the Chronicle of Higher Education
From left and right
alike we hear something called "globalization" condemned. The
forces driving the world economy toward increased economic integration
are sinister. On the left politicians like Democratic congressman David
Bonior begin speeches by noting three things that come to the U.S. from
Mexico--dirty trucks, drugs, and hepatitis. On the right politicians like
ex-Republican Pat Buchanan blame a century-old conspiracy to deliver America
into the hands of the international bankers--and somehow to Buchanan the
bankers are always named Goldman, Sachs, or Rubin; never Morgan or Baker.
In books with titles like The Case Against Free Trade: GATT, NAFTA, and
the Globalization of Corporate Power, Ralph Nader and his coauthors tell
us that increased international trade and investment are responsible for
the ills of the American economy, from disappointing blue-collar wage
growth to pesticide-laden fruit.
These cries of alarm
from left and right about the destructive consequences of rapid international
economic integration were a constant part of the background. Then in 1997
and 1998 came the calamitous flight of capital from the previously fast-growing
economies of East Asia. The East Asian crisis left almost every observer
believing that the global marketplace was baldy out of control. Something
was amok, it seemed, when traders in lower Manhattan could cause widespread
bankruptcies and unemployment in Bangkok.
The alarming crisis
in Asia led to a swelling of the volume of a broad anti-trade chorus.
This chorus, in turn, inspired a counter-chorus. Chin-stroking neoliberals
apologized for the "excesses" of the market. They agreed that
market forces are occasionally a little reckless in their roughhousing.
But they stressed--like any owner of a Rotweiller--that if you only realized
that you shouldn't make any sudden moves to disturb the animal, you wouldn't
get bitten again.
Now I am a card-carrying
neoliberal: a believer that a bet on increased international economic
integration is our best hope for rapidly moving to a truly human world,
an advocate of NAFTA and GATT, a former not-very-senior official in the
Bentsen and Rubin Treasury Departments, and a believer that those fighting
to hold back world economic integration are or are the dupes of foes of
global prosperity and liberty.
But I also think that
this bet on increased international economic integration is a bet. It
is not a sure thing. And I think that it is less important to assure people
that it is a good bet (although I think that it is) than to help people
distinguish the light from the rhetorical heat. After all, there will
be other bets and other policy choices to be made in the future. And to
fail to understand what is going on now will diminish our chances of collectively
choosing wisely tomorrow.
So I want to turn
down the volume. I want to approach ideologies of every stripe (including
my own) with skepticism. For despite the gallons of ink tha thave been
spilled, our understanding of what "globalization" is and what
it will do is still primitive. The people whom you can learn the most
from aren't those who claim to have the answers, but those who are still
working overtime to ask the useful questions.
The critics of free
trade aren't necessarily wrong to be critical of the current state of
the international economy. But they write tomes that seem to me at least
to reveal confusion and fail to enlighten--instead they deepen the surrounding
darkness. For example, Rolling Stone columnistWilliam Greider's One World,
Ready or Not left me puzzled:.How could it be that when American-based
corporations invested abroad, they harm American workers by stealing their
jobs, while when German-based corporations invested in Alabama, they harm
American workers by exploiting them to earn profits to be transferred
back to Germany? What is sauce for the goose must be sauce for the gander.
There are, however,
some excellent anti-globalization books.
The granddaddy of
them all is Karl Polanyi's (1944) more than half a century-old The Great
Transformation, published more than half a century ago. Polanyi--a journalist
and refugee born in central Europe whose teaching career included stints
at Oxford, Bennington, and Columbia--argued that the market economy erodes
the web of relationships that holds human society together. The market
for labor pressures people to move around the globe to where they can
earn the most--creating strangers in strange lands. The market for consumer
goods rewards people for being fortunate or for responding to the incentives--making
status a product of market forces rather than the result of social norms
or visions of distributive justice. Moreover, Polanyi argued, the market's
undermining of social order threatens to destroy the very societal and
institutional structures on which the market economy rests.
Now you can disagree
with Polanyi, or with his values, but even a card-carrying neoliberal
like me finds his arguments hard to dismiss completely. Consider hate
crimes committed against Turkish workers and their families in Germany,
or women working in New York's garment industry who cannot both provide
for their extended families in China and raise their children--and so
send their babies back to China to live with their grandmothers. Consider
the extent to which special-interest politics means that it is not the
government that regulates the market but the market's oligarchs who regulate
More recent works
have provided intriguing updates to Polanyi's argument. The Work of Nations
by Robert B. Reich, who went onto become Clinton's Secretary of Labor,
focuses on the dangers posed by globalization to America's sense of community
and to the political order established by Roosevelt's New Deal. According
to Reich, in the future America's blue-collar workers will be unable to
share in the relative prosperity made possible by American inventions
and America's resources: the need to keep the blue-collar assembly line
near the research and design labs is rapidly vanishing. And the only way
to reverse growing income inequality is to massively upgrade the educational
level and skills of America just as universal high school in the early
twentieth century gave America then the most literate and skilled labor
force in the world.
