In Defense Of Globalization

In Defense of Globalization was written by Jagdesh Bhagwati, an acclaimed international trade economist and *cue spooky music* Council On Foreign Relations Fellow. The inside cover even claims that this is a "Council On Foreign Relations" book. It's no surprise that I picked it up, then.

What struck me the most early on in the book was the language barrier: Bhagwati's first language is clearly not English. It is hard to hold that against him, but the crudeness of some of his writing is painfully obvious. The book rambles absentmindedly, touching upon economic issues in one paragraph, moral issues in the next, and rants the next. The disorganized, muddled structure of the writing cannot be blamed on the language barrier. Strangely enough, this strange, circumlocutious writing style is common among economists, who seem uncomfortable when not doing equations.

Chapter 1 - Anti-Globalization: Why?

Bhagwati makes the fair case that most of the anti-globalization movement has not done the research on globalization and does not understand economics. They are often young people who "see capitalism asa system that cannot meaningfully address questions of social justice." He laments that the view of capitalism as a "system that can paradoxically destroy privilege and open up economic opportunity to the many " is still uncommon, and points out that "by replacing markets systemwide with bureaucratically determined rations ... worsened rather than improved unequal access."

Already I am suspicious and irritated - there is no mention of the financial power which can accompany capitalism and has meddled in American government for so many years. Sure, it's easy to make "capitalism" sound good when you compare to "socialism" a la a centrally planned economy. But where is the mention of welfare capitalism? What about the more legitimate argument that the globalization has thus far allowed corporations to consolidate too much centralized power and market share themselves? Nowhere in the entire book do I recall Bhagwati making an informed criticism of multinational corporations and unchecked capitalism despite its many abuses.

Another interesting drive which pushes young people to protest globalization is "the dissonance that now exists between empathy for others elsewhere for their misery and the inadequate intellectual grasp of what can be done to ameloriate that distress." He does not add that few of these empathic young people are willing to sacrifice their dollars to help - that may be an unfair criticism, considering how little dollars most of them have. He references the empirical ethics of Hume and Smith, noting that while humans feel under "Hume's concentric circles of reducing loyalty and empathy ... the Internet and CNN have [taken] Hume's outermost circle and turn it into the innermost." When we see and hear the cries of the poor and weak, they become more real to us. On the other hand TV and the Internet have "[shifted] us steadily out of civic participation, so that the innermost circle has become an outermost one."


This book is rich and full of ideas, even if they are spread fairly haphazardly throughout the book. It would be impossible for me go through all of them.


For all this, the book received high praise; for example:

"This book will make history. It will also be a blockbuster, not only because of the depth of Bhagwati's powerful argument backed by extensive research, but also because it is immensely readable and surely the most humorous piece of economics ever written."
-- Hernando De Soto

Humorous? While I respect De Soto, I wonder whether we both read the same book. Econ humor? Here's a joke:

I recall particularly the Cambridge Union Debate, where, astonished that free trade being blamed for environmental problems and other ills in the world, I replied to Teddy Goldsmith by recalling Balzac's 1831 novella ... "Mr. Goldsmith", I added, "you seem to have with you a similar monocle, except that when you use it and see us wonderful free-traders, you find us turned into ugly monsters, our halos turning into devil's horns!"

Hahaha - I see! Free-traders are angels and all of us who see a potential danger of to the environment from free-trade are somehow deceived? Then show us how we are wrong. Bhagwati's environmental chapter seems focused mainly not on environmental harms but rather on the ethical question of how we should value the environment.

Chapter 11 - Environment In Peril?

Of course, increased GDP per capita strongly correlates with reduced outputs of certain pollutants (everything but CO2 and garbage), and that free trade increases GDP growth. But what about corporations outsourcing work to places with lower standards? What about those nations (of which there are plenty) which will increase their pollution with increased production? How bad is the problem, and what can we do to alleviate it? Bhagwati answers none of the questions. Instead, here are his words: "Even God does not know what sustainable development means". He compares it to socialism - as if it was so hard to understand the eminently reasonable and doable concept of Cradle To The Grave.

Chapter 12 - Corporations: Predatory or Beneficial?

Bhagwati spends a fair amount of time claiming that "anti-corporation arguments are not supported by the facts" but not all that much time showing it. He introduces the topic by referring to an old Woody Allen joke:

There's an old joke... two elderly women are at a Catskill mountain resort, and one of 'em says, "Boy, the food at this place is really terrible." The other one says, "Yeah, I know; and such small portions." Well, that's essentially how I feel about life — full of loneliness, and misery, and suffering, and unhappiness — and it's all over much too quickly.

But does he have a point? Yes, corporations cause problems, but let's be realistic: they are the only force in the world capable of increasing GDP growth. Let's not pretend foreign aid to corrupt governments is useful. Corporations are often a necessary evil. They will always try to extract as many profits as possible, imposing external harms in the form of pollution while they do; they will use the means of lowest cost possible in many cases at the cost of their workers. Sometimes they will use the government to help them form a monopoly, as Telmex in Mexico has done. The main question, then, is to what degree can we get away with regulating corporations to keep them in line, and to what degree this will be efficient -- to what degree it will be on net beneficial to society and the environment. But Bhagwati does little real in-depth analysis of corporations. His one big point (and it is a big one, I suppose) is that corporations pay a "wage premium": they pay an average wage that exceeds the going rate, mostly up to 10 percent and exceeding it in some cases ... from 40 to 100 percent." This is fairly powerful.

We don't have the power to tighten the noose on corporations globally - increased regulations in a developing country could discourage corporations from coming to that country. Bhagwati claims that the effect is not significant empirically, but provides no numbers. Instead he references an economist who simply says that "regulations do not matter to site choice." (Should be "for site choice" - the constant little grammatical mistakes of these economists is annoying.) He points out that multiplant firms "invest in different locations, as multinationals often do, they tend to work uniformly witht he most stringent standards they face among these locations ... simply put, it is more cost-effective to run all of their plants with the same basic technology, so we get a race to the top."

Chapter 13 - The Perils of Gung-ho International Capitalism

This is the one area where Bhagwati criticizes the status-quo and ironically enough decries the "Wall Street-Treasury Complex." He says the East Asian Financial Crisis was caused by a lack of controls on the flow of capital. I'm not very well-educated on this stuff and I'm getting very tired of typing so I think I'm about done.

Conclusion

Unfortunately I've tired myself out and can't write a decent conclusion. When I began writing I wanted to end on a very critical note. In large part I was frustrated by Bhagwati's terrible grammatical style, rambling paragraphs, and lack of hard data. He doesn't get in deep and analyze actual policy, nor does he recommend any improvements. He points out flaws in our current system only in very general terms, or with convoluted logic and unexplained acronyms. This book was billed as a masterpiece but it is thoroughly second-rate. If this is the best defense that a star economist can do then perhaps we shouldn't be trusting them on their data. The interesting thing about economic science is that it sometimes seems as if the only people who really understand and follow it are the economists. Sometimes one has to wonder whether the Emperor Really Does Wear No Clothes. Shamefully written; I would give it two out of five stars or so. The ideas and the arguments are OK - good, even, but the presentation and the flippant, casual manner in which the arguments are made pulls the quality down. Concerns and examples which many of us know happened are not mentioned, which leaves me suspicious as to what else is being left out. There is a good review on Amazon expressing the same sentiments.