[Paleopsych] TLS: Jagdish Bhagwati: The same the whole world over

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Jagdish Bhagwati: The same the whole world over
The Times Literary Supplement, 2002.11.8
http://the-tls.co.uk/archive/story.aspx?story_id=2076513&window_type=print

    GLOBALIZATION AND ITS DISCONTENTS. By Joseph Stiglitz. 282pp. Allen
    Lane The Penguin Press. £16.99. - 0 713 99664 1

    UP THE DOWN ESCALATOR. Why the global pessimists are wrong. By Charles
    Leadbeater. 371pp. Viking. £20. - 0 670 91322 7

    Globalization is the topic of the day: countless books and articles
    attest to that. Joseph Stiglitz is a Nobel Prize-winning economist,
    with an undisputed reputation as a theorist. Yet his Globalization and
    Its Discontents has attracted several of the worst reviews that I have
    ever seen. In addition, the personal attacks in the book have aroused
    a firestorm of condemnation that has obscured even the few good
    questions Stiglitz raises and tries to answer. Charles Leadbeater,
    though not yet familiar on the world stage, is a familiar voice in
    Britain. Tony Blair, to whose Third Way circle of intellectuals he
    belongs, endorsed his earlier book, Living on Thin Air (2000), with a
    flattering blurb that called him "an extraordinarily interesting
    thinker". This book indeed shows that he is. Unknown across the
    Atlantic, he seems destined to be discovered there some day; and this
    book may well be the occasion.

    The contrast between the two books is not merely in the inverse
    relationship between what they promise and what they perform. It is
    also in the intellectual interests that the two authors bring to the
    complex subject of globalization.

    Where Leadbeater's writing draws brilliantly on half a dozen
    intriguing books in virtually all of his dozen chapters, Stiglitz
    seems to have read almost nothing: neither the texts nor the endnotes
    betray familiarity with the writings of, for example, Thomas Friedman
    or John Gray. So, unlike Leadbeater who penetrates interestingly to
    globalization's discontents, seeking out the many factors that have
    led in his judgement to a profound "global pessimism" and countering
    it effectively, Stiglitz's book does not even attempt to document, let
    alone diagnose these discontents.

    In fact, one looks in vain through Stiglitz for an analysis of the
    principal issues that the anti-globalizers, and their critics, have
    been concerned with.

    These relate only marginally to the question of whether economic
    globalization produces economic prosperity, increasing the size of the
    pie. Stiglitz wants to fight this battle, but it is really a sideshow.
    The serious debate today is not over whether economic liberalization
    is economically benign; it is instead over whether it is socially
    malign.

    Indeed, the agitation among the more thoughtful critics is over
    whether, for example, globalization is detrimental to the aims of
    gender equality, weakens the fight against poverty in the poor
    countries, reduces hard-won labour standards in the rich countries
    (because trade and multinational investments in poor countries with
    lower standards will produce a "race to the bottom"), destroys
    indigenous and mainstream cultures, and produces a "democratic
    deficit". Leadbeater is splendid on some of these questions,
    particularly on the impact of globalization on democracy and on
    culture, challenging the pessimists with penetrating
    counter-arguments.

    In fact, one can argue more fully that, by and large, economic
    globalization is socially benign. To take one example: think about
    gender pay equality. We know now that trade is something that
    feminists should embrace. The economists Sandra Black and Elizabeth
    Brainerd have shown that, in US experience over two decades, the pay
    differential has shrunk faster in internationally competitive
    industries. This is because prejudice tends to be crowded out by
    price; the pressure on profits means that firms will not be able to
    indulge their prejudice and pay more to men whose work is no better
    than women's.

    Again, while Japanese women have seriously lagged behind in their
    rights, globalization has been a powerful force for change. When
    Japanese men went abroad in the 1980s and 90s as the executives, their
    wives and children came too.

    They saw how women were treated in the West today; and many went back
    as silent, sometimes active, revolutionaries.

    Among those of us who share a concern for social agendas, the
    pessimists see globalization as part of the problem; the optimists
    such as myself see globalization as part of the solution. And the
    governance we need to explore and work for as economic globalization
    proceeds apace will depend critically on whether we are pessimists or
    optimists. The former will want to throw sand into the gears of
    globalization; they will want to challenge, inhibit, constrain it.

    The latter will want to complement and accelerate the achievement of
    the social agendas that globalization produces. The stakes in this
    debate are immense. Leadbeater is on the side of the angels. But why
    is Stiglitz not in this battle of the century? Because he is largely
    preoccupied with a piffling personal battle with the IMF (especially
    Stanley Fischer) and the US Treasury (in particular Secretary Robert
    Rubin and his deputy Larry Summers, who later succeeded Rubin and is
    now President of Harvard) over their approach to macrostabilization,
    and with his predecessor at the World Bank (Anne Krueger) over trade
    liberalization. Thrown into the arena also is his wrath over
    privatization, which seems to extend beyond Russia; here his chief
    villains remain Rubin and Summers.