Saskia Sassen's (1998)
Globalization and Its Discontents speculates on how the "new mobility
of people and money" is about to lead to increases in relative inequality
within the narrow spaces of modern post-industrial cities. You can applaud
migration from the world economy's periphery to the core. I certainly
do, as do almost all economists. Few economic processes do more to enrich
the world than to move unskilled workers from places were they earn $0.50
an hour to places where they earn $5.00 an hour. And those who move benefit,
as their vote-with-their-feet shows. But market forces do not construct
the social capital to make high-inequality post-industrial cities truly
In response to such
critiques, the neoliberal political establishment--the Brookings Institution,
the Progressive Policy Institute, and the Century Foundation--assures
us that critics of increasing international economic integration are suffering
from an irrational fear: Globaphobia is what they cal it. International
economic integration--driven by rapidly falling transport and communications
costs--is both inevitable and beneficial, argue authors Robert Litan (of
Brookings), Robert Z. Lawrence (now a member of the Council of Economic
Advisers), and Robert J. Shapiro (now Undersecretary for Economic Affairs
at the U.S. Departmetn of Commerce). The only question is how quickly
governments are going to learn to adjust to that integration, and learn
how to benefit from it.
The benefits of this
"globalization," according to the neoliberal argument, are threefold:
* Both the nations
comprising the world economy's industrial core and those in the developing
periphery benefit massively when the capital-rich core (where interest
rates are low) loans to the capital-poor periphery (where interest rates
* Consumers benefit when lower transport costs and reduced tariffs make
goods produced far away more affordable. Producers of goods that are exported
gain as well because they sell into a wider market. Producers of goods
for home consumption do not gain, but there is nothing like competition
from abroad to keep them on their toes, alert to ways in which they can
improve efficiency and better satisfy their customers.
* The more internationalized the world economy, the more use producers
in each country can make of commodities and production processes invented
elsewhere. Faster diffusion of knowledge raises the level of productivity
and technology worldwide.
leads to a richer world, and to a more vibrant and tolerant world as well.
Governments should not fight globalization, neoliberals contend. Instead
they should embrace it.
To a poor country
hoping to develop an industrialized economy, neoliberals outline several
incentives to embrace the global market.
* In the past it
might have made sense to impose tariffs to protect so-called "infant
industries" or cushion economic instability. But in the information
age, an integrated global marketplace will accelerat the transfer of technology.
And it is only by accelerating the transfer of technology that poor countries
have a chance of growing rapidly.
* The industrial core has lots of money to lend to the developing periphery.
Economies should embrace such inflows of capital, for they provide an
opportunity to cut a decade or more off of the half-century process of
* Removing trade barriers reduces the scope of the government. That reducation,
in turn, reduces the inevitable corruption, stagnation, and bureaucratic
obstacles to growth that have beset developing economies for two generations.
In a sense ithe neoliberal
position is a counsel of despair. Once upon a time development advisors,
politicians, economists, and others argued that social democracy was the
proper road for developing economies. A strong, active government to build
infrastructure and redistribute wealth to ensure that growth would benefit
all--or so the argument went. Couple that with high investment (perhaps
behind a wall of substantial tariffs) and the private sector would flourish.
But over the past
two decades cynicism has set in. A consensus has formed that outside already-developed
nations (and indeed inside some of them) an activist developmental state
has entailed too many coups, too much corruption, too many business leaders
deciding that the road to profits is not capital investment but marrying
the C.F.O. to the daughter of the vice-minister of finance.
Neoliberals hope that
multinational corporations, financial analysts, bond-fund managers, and
bond raters will in the end be able to apply some constructive pressure
to improve the situation: better the discipline of the world market than
no discipline on less-than-fully-democratic governments at all.
This neoliberal line
may sound a little to pat. But it is virtually the only game in town.
Critics try to poke holes in it, but the neoliberal stance has no serious
challengers these days in policy-making. The "dependency" arguments--that
developing economies should fear and tightly manage contact with the industrial
core because it would take more than 100% of the gains from trade--have
vanished. In 1960 left-wing intellectuals and politicians argued that
the close economic links between Batista's Cuba and the United States
was impoverishing Cuba. Today everyone--left, right, and center--agrees
that it is the lack of close economic links with the U.S. that impoverishing
Some others seek to
point out the ways in which the idea of globalization has been overhyped.
Their research is a useful reality check. Globalization has been overhyped.
Globalization theories are always in danger of falling victim to grandiosity.
Yet there remains a sense in which debunkers of globalization run the
risk of missing the forest for the trees. They focus on the minutiae of
the present, at the expense of the trends that would allow them to forecast
Among the best debunkers
of the globalizers' position is John Helliwell, a professor of economics
at the University of British Columbia. In his book How Much Do National
Borders Matter?, Helliwell systematically examines trade linkages among
Canadian provinces. He finds that the linkages are many times more extensive
than those between the provinces and American states that are just as
close as the snowy owl flies: Toronto trades more than ten times as much
with Vancouver as with Seattle. The same holds true between the industrial
core and the developing periphery. National borders today are still tall
barriers to movements of goods, capital, and most of all labor.
Helliwell is right.
Globalization has been oversold and its impact overstated.
