Friday, July 06, 2007

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.

6 comments:

ADHR said...

Actually, the excuse for Bhagwati's bad writing is probably not his origins. He was educated in England almost 50 years ago, so if he hasn't picked up the language yet, then something's wrong with him. It's probably a case of a prolific and respected economist not being held accountable by an editor. You see this occasionally when it comes to known quantities in a field. Dan Dennett, for example, seriously needs an editor.

Bhagwati also has a freakin' huge CV of stuff defending and criticizing international trade structures. One book, for a popular audience, unfortunately probably won't be enough to get his considered position clear. If you're finding that things are missing from this book, you can probably get answers to your questions in some of his other works. This is just his books. I'd recommend working through some of the collected volumes of peer-reviewed papers; that'd probably contain some of his stuff that actually analyze data. I've read a couple of his journal articles, and they're more detailed than it seems the book was.

undergroundman said...

You're likely right about his writing.

Bhagwati also has a freakin' huge CV of stuff defending and criticizing international trade structures.

CV?

One book, for a popular audience, unfortunately probably won't be enough to get his considered position clear.

True - but that doesn't mean it shouldn't be enough to make his position clear. I have no desire to ever read anything by Bhagwati again, regardless of his credentials.

One Amazon reviewer hit the nail on the head:

"De Soto -- who, having written a few, should know about such books -- claims that this book will make history. For the sake of Bhagwati's legacy, let's hope not."

What did you think of his papers? What's your position on globalization, outta curiosity?

ADHR said...

CV = curriculum vitae. An academic resume listing all publications, presentations, degrees, courses taught, etc, etc.

Bhagwati is one of those guys who writes a lot. And I mean a lot. His publication list is huge. Consequently, some of his works are working out of ideas, and others are more comprehensive. It's possible you hit a book that isn't as comprehensive as you would have liked.

His other, peer-reviewed, stuff seems fine to me. I'm no economist, so he may be making technical errors that I just don't see. But he seems reasonably careful in his analyses.

As far as "globalization", since it's actually several different phenomena, it's hard to have a strict answer. On the issue of trade, which is the one I've spent most time thinking and working on recently, I think it's pretty clear that more and freer trade = good thing. Labour standards and corporate responsibility are issues I haven't dealt with in any depth, so I don't have much of a settled position on them.

undergroundman said...

I'm no economist, so he may be making technical errors that I just don't see. But he seems reasonably careful in his analyses.

Economics is often riddled with huge holes because it relies so much on theory without empiricism. Economists like the theory because in a way it's easier - you just think abstractly. The empirical work is also incredibly difficult to gather, relying on statistical inferences and probabilities. Economists are plain stupid in some respects (see efficient markets theory, the dumbest thing to academia since communism).

What bothered me the most about the book was that he covered the most important issues (corporate responsibility and environmental issues; race to the bottom) casually. He didn't use hard data. There was maybe two tables in the entire book. He spent almost all his time waxing philosophical.

On the issue of trade, which is the one I've spent most time thinking and working on recently, I think it's pretty clear that more and freer trade = good thing.

Good to know. You'd like economics, I think. :p

I'm probably more dubious than you about free trade because I've spent so much time being subjected to overly simple models, and then being told that this is the reality. I also haven't been convinced that the race to the bottom in environmental standards "simply isn't happening" as Bhagwati says. That claim not only contradicts theory - it also contradicts the examples I've read in textbooks and news (i.e., China). In the long-run, yes, the GDP growth will more than likely eventually increase environmental standards - but at what cost?

One other thing which economists disdain is quality. They often try to say that enforcing quality in imports is "veiled protectionism." But read up on what the Chinese are doing to the food we import. It's called adulteration, and it's patently dishonest for economists to pretend it isn't happening or that it isn't a major concern. Then again, economists are probably right in that tariffs aren't the right answer.

Similarly, countries should be able to block the imports of lead toys, hazardous materials, milk pumped with bovine growth hormone, or beef not tested for mad cow disease. Yet, often enough, the WTO calls those blocks "protectionism" and fines the countries doing it. It's ludicrous.

I also think import substitution industrialization (ISI) is intriguing, though in these days tariffs are a bad way to accomplish it. On the other hand, certain aspects of ISI seem to be awfully successful - keeping the domestic currency undervalued has been China's tactic from day one, and look at how it.

