The Region

In Defense of Globalization

Book Review

Terry J. Fitzgerald - Senior Economist and Vice President

Published September 1, 2004  |  September 2004 issue

A quick glance at the titles of many current books on globalization suggests that it will either be the ruin of us all (apparently fire will play a prominent role, according to several book jackets), or it will lift the human condition to new, unimaginable heights. A few titles suggest more nuanced positions and offer somewhat milder insights, such as that the spread of globalization can be explained by the sport of soccer. And, if one uses these titles to judge who is winning the debate, the naysayers seem to have the upper hand. Globalization and its capitalistic cousins are on the defensive.

Book Cover Against that background, In Defense of Globalization, written by Jagdish Bhagwati, is a welcome, recent addition to the discussion. Professor Bhagwati, a Columbia University economist and senior fellow at the Council on Foreign Relations, is highly regarded for his expertise in international trade. He provides the informed perspective of an academic with thorough knowledge of the economic issues associated with globalization.

Not surprisingly, Bhagwati is in favor of globalization: He sees it as a positive force both economically and socially. But this book is not another free- trade harangue. Bhagwati argues that it is incumbent upon advocates of globalization to confront the arguments of its critics. In his words, "[T]hose of us who favor globalization cannot retreat from the task of meeting their concerns head-on." Furthermore, Bhagwati makes it clear that he is sympathetic to many of the social objectives of the anti-globalization movement. Thus, the book's primary intent is to openly address these perceived shortcomings of globalization, and to show that the criticisms are largely unwarranted.

What does Bhagwati mean by globalization? He provides a definition, at least of its economic side: "Economic globalization constitutes integration of national economies into the international economy through trade, direct foreign investment ... short-term capital flows, international flows of workers and humanity generally, and flows of technology."

Addressing the concerns

The book begins with an extended discussion of what motivates the anti-globalization movement and what its primary concerns are. Bhagwati divides the anti-globalizers into two groups: (1) "hard-core" protesters, many of whom are acutely anti-capitalist and anti-corporation, and (2) dissenters who see globalization as the cause of many social ills. Bhagwati dismisses the first: "There is little that one can do to enter into a dialogue" with them, but the second invites "reasoned engagement." The latter group, then, is the target of his analysis (although, given the title of the book, I suspect most readers will be not dissenters but rather sympathizers looking to expand their knowledge and arguments).

The heart of the book is a series of chapters addressing one by one the primary concerns of this second group. Readers with the misguided belief that economics is strictly about financial gain may find the chapter topics surprising: poverty, child labor, gender discrimination, democracy, culture, wages and labor standards, and the environment. Bhagwati refers to these as the "social implications" of globalization.

His conclusion in each case is that the concerns of the anti-globalizers are unwarranted, and that in fact globalization has a predominantly salutary effect. Bhagwati includes an interesting and informative general discussion in each chapter. He frequently spices his insights with literary references, historical background and personal anecdotes. Some readers may find these discussions a welcome relief from the usual heavy reliance on statistics and data.

In the chapters discussing child labor and gender discrimination, for example, Bhagwati confronts the frequent complaint that globalization has worsened the plight of children and women worldwide. His discussion includes several valuable points. First, both issues have long histories that are rooted in poverty and other considerations rather than globalization itself. So the key issue is whether globalization has helped or hurt these realities. He argues that outcomes should be measured against conditions in similar environments that have resisted globalization forces, rather than against the high standards largely achieved in the United States.

On gender discrimination, Bhagwati argues that worldwide competition makes discrimination too expensive to sustain. He also cites studies on controversial export-processing zones, which find that conditions for women are typically much better in these zones than outside the zones, where prostitution and slavery are sometimes the only alternatives. He further argues that criticizing companies for not matching U.S. standards is not sensible since the relevant comparison for analyzing the impact of globalization is local conditions in the absence of global market influences. On child labor, Bhagwati points to research concluding that such labor is reduced as incomes rise with globalization. In Vietnam, for example, a study he cites found that as income increased, child labor declined, most notably among older girls.

But Bhagwati does not blindly overlook some clear adverse consequences related to globalization. He notes international trafficking in children and women as especially cruel activities. He also points to problems with international domestic servants and an increase in prostitution associated with tourism in many countries. He advocates aggressive international action to address these tragedies but argues that a broader restriction of trade would sacrifice the many benefits generated by globalization.

In critique of Bhagwati

Bhagwati deserves credit for many interesting and informative discussions, and I commend him on that approach. But (to paraphrase Mark Twain) having smoothed the way with a compliment, I come to my complaint proper. In making his case, Bhagwati relies too heavily on storytelling and historical anecdotes, and too little on statistical evidence. By doing so, he undermines his argument.