But what makes his
and similar arguments of potentially limited value is that--while correct
now--they may not be correct for long. An expert on mail delivery in 1900
might well have stated that the new technology of automobiles was of very
limited value in delivering the mail over muddy rural roads. Such an expert
would have been correct. But in terms of planning being correct about
today is not necessarily being relevant for the planning for tomorrow.
The arguments that globalization has been oversold looks good for the
decade of the 1990s. It will probably not look good for the decade of
So if you find yourself
unsatisfied by isolationist Cassandras and neoliberal Polyannas, and if
careful statistic-wielding debunkers seem to speak to today and not to
tomorrow, where should one turn? My primary allegiance is to a fourth
group--reformers, call them, who see the economy as resting on sociological
and political foundations and capable of being shaped to bring the story
of globalization to a relatively happy ending. And among the reformers
there are two currents of thought that seem to me to be well worth heeding.
The best example of
the first current is found by exiting my Berkeley office, walking north
ten feet, and knocking on the next office door. Barry J. Eichengreen,
my Berkeley colleague, has written two recent books: Globalizing Capital
and Toward a New International Financial Architecture. The first explains
how we have arrived at the international monetary system that we have,
with its floating exchange rates and large international flows of capital.
It explains why we see rapid growth among those developing economies that
convince Wall Street that they should be growing rapidly, and brutal financial
crises when those claims are shown to be unfounded or even called into
The second book contains
"practical" proposals for reform: recognize the compelling long-term
benefits of open capital markets, worry less about guarding against "moral
hazard" (economists' term for the skewing of expectations if a past
bailout leads investors to expect that future crises will alwasy be met
by bailouts), and establish a better safety net to catch nations falling
into international financail disarray. There are imperfect institutions
that already strive to provide that kind of security for world financial
structures--chief among them the IMF. But in Eichengreen's view it has
worried too much about opening capital markets and making sure that governments
that preside over financial crises are punished and humiliated, and too
little about making sure that national governments have the right incentives
in advance to diminish the damage that a panic-stricken flight of international
capital might do.
Eichengreen has more
realistic expectations than do the globalizers, recognizing that the global
market economy is "the worst way of allocating resources except for
all other forms that have been tried." There are many problems that
decentralized markets cannot solve, and that must be resolved by governments
if they are to be resolved at all. (A broader perspective, with more points
of view but tending toward the same lessons, can be found in Capital Flows
and Financial Crises, edited by Miles Kahler.)
The second vein of
reform-minded thinking about globalization is best exemplified by Dani
Rodrik's Has Globalization Gone too Far? Rodrik, an economist at Harvard's
Kennedy School of Government, is tries to create a middle ground between
leading cheers for the onrush of intenational economic integration and
mindlessly condemning such integration in a fit of reactionary nostalgia
for a past that never was.
Rodrik fears that
developing economy governments taht do not carefully manage international
economic integration will wind up without the ability to achieve anything
like what was achieved in the post-World War II industrial core: the good
society (not the great society) and the mixed economy.
The mixed economy
taxes income from capital and transfers wealth from market winners to
market losers. Globalization, however, raises the mobility of capital
and makes it harder for governments to tax profits. Globalization increases
competition in the labor market. Most economists (me included) have argued
that this increase in labor market conditions has had little impact on
the wages of American workers. But Rodrik points out that "...saying
that the impact of globalization on advanced-country labor markets is
quantitatively rather small... is no different [in standard analytical
frameworks] from saying that gains from trade have... been small."
He asks economists to put up or shut up: recognize either that the gains
from trade or small, that trade has potentially large effects on wages,
or that the standard analytical framework is wrong.
He also throws down
the gauntlet. He claims that globalization cannot be a replacement for
(failed) social democracy in the developing periphery. Instead, he believes
that globalization must be assisted by (successful) social democracy if
it is to produce a world with a human face.
I do not kinow if
Rodrik is right in his analytical challenges to other economists or to
neoliberalism. But I know that his challenges are very useful challenges,
and that the debate he seeks to open would be a very useful debate.
Flows and Financial Crises, edited by Miles Kahler (Cornell University
The Case Against Free
Trade: GATT, NAFTA, and the Globalization of Corporate Power, by Ralph
Nader et al. (Earth Island Press and North Atlantic Books, 1998).
Fears About Open Trade, by Gary Burtless, et al. (Brookings Institution:
A History of the International Monetary System, by Barry J. Eichengreen
(Princeton University Press, 1996).
Its Discontents, by Saskia Sassen (New York: New Press, 1998).
The Great Transformation,
by Karl Polanyi (Beacon Press, 1944).
Gone too Far? by Dani Rodrik (Institute for International Economics, 1997).
How Much Do National
Borders Matter? by John Helliwell, (Brookings Institution, 1998).
One World, Ready or
Not: The Manic Logic of Global Capitalism, by Wiliam Greider (Simon and
Toward a New International
Financial Architecture: A Practical Post-Asia Agenda, by Barry J. Eichengreen
(Institute for International Economics, 1999).
The Work of Nations:
Preparing Ourselves for Twenty-First Century Capitalism, by Robert B.
Reich (A.A. Knopf, 1991).
Professor of Economics
J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax