The Wall Street Journal
In a recent interview, Nobel Prize-winning economist James Buchanan lamented the incentive structure in academia, which tends to reward those who find exceptions to accepted economic principles. By contrast, those who restate them — however opaquely, in the academic fashion — find themselves somewhere down the list of desirable tenure candidates.
It is most welcome, then, to find two books that clearly remind us of the advantages of free trade — or, to put it in current terms, of the enormous gains to be had from globalization. They also show us why free trade's critics are not only wrong but tragically wrong, for to give in to antiglobalist reasoning is, without exaggeration, to condemn millions of people to poverty, disease and death.
Fortunately, the authors need not fear for their jobs. Jagdish Bhagwati, a (tenured) professor at Columbia University, is generally regarded as one of the world's leading international trade theorists. Martin Wolf is an associate editor of London's Financial Times, where he writes on trade and much else, informed by many years as a World Bank economist.
Coming from India, one of the world's most impoverished nations, Mr. Bhagwati knows all too well that the critical economic question is not how to divide the pie but how to make it bigger. And trade remains, as he notes in "In Defense of Globalization" (Oxford University Press, 308 pages, $28), the most powerful way of doing so — a key to creating wealth and reducing poverty. For too long India and other poor countries saw the value of trade but wouldn't allow markets to make the important decisions. Instead, the state imposed its will, for example by forcing India to invest in capital-intensive projects — think of those hydroelectric dams — when it had almost no capital and a vast labor supply.
Antiglobalists argue that as Third World countries learn to exploit that vast labor supply, they will do harm elsewhere. A "common mistake," writes Mr. Bhagwati, "is to assume that trade in labor-intensive manufactures will result in exports from one poor country being piled on top of those of another in an endless process," depressing prices and lowering real wages in places like the U.S. In truth, he shows, poor countries ascend along "ladders of comparative advantage," shifting to capital-intensive exports as they prosper and never really "piling on" or burying rich countries in an "avalanche" of wage-destroying exports.
Mr. Bhagwati concedes that, at one time, multinational corporations — a favorite target of the antiglobalists — meddled too often in the affairs of foreign countries. But the spread of democracy, however imperfect, and the surveillance of the global media have together cast a cold light on such abuses, reducing them dramatically. Today the danger is the opposite: that do-gooding organizations will expect corporations to meddle in domestic politics against faulty foreign governments or somehow survive without their help.
In the late 1990s Royal Dutch/Shell, for example, was blamed for relying on the protection of the Nigerian government when its property was threatened with unlawful seizure. "But what other choices does a company have?" Mr. Bhagwati asks. As for Nigeria's troubles: "How export proceeds, revenue collections, oil royalties, and earnings are allocated" is "a decision of the Nigerian government," not of Royal Dutch/Shell. Critics wrongly conflated the two.
Mr. Bhagwati takes on many such antiglobalist arguments, showing them to be overblown or groundless. The lot of women and children improves with the opening of markets, and the environment too, not to mention the chances for democracy. Mr. Bhagwati does acknowledge some legitimate problems, such as those resulting from volatile international capital flows, which can trigger economic crises in countries with weak financial structures. The Asian crisis of 1999 is the obvious example.
Interestingly, Martin Wolf developed his own free-trade convictions in India, where he was assigned by the World Bank to study its exports. As he remembers in "Why Globalization Works" (Yale University Press, 398 pages, $30), he saw firsthand the damage done by "dirigiste" policies that tried to channel commerce and industry into areas favored by government planners and against those dictated by markets. One result was "epidemic corruption," as entrepreneurs sought ways around government controls.
Mr. Wolf also saw how the World Bank inadvertently supported harmful policies. Under the presidency of Robert McNamara, the bank's staff was pressured to lend "virtually regardless of the quality of the projects." And because the loans of the World Bank went to governments, "it reinforced an unjustifiably collectivist view" of the national interest.
It is comically ironic, then, to see antiglobalists attack the World Bank and International Monetary Fund. Both institutions do more to impede true globalization than to encourage it; and though both were created to foster growth, they more often than not thwart it. Most successful economic reforms, Mr. Wolf argues, develop indigenously rather than arriving, by decree, from the outside. He offers as an example the effort of Manmohan Singh to dismantle India's oppressive economic controls when he was finance minister in the early 1990s. It marked a sea change in India's fortunes. (Mr. Singh has just become prime minister.)
Mr. Bhagwati's and Mr. Wolf's books cover much the same ground, each to good effect. Their principal differences are stylistic. Mr. Bhagwati appeals more to professional economists, while Mr. Wolf aims at policymakers. Both books, though, are accessible and clearly argued. There is, one might say, a wealth of material on every page.