March 2004
Three Cheers for Globalization

On Wednesday, March 10, 2004 AEI adjunct scholar Jagdish Bhagwati discussed his new book, In Defense of Globalization (Oxford University Press, 2004).  Two prominent international trade experts-Douglas Irwin of Dartmouth College and Daniel Tarullo of Georgetown University Law School-evaluated his findings and joined AEI economists for a roundtable discussion on the issues and challenges presented by globalization.

Jagdish Bhagwati
Columbia University

I wrote this book because it became clear to me in Seattle that it was important to find out what was bothering so many people about globalization.  I realized that the young people especially did not understand-much less know-the facts.  Globalization is an issue where there is a lot of passion and tension, and I had many debates with the leaders of the anti-globalization movement to determine where their ideas originated.  My feeling was that it was less an issue of debating the IMF and similar institutions, but I felt the attention focused there was misplaced.  The reason so many people go to the WTO meetings is because that is where the press is.  The real issues were not about economic conditionalities, but the "social" issues.  The social implications are profound, and people were worried about the economic implications and the growing interdependence of countries.  The exploitation of women, child labor, and the depletion of the environment are huge components of the globalization debate.    Globalization's effects on labor, wages, and employment are real, and I do acknowledge them.  It is a legitimate concern of the unions that their people will be left without jobs. The general presumption by the whole community of anti-globalizers was that somehow the IMF was responsible for all of these shortfalls.  On balance, I say that we are ahead on these social issues.  In my book I walk backwards and address these issues and then explain what should be cause for concern.  I argue that globalization does have a human face, and therefore we need a different kind of governance to handle this view.  The way to accelerate the diffusion of better standards worldwide is not trade sanctions, but moral persuasion.   

Douglas Irwin
Dartmouth University

Globalization needs defending at the intellectual level; this is where Jagdish steps in.  In the public arena there are many views that are hostile to globalization, and these views must be answered with a balanced debate.  If not, policymakers will get a one-sided impression and come to erroneous conclusions.  The book is systematic and eclectic: systematic in the sense that it addresses the list of complaints by the anti-globalizers, and eclectic in that Jagdish is not afraid to draw distinctions.  The defense of globalization must be taken at the tactical level and still address the principles-Jagdish's book does this.  There actually is a great deal of public support for reciprocal trade agreements when coupled with government assistance to mitigate the displacement of workers, but we need to address the coupling issue of trade adjustment assistance, which has been ignored in the recent debate.  There is a perception that the safety net is not out there.  We need to take this seriously because we have a very competitive political system- if one party is perceived at not addressing a particular area of concern, that vacuum will be filled by others, which may not be filled with the right things.  We must neutralize the anti-globalization arguments in intellectual debates and in the policy arena. 

Daniel Tarullo
Georgetown University Law School

This is an enormously ambitious book that could be four books: The first is an effort to demonstrate the fundamental consistency of liberal trade with a variety of social considerations.  I do not think Jagdish has done so much a defense of globalization, as much as a defense of trade liberalization, although that is worth doing alone.  The second portion is a cosmopolitan argument for directing efforts to enhance the poor people's lot around the world.  The third book is a preliminary sketch of governance ideas to better manage the negative externalities and market abuses that result from market activity.  The last book is a refutation of the anti-globalizers.   There are some problems with tackling these four issues in one book of 273 pages.  First, there is a level of inconsistency concerning political theory, which is understandable considering the numbers of issues Jagdish addresses.  The second problem is that are many assertions, which are not defended because to do so would double the size of the book.  This has resulted in some errors, which leave him open to criticism.  So, perhaps backing up a few of the assertions would be wise.  The emotional and rhetorical center of the book is what Jagdish describes as a "motley crue" of anti-globalizers.  The substance of the book is more focused on the important question that may inadvertently be alienating those in the middle.  Having said this, Jagdish raises very important issues implicitly and explicitly in the book.  For example, he points out that there are many externalities associated with international trade but not necessarily caused by international trade.  Another valid point Jagdish raises is the possibility of rent-seeking in international trade agreements by interested constituencies of all sorts.  These questions Jagdish addresses fill the greater question of what do we want the World Trade Organization (WTO) to be about? 

Gautam Adhikari
AEI
 
Is globalization an ideology or a historical trend?  I believe it is the latter, and if so, there are many ways to deal with it.  It is important to argue with the anti-globalizers because if we fail to do that, disastrous outcomes are sure to follow.  Winning the public debate is an extremely important exercise.  There are many advantages to globalization, one of which is poverty reduction.  Consider India and China as two examples. Quality of life for both countries has increased in the latter portion of the twentieth century.  This improvement can be attributed to globalization.  There has been one clear achievement between these two countries:  today the poverty rate for China is 15-20 percent, and India has dropped from a level of 40 percent to 26 percent.  These two countries began as anti-globalizers, but opened up to free trade and embraced the technological revolution made possible through globalization. 

Marvin H. Kosters
AEI

I would like to discuss outsourcing and make two points.  First, I take for granted that over the long term it is a good thing for the U.S. economy and others.  Second, there are adjustment costs involved in such a process, and workers who need to change employment due to outsourcing share some of this burden.  How big is the outsourcing phenomenon?  Thinking realistically, we really do not know, nor can we quantify how many jobs are vulnerable to outsourcing.  In relation to job growth, the number of jobs we are losing do not seem as threatening as some would like to suggest.  In addition, it is useful to notice the changes within our domestic labor market.  Many people are making changes in employment.  In terms of movement and growth in the labor market, outsourcing does not loom so large.  It has been suggested that we need programs to respond to outsourcing adjustment.  I would agree with that, but I would also suggest that the ways in which new jobs are created should be through the labor market itself.  We do, of course, have general programs that provide income support.  When we think about this, we should consider the workforce as a whole, not each individual circumstance. 

Allan H. Meltzer
AEI

Jagdish said the United States is turning protectionist, and while I do not often disagree with him, I do on this point.  I will contend that there is a small faction within the Republican and Democratic parties, but among those, most protectionist campaigns have failed.  Globalization really means capitalism, but unfortunately that does not have good press.  It means the adoption of the rule of law, private property, and an open economy.  These are essential ingredients in globalization.  One of the principal complaints of this is that globalization and capitalism have great benefits but harm the distribution of income.  It is a mistake to blame the poverty of countries on globalization when they have not taken measures to adopt these capitalist systems.  These are necessary to receive the benefits.  Several recent studies have shown that poor countries that have opened themselves up to trade have grown twice as fast as rich countries in the last twenty years.  As a result, global income inequality is at its lowest level in a century.  Simply take India and China as examples.  Openness to trade is a principal reason for the rapid growth and declining poverty of developing countries. 

Scott Wallsten
AEI

I come at this issue from a regulatory perspective.  It is worth noting that the sweatshop debates of a few years ago stemmed from the notion that it was unfair that Americans would benefit from someone else working at a lower wage in another country.  Now, the sentiment is that we are sending away jobs that are too good.  If you put these two things together, you get a very simplified impression that people do not want developing countries to be able to compete.  This conclusion, albeit very drastic, is very frustrating for those of us who do want poverty reduction in developing countries.  Why is outsourcing such a hot topic now?  I think some of this can be attributed to the lingering effects of the technology bubble.  Many things, especially employment, were unsustainable.  Some people do lose out from trade, and that is why we have trade adjustment programs, ideally combined with insurance programs.  However, it is not entirely clear that this off-shoring of technology jobs is not more of a lingering effect of massive movement into an industry that was just not sustainable. 

This summary was prepared by AEI research assistant Jessica Browning.