary corrective: globalisation is simply “the integration of economic activities, across borders, through markets”. Free-market ideas and policies are its causes; political, social and cultural changes are its consequences; information technology accelerates it. But these things do not define globalisation itself. Bhagwati adds a useful reminder that not all the ills of which critics complain – including “global” problems such as pollution – are the result of globalisation. Rather, globalisation may be part of their cure.

What gave rise to the idea that the world was globalising was the dramatic spatial extension of the west following its victory over communism in the cold war, coupled with the internet’s impact on the imagination. With this has come a remarkable upsurge of hope that peace can at last be made to reign and the problem of global poverty overcome, a hope which has not yet been wholly dented by the rise of global terrorism. But we are only at the dawn of a new era. As Wolf rightly notes: “The potential for greater economic integration is barely tapped.”

We have been here before. Both authors consider the history of past “globalisations”, notably the episode of “liberal global economy” which ended in 1914. Wolf’s account of its rise and fall is more thorough than Bhagwati’s, and more attentive to the role of political ideas and policies. However, he leaves unexplained the causes of the First World War, and the appeal of the anti-liberal ideas that helped produce it. Will we do better this time? Both authors are hopeful, though alive to the dangers of political reversal. Wolf makes the important point that the world is at least free of the great power rivalries which destroyed the liberal global economy of the 19th century.

For Wolf, the positive case for the “global market economy” starts and ends with the argument that the market economy is “the most powerful institution for raising living standards ever invented” and the most powerful agent for spreading political liberty and democracy. Bhagwati’s case is more narrowly based: trade is the principal engine of growth, and growth is the chief means of reducing poverty. Wolf wants the market economy to be left free to work its manifold benefits with minimal interference. Bhagwati agrees that trade must be kept free, but supports a variety of “social agendas” to improve on market outcomes. In short, Wolf is a classical liberal, Bhagwati a social democrat.

Neither is uncritical of the way globalisation is being carried out. They attack the hypocrisy of high-income countries which preach free trade but protect their own agricultural producers. They agree that lobbying by powerful multinationals has twisted the rules of the World Trade Organisation in their favour. Giving the WTO the task of protecting patents – known as TRIPs, or trade-related aspects of intellectual property rights – at the behest of the pharmaceutical companies was, Bhagwati writes, like “the introduction of cancer cells into a healthy body”. Both authors are critical of premature financial liberalisation imposed on developing countries by the International Monetary Fund and US Treasury.

The central sections of both books confront the charges against globalisation. As summarised by Wolf, these are that it destroys the ability of states to manage their own economies, replacing the rule of democracy with the rule of unaccountable bureaucrats, corporations, markets; causes poverty and increases inequality within and between nations; lowers real wages and labour standards while increasing economic insecurity; allows global financial markets to impose crises on poorer countries; destroys the environment, eliminates species and harms animal welfare; destroys the varieties of human culture; and in all these ways produces a global “race to the bottom” in the form of lower taxes, lower wages and lower regulatory standards. Wolf’s defences against these charges are better organised than Bhagwati’s. For example, by pointing to the enormous reduction in global poverty following the integration of China and India into the world market, he painstakingly refutes the accusation that globalisation has increased poverty. He cites studies showing that inequality between countries, weighted by population, peaked in 1980 and has since declined.

The two authors adopt strikingly different tones in dealing with the anti-globalists. Bhagwati treats them as straying sheep to be brought back into the fold of reason, Wolf as dangerous enemies of freedom. With a few reputable exceptions (Joseph Stiglitz, Dani Rodrik, George Soros), anti-globalist literature is distinguished by “disregard for the facts and [for] professional economic analysis”.

Wolf is particularly hard on our own John Gray, most of whose arguments he dismisses as “nonsense”. Bhagwati engages with the critics gently and patiently; Wolf refutes them scornfully with biting logic and a barrage of statistics. Bhagwati wants to marry economic globalisation with “civil society”, domestic and global. Non-governmental organisations (NGOs) can be the “eyes and ears” of governments, empowering the powerless; multinational corporations can play their part by developing “corporate social responsibility”. Wolf has little time for such “third way” devices. He thinks of most NGOs as “new millennium collectivists” and questions whether they represent anything but themselves.

Bhagwati is right to notice that anti-globalisation has switched from poor to rich countries. In the 1950s and 1960s, the “north” was for free trade, the “south” protectionist. Today the position is partly reversed. The reason for the shift is inherent in the arguments both authors advance in favour of globalisation. Globalisation – economic integration – is above all an engine of growth. It offers the best hope for poor countries to catch up with rich ones. But growth has become less important for rich countries. An extra pound is worth more to a poor person than to a rich one, and the same is true of countries, which are aggregates of individuals.

The important implication of this is that arguments for globalisation are more compelling for poor than for rich countries. Bhagwati, an Indian, says that he chose economics to help alleviate his country’s economic misery. Wolf accepted market economics after his experience with the inefficiency of planning systems in India and Kenya. But this is the point: we in the west are not in economic misery, and therefore feel the pull of growth much less acutely. We feel free to choose between greater efficiency and non-economic values. Higher incomes give us the luxury of being inefficient. What else are they for? Helping the poor of the world is a moral duty; but it is not for us an economic necessity, and probably not a political one, either.