ADHR said...

Strikes me that the problem may not be too much theory, but too much bad theory. ;)

The trick, I think, to making international trade better from the point of view of environmental and labour standards is to rejig the regulation of the international markets. Domestically, we force companies to adhere to certain basic standards if they want to play in the markets: for example, we enforce minimum-wage laws. There's no in principle ground, as far as I can see, for not extending this to the international agreements that govern international trade. Yet, there seems to be a reluctance or an unwillingness to force various nations -- China, for example -- to implement structural reforms in return for being allowed into the international market.

That would also work as a justification for so-called "protectionism". Just as an American or Canadian company has to be inspected and held to certain standards in order to produce various kinds of goods, so, too, any company that wants to export into the US or Canada should have to live up to those standards. The really nasty way to implement this, of course, is to force the importers to ensure that the exporters are up to snuff.

I'd have to be convinced that the benefits alleged to be the result of ISI couldn't be achieved as well if not better from other policies. Locking down domestic markets is generally a disastrous move, so I'm not sure why placing heavy barriers in an international market would work. Of course, the distinction between a legitimate regulation that internalizes externalities and a protectionist barrier is a bit like the terrorist/freedom-fighter distinction.

undergroundman said...

Strikes me that the problem may not be too much theory, but too much bad theory. ;)

Well, theory without empirics can lead you astray simply because sometimes theory without empirics cannot be right without theory; it is disconnected from reality. Maybe theory without empirical foundation is by definition bad theory, though -- in which case you're right. ;)

There's no in principle ground, as far as I can see, for not extending this to the international agreements that govern international trade. Yet, there seems to be a reluctance or an unwillingness to force various nations -- China, for example -- to implement structural reforms in return for being allowed into the international market.

I think the exact same thing. But that gets us into a moral dilemna: China needs its coal plants to pull itself out of poverty. The Western Nations polluted the world for two hundred years, but now the West gets to decide that the East cannot pollute and thus cannot industrialize? Plus, I know the Economist wrote only a few months ago that China is the greatest investor in wind energy. China is on environmental rampage right now, but it's killing perhaps hundreds of thousands of people and irreparably harming some of China's ecological assets (land, water, air -- economists do consider these to be very important, and not just for tourism business). The good news is that there's a growing environmental movement in China.

It's a dilemma, but there are solutions. You heard about the Kyoto Protocol? China was exempted from it -- the US threw a hissy fit and didn't sign it.

Really, my criticism is less with the developing nations and more with the US and economists like Bhagwati, who 1) try to pretend environmental damage doesn't matter/doesn't happen, and 2) don't really want to the US to pony up and pay its fair share of the damages it has inflicted and continues to inflict.

The really nasty way to implement this, of course, is to force the importers to ensure that the exporters are up to snuff.

You mean allow the importers? The WTO would strike that down pretty fast, probably, but who knows. Likely something similar has already been or is being covered. If the importers are inspecting these things, there's some concern that they will do a bogus job of it -- but if the agency doing the work was set up right (i.e. independent with honest and concerned leadership) I could see it working well. The indisputably important wild card is always the individual leaders in these sorts of plans.

I'd have to be convinced that the benefits alleged to be the result of ISI couldn't be achieved as well if not better from other policies. Locking down domestic markets is generally a disastrous move, so I'm not sure why placing heavy barriers in an international market would work.

Yeah. ISI is basically bullshit -- I was more hitting for export-oriented industrialization, the strategy of China. South America has been doing ISI and we've seen what it's done for them.

Of course, the distinction between a legitimate regulation that internalizes externalities and a protectionist barrier is a bit like the terrorist/freedom-fighter distinction.

Hey, getting the econ lingo down! I like it. ;)

Economists like to say that it is, but I don't think it's too hard to distinguish the good tariffs/regulations/taxes from the bad. I think the people at the top know the difference between good and bad -- but they don't necessarily make the right choices, because they're corrupt and/or biased.

The WTO rejected the EU boycott on GM foods and milk from growth-hormone pumped cows because they hadn't been found by science to be harmful. I think it's clear that a precautionary principle needs to be applied in these cases. They haven't been around nearly long enough to study any long-term effects. In these cases it's hard to even trust the science because so many of the Ph.Ds in biochem are connected to the industry through companies like Monsanto.