Politics & Policy

The Road to Wealth

From the April 19, 2004, issue of National Review.

In Defense of Globalization, by Jagdish Bhagwati (Oxford, 320 pp., $28)

Public debate over globalization and free trade often sounds like an Abbott and Costello routine, with opposing sides using the same words but meaning something entirely different by them. At other times, they speak different languages, with skeptics employing the imagery of barefoot children toiling in sweatshops run by multinationals, while advocates of globalization marshal tables of data that show life is really getting better for hundreds of millions of poor people in countries opening up to the global economy. And the rest of the time it is a dialogue of the deaf, with neither side even listening to the other.

A large share of the blame lies with the defenders of globalization, for failing to make an emotionally appealing case for the human liberty to engage in commerce across international borders. Economists are notorious for dealing in abstractions, when the audience hungers for flesh-and-blood stories about real people. Jagdish Bhagwati’s ambitious new book, In Defense of Globalization, fills many of those holes in the pro-globalization argument. Bhagwati, a Columbia University economics professor and author of many books on trade, makes all the right economic arguments, but without the flurry of statistical correlations often used to make the case. Instead, he tells the story of how globalization has delivered a better standard of living in less developed countries, and how experiments with protectionist “import substitution” policies have systematically failed.

Sprinkled throughout the book are literary and cultural allusions; you are as likely to encounter Shakespeare, Dickens, Dostoevsky, or T. S. Eliot as an empirical table or chart. That is not to say the book is fuzzy in its thinking; a relentless economic logic suffuses its pages, but that logic expresses itself through narrative arguments and examples rather than merely through numbers. On trade, Bhagwati is more a New Democrat than a free-market purist. “As an economist normally accused of being ‘the world’s foremost free trader,’” he writes, “I have always argued for freer trade, not as an objective but rather (in the context of the poor nations such as India, from where I come) as an often powerful weapon in the arsenal of policies that we can deploy to fight poverty.”

His book takes the globalization argument into enemy territory. Bhagwati has done his homework on the anti-globalization groups and what animates them: a discontented brew of anti-capitalism, anti-corporatism, and anti-Americanism. He quotes liberally from the anti-globalization critics, confronting their best arguments rather than knocking down straw men, and acknowledging up front the complexities and ambiguities of the debate rather than painting everything in black and white.

Bhagwati meets the critics head on by examining globalization’s impact on children, women, the poor, democracy, labor rights, the environment, and culture. The case that globalization has benefited the poor “has centered on a two-step argument: that trade enhances economic growth, and that growth reduces poverty.” He contrasts the failure of protectionism to deliver prosperity in post-colonial India and other countries with the progress and development in East Asia and other more outward-oriented countries. The growth spurred by globalization has not only expanded the pie but has done so in a way that is “socially benign” and possesses “a human face.”

On the emotional issue of child labor, Bhagwati establishes the necessary facts, then distills the argument: “Poor parents, no less than rich parents, generally want the best for their children. Poverty is what drives many to put their children to work rather than into school. Parents will choose to feed their children instead of schooling them if forced to make a choice. When incomes improve, poor parents can generally be expected to respond by putting children back in school.” And this is indeed what has happened in countries where opening to trade has raised incomes. For example, a recent study of rice prices in Vietnam found that older girls are typically the first to go back to school when the family can afford it.

And simply demanding that poor countries eliminate child labor can easily backfire. Bhagwati cites the case of the Bangladeshi textile industry in 1993. That year, Congress seemed poised to pass Sen. Tom Harkin’s Child Labor Deterrence Act, which would have banned imports of textiles made by child workers. Anticipating its passage, the Bangladeshi industry dismissed 50,000 children from factories. Most of those children did not end up in school but instead fell into prostitution and other “occupations” far more degrading than weaving cloth in a factory.

In two meaty chapters, Bhagwati chops the legs out of the argument — heard frequently in the Democratic primary debates — that the U.S. must impose labor and environmental standards on poor countries in any future trade agreements. He points to evidence establishing that U.S. multinationals do not seek out less developed countries with low standards; they locate most of their affiliates in other high-wage, high-standard countries, and when they do invest in poor countries, they invariably pay wages and maintain standards far above those prevailing in the local economy. The result is not a “race to the bottom,” but a race to the top. An inescapable implication is that if the Democrats succeed in withholding U.S. trade and investment from poor countries because they are poor, it will mean slower growth in those countries: fewer girls studying in school, and more working in farms, factories, and brothels.

The only discordant notes in the book are on capital controls and go-slow reforms for countries in transition. Bhagwati supports the free movement of goods, but not of capital — believing that short-term capital flows can destabilize emerging economies. But here he makes the mistake of confusing cause and effect. Short-term capital typically flees emerging economies because of a loss of confidence in the stability of domestic markets. Capital controls can hold those investments captive for a while, but they cannot substitute for real reforms. Bhagwati also takes aim at “the ’shock therapy’ of excessively rapid reforms that devastated Russia,” as if its economy had not been a mess before those reforms. The root of Russia’s lingering economic problems is not too much capitalism, but half-hearted reforms implemented clumsily by a corrupt bureaucracy run by too many ex-Communists. If overly aggressive market reforms are to blame for Russia’s problems, why are those former Soviet bloc countries that reformed even more aggressively — such as Poland, Estonia, and the Czech Republic — doing so much better, and those that have lagged behind even Russia’s tepid reforms — such as Ukraine and Belarus — doing even worse?

These quirks are easily forgiven in a book brimming with engaging arguments and good sense. In Defense of Globalization will encourage the faithful who believe in economic freedom as a value worth pursuing in and of itself, but also those more pragmatic souls who see it as a necessary if less-than-lovable means to achieve poverty reduction and other worthy social goals. Of all the books defending globalization, Jagdish Bhagwati’s may offer the best chance to reach those readers not fatally blinded by anti-market ideology.

Mr. Griswold is associate director of the Center for Trade Policy Studies at the Cato Institute.

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