    Condemning these individuals and institutions (though exempting the
    World Bank under his own enlightened direction) as "market
    fundamentalists", Stiglitz castigates the "stale and repugnant
    ideology" they subscribe to as consisting of "privatization,
    liberalization (in particular, trade liberalization) and
    macrostabilization". In short, he is not really addressing
    globalization per se: after all, privatization can be an issue even
    when an economy is autarkic but has been wedded to the Marxist
    prescription of state ownership of the means of production: a
    description that is not entirely inappropriate, say, to India from the
    1950s to the late 1970s. Nor is macro-instability, requiring
    macrostabilization, exclusively an attribute of globalization. Of his
    obsessions, only trade liberalization is intrinsically a globalization
    issue.

    But he is not even right to complain about "market fundamentalism".
    Lacking long-standing familiarity with development economics, he seems
    ignorant of the fact that the early development strategies which
    failed in many countries were characterized by neglect of markets and
    knee-jerk interventionism. I used to remark, based on my and other
    development economists' research, that the problem in many poor
    countries was that Adam Smith's Invisible Hand was nowhere to be seen.
    Policy-makers in many developing countries, having worked with
    "planning without prices", where markets were regarded with deep
    suspicion, began to flee from such policies.

    Few thought, however, that the best government was one that self-
    destructed. The debate was not about whether government, but what
    kind. The use of tradable permits to pursue environmental objectives
    exactly illustrates what the reformers were doing: using markets to
    improve environmental policy, not to eliminate it.

    The same was true of autarkic policies in regard to the world economy.
    The developing countries had generally been fearful of globalization.
    Many saw trade and investment interactions between the poor and the
    rich countries as, not the economist's "benign-impact", but as what I
    have called "malign impact" phenomena. The Chilean sociologist Osvaldo
    Sunkel famously remarked that in the developing countries "integration
    into the international economy leads to disintegration of the national
    economy". But, as post-war experience accumulated, both in terms of
    the shortfalls in the autarkic countries and the dazzling success of
    the outward-oriented economies in the Far East, countries began to
    move away from these inward-looking policies and to open up. Stiglitz
    fails to note this, attributing greater openness in trade to pressures
    from the "ideologues" of trade liberalization, via the IMF and also
    the World Bank -before he came to the rescue. This is nonsense; as I
    and my co-authors have documented elsewhere, governments often reduced
    high trade barriers simply because they recognized that it was good
    for them.

    Nor will the facts support his implied view that Bretton Woods (IMF
    and World Bank) conditionality in favour of trade liberalization, when
    applied, has necessarily been effective. The IMF has often favoured
    going easy on tariff reductions because, typically, countries come to
    it when they have a stabilization crisis which requires that revenues
    not be compromised, while the Bank has favoured taking advantage of a
    crisis to push tariff reforms through.

    Occasionally, tariff reductions undertaken as part of reforms required
    by Bretton Woods donors have been reversed. After all, there is no
    obligation to stick to them once the crisis is behind you. There are
    also several studies which show that trade liberalization is
    associated with greater growth, and greater growth in turn pulls more
    people out of poverty. In particular, both India and China, which
    specialize in poverty and account for the bulk of it worldwide, have
    shown greater growth and great reductions in poverty once they
    embraced economic reforms including greater outward integration. Yet
    Stiglitz baldly asserts: "Not only in trade liberalization but in
    every other aspect of globalization even seemingly well-intentioned
    efforts have often backfired."

    I sympathize with Stiglitz's strictures on the role of the US
    Treasury, Wall Street and the IMF in pushing for a far too hasty and
    imprudent capital account liberalization in the developing countries
    and then, when the Asian financial crisis erupted, imposing wrong
    conditionality that compounded it at the outset. But Stiglitz should
    know that it is impossible to fine-tune the economy: too much depends
    on expectations, and the order in which effects kick in. Alas, no one
    has a crystal ball. What one needs is for the IMF to monitor for
    errors and adjust its position accordingly, as it indeed did after a
    year. He is similarly unconvincing when he raises alarms about the
    trade policy reforms and increased resort to markets and
    privatizations that poor countries have been attempting, in varying
    degrees, in recent years. If anything, his criticisms will add to
    populist pressure in those countries to dump all such pragmatic
    reforms back in the wasteland of - to borrow Stiglitz's words - "the
    stale and repugnant ideology" of autarky, public sector expansion and
    intervention-as-first-resort from which they were emerging after
    decades of misdirection.

    Stiglitz brings to our attention a number of serious problems -
    especially in regard to the functioning of the IMF. But he often
    allows himself to be distracted by somewhat shallow solutions. Thus,
    for example, he wants "ownership" of programmes by the
    crisis-afflicted countries receiving assistance. But this is no
    answer. Was Argentina's collapse caused by IMF conditionality? Surely
    not; it was a home-made crisis. Again, he has the notion that
    non-governmental organizations know more than the IMF economists do
    about macro-economics; the IMF, he has famously said, hires
    "third-rate economists from first-rate universities", while presumably
    the NGOs hire a better class of professional. Having seen Oxfam's
    recent report on trade, which is long on virtue and short on
    competence, I suggest that Stiglitz cannot be serious; and if he is
    serious, he should not be taken seriously. The task he has set himself
    in this book is an important one; but he has not given it the time or
    thought it deserves, nor the talent that he possesses in abundance.