Bhagwati likely does not want to overwhelm his reader with statistics, a reasonable goal for a popular book, but his case is significantly weakened without more empirical support. A prominent example lies in his chapter exploring the impact of globalization on poverty. Here he makes a two-step argument: Trade enhances economic growth, and growth lowers poverty. While he emphasizes that the "scientific evidence is even more compelling" than the anecdotal, he offers little of it. Instead he cites Adam Smith and Sir Dennis Robertson. Eminent economists, but better scientific evidence is available.

Several recent papers have documented an unprecedented decline in world poverty rates over the past several decades. While it is difficult to prove a direct causal link, it is certainly interesting that it occurred during the rise of globalization. Sub-Saharan Africa has not shared in these gains, but many economists argue that this is exactly where globalization is being denied through protectionist and isolationist policies. Why aren't these facts highlighted?

Bhagwati does get around to mentioning the decline in poverty, but only at the end of the chapter in a separate discussion on India and China. In discussing the connection between trade and growth, he doesn't even mention a seminal paper on the topic by Jeffrey Sachs and Andrew Warner, which finds that closed economies have performed much worse than open economies. Many subsequent papers have explored this link further, but this research is not discussed. Perhaps the reader is expected to trust that Bhagwati has all the facts right, but I think many would find a direct discussion of the evidence more compelling.

Moreover, I suspect that most skeptics will not be persuaded by Bhagwati's arguments alone, which lean more heavily on personal anecdote than seems wise. For example, his case for the "psychic gains" accruing to women who have migrated to a more "liberating environment" away from their families back home is not enhanced by referring to the personal growth in "self-respect and dignity" he has observed in his maid over the years. Such stories are much more likely to irritate than persuade, and thus undercut his credibility. Why not report data on the improvements on the gender front experienced during the miraculous growth experiences of Taiwan, Singapore, Hong Kong and South Korea over the past 40 years? Why not contrast child labor and discrimination statistics in notably closed economies against economies that have opened their doors to globalization?

This is not to suggest that In Defense of Globalization is without empirical content. In several chapters, Bhagwati does provide persuasive evidence to support his position. In his review of the relationship between trade and wages, for instance, he cites several studies showing that trade either has little effect or actually increases wages. In the discussion on the environment, Bhagwati reports evidence that many pollutants have been found to decline with rising income. (He also includes an interesting example of the potentially adverse environmental consequences of protectionist policies; U.S. quotas on Japanese cars during the late 1970s and early 1980s led Japan to export more large gas guzzlers with higher profit margins.) Finally, in a chapter defending the role of multinational corporations, he cites evidence that these corporations pay a "wage premium" as high as 100 percent above local wages, and that they produce significant "spillovers" in worker training and productivity improvements. The strength and pervasiveness of such empirical findings make it all the more puzzling that Bhagwati doesn't bring them forth more consistently throughout the book.

Policy recommendations

So, what policy recommendations does Bhagwati make? The final section of his book outlines his plan to address the adverse consequences of globalization, and to make "the beneficial globalization process work even better." He argues for "managed" globalization using a three-pronged strategy.

First, he advocates policies to mitigate the downsides associated with globalization, such as the displacement of jobs. More specifically, he advocates unemployment insurance, retraining programs and initiatives to reduce volatility in agriculture. He pointedly criticizes protectionist policies as a strategy for addressing the downsides and cites the underappreciated fact that average industrial tariffs are already higher in developing countries than in rich countries. (So much, he says, for the argument that rich countries abuse poor ones by demanding lower tariffs while maintaining their own at high levels.)

Second, he argues that the transition from a closed to an open economy must be done gradually. This is especially true with financial markets, where swings in confidence about a country's future can result, and have resulted, in large, rapid outflows of investment dollars that can wreak havoc on an economy. Bhagwati argues this is most likely the best explanation of the Asian financial crisis during 1997 and 1998. So, he argues, closed financial markets should be opened gradually and carefully to prevent this instability.

Finally, Bhagwati urges the pursuit of policies that accelerate the beneficial effects of globalization on social issues. He holds that trade sanctions and embargoes are not effective means toward such ends. Instead, he suggests that careful monitoring by nongovernmental organizations, and other strategies of moral suasion, offer the most effective response to social abuses inaccurately blamed on globalization.

Bhagwati's position on the proper role(s) for government is vague. At times he appears skeptical of a wide range of interventions; in other cases he urges substantial intervention and policy coordination. My guess is that the author believes he is clear on the point, since he discusses it throughout the book. But to me, at least, it was not.

Which leads, in closing, to two final criticisms, issues of style that affect matters of substance.

First, the author's arguments, logic and even sentence structure are sometimes rambling, rendering them difficult, if not impossible, to follow. Here, for example, is one of his policy recommendation summaries:

The use of moral suasion and the strengthening of the review and monitoring functions of the appropriate international agencies that have been created to address these agendas with nuance and sophistication, and even the increased probability that democratic politics and judicial activism will translate international norms into effective domestic legislation or enforcement with all the required nuances and with attention to local traditions and circumstances, offer greater promise as ways of accelerating the achievement of these social objectives.

Phew! An editor might have offered him a period or two; even a semicolon would have helped. Bloated sentences like these leave the reader drowning in words, grasping for meaning.

Second, while some may appreciate the personal anecdotes and literary references, these features often obfuscate, rather than clarify, his points; they come across as name-dropping or showy erudition instead of cogent logic. For example, in arguing that markets often provide an egalitarian allocation mechanism, Bhagwati states:

I can do no better if I am to persuade skeptics than to tell here the bon mot that Sir Arthur Lewis, the Nobel laureate in development economics from St. Lucia ... shared with me. Lewis was adviser to the centrist, intellectually inclined Hugh Gaitskell in the British Labor Party. When he met Thomas Balogh, a radical economic adviser to British prime minister Harold Wilson, he told him: "Tommy, the difference between your socialism and mine is that when you think of yourself as a socialist, you think of yourself as behind the counter; when I think of myself as a socialist, I think of myself as being in front of it."

Well, if Bhagwati can do no better, I suspect few skeptics will be convinced.

On the Same Topic ...

My less than complete satisfaction with In Defense of Globalization led me to seek out other books on the topic by prominent economists. Two caught my attention.

The first, Globalization and its Discontents, by Nobel Laureate Joseph E. Stiglitz, was a recent national bestseller. As a former chief economist at the World Bank and chairman of Bill Clinton's Council of Economic Advisers, Stiglitz is clearly well versed on the topic of globalization. This book, however, is not really about globalization. It is primarily an attack on the International Monetary Fund. And Stiglitz offers many lucid observations on IMF policies over the past decade and their unquestionable shortcomings.

But this book too has its own shortcomings. First, Stiglitz conveys his analysis as if he and he alone truly understood the solutions to these tremendously complex problems. This often seems to thwart a more studied analysis of difficult issues. Second, some of Stiglitz's prescriptions are themselves controversial, such as increasing deficits and money supply growth in countries already experiencing debt problems and high inflation. Finally, his assaults on the intelligence and integrity of those who work at the IMF seem ill-founded and unnecessarily malicious. Undoubtedly the IMF has made its share of mistakes, but surely these reflect the difficulties associated with pursuing its ambitious agenda more than the deficiencies of its economists. [Because of these difficulties, in part, Minneapolis Fed economists V.V. Chari and Patrick Kehoe argue for a substantially reduced role for the IMF; see their 1998 Annual Report essay.]

Those especially interested in the role of the IMF and its policy shortcomings will want to read this book to stay abreast of the debate—or at least one side of it. But those hoping for a balanced, general discussion of the effects of globalization are unlikely to find this book satisfying.

One of the more interesting outcomes of this controversial book was the rare glimpse it provided of the heated debates among economists that usually take place behind closed doors. In response to Stiglitz's unrelenting attacks, the IMF's chief economist Kenneth Rogoff issued a stinging open letter to Stiglitz. Here's an excerpt:

You seem to believe that when investors are no longer willing to hold a government's debt, all that needs to be done is to increase the supply and it will sell like hot cakes. We at the IMF—no, make that we on the Planet Earth—have considerable experience suggesting otherwise. We earthlings have found that when a country in fiscal distress tries to escape by printing more money, inflation rises, often uncontrollably.

The entire letter is available at the IMF's Web site, for those curious enough to read it. Rogoff has provided more detailed responses to Stiglitz's critique of the IMF, and in the latest edition of his book, Stiglitz responds to Rogoff's letter.

Another book worth considering is the shorter and more narrowly focused Has Globalization Gone Too Far? by Dani Rodrik of Harvard University. This 1997 book argues that while globalization is beneficial, the tension between globalization and social cohesion must be recognized and dealt with if the benefits of globalization are to be realized. Rodrik warns that a political backlash against trade may prevail if nations don't address the sources of social tensions associated with globalization. These include the differential impact of economic integration across groups of workers, conflicts across nations regarding norms and social institutions, and difficulties created by globalization in providing social insurance. The narrow focus allows for a more thorough and satisfying analysis. Readers interested in a careful, empirical investigation of this aspect of globalization are encouraged to seek out this book.

Finally, I highly recommend Robert Lucas' "The Industrial Revolution: Past and Future," the Minneapolis Fed's 2003 Annual Report essay. It provides a fascinating look at economic growth over the past thousand years and into the future, lending valuable context to all debates over globalization.


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