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April 24, 2006

A Skeptical Globalist

In the New York Review of Books, John Gray reviews a number of books relating to the issue of globalization and presents a skeptical look at the issue of whether globalization is likely to lead to either universal peace and prosperity or the impoverishment of the Third World. (Note that I am imputing the positions of the reviewed books to Gray because he seems to accept the general theories that the authors advance and I am too lazy to discuss each book separately.) His conclusion is that neither is likely, largely because globalization is essentially a phenomenon of the developed world that essentially ignores the poor countries.

The belief that financial globalization is promoting economic development in poor countries is also delusive. Global financial markets have few incentives to equip poor countries to be globally productive. It may be profitable to computerize a grocery store in New York, but in Lagos customers are too poor to pay the prices required by such investment. The result is that technology is very unevenly diffused, and the poor stay poor.

At the same time, neither is globalization causing the impoverishment of the Third World.

The poverty of developing countries is often blamed on unfair terms of trade, and there can be little doubt that protectionist practices in agriculture both within the EU and in the US, for example, have hindered poor countries; but Cohen argues that on the whole trade is not as unequal as has been widely thought. The basic reason that poor countries stay poor is that they have little that rich countries want or need.

He argues that the idea that globalization, to the extent it exists, imposes a single development strategy (i.e., the “Washington Consensus”) on countries is not true because there are a wide variety of market and non-market economies that are still functioning. But, this also means that the idea that the world is converging toward a universal system of democratic capitalism is wrong; as an example, he cites Russia as moving toward what he calls “traditional Russian authoritarianism.”

Gray questions whether globalization can ever succeed exist because its spread will be limited by the effects of increased use of resources to fuel economic growth. He sees two consequences of this. First, Gray believes that the case for negative effects of global climate change caused by human economic activity is largely proven and he presents a dire picture of ecological changes in the future, which will disrupt economic activity. Second, the competition for scarce resources will lead to increased geopolitical conflict, as we are starting to see with respect to the Chinese quest for energy. Ultimately, he thinks the combination of these factors will lead to a disruption in growth of the globalized economy.

As the reverse side of globalization, environmental crisis could well derail it. If there is a way forward it lies in the intelligent use of science and technology to develop less dangerous sources of energy; but it is a mistake to think that a large change in the way we live can now be avoided. Climate change cannot be prevented, only mitigated, and whatever is done to deal with its effects there is sure to be large-scale disruption and conflict. The defining feature of the industrial civilization that is spreading everywhere is exponential growth; but such growth is eventually self-limiting.


Finally, Gray accepts the idea advanced by one of the authors that unconstrained globalization is not good for the United States, at least in the sense that it means that government abdicates any responsibility for the national interest in favor of allowing market forces to determine economic outcomes. He argues against the idea that increased globalization will necessarily lead to greater stability and peace. He points out that the world economy was actually more integrated in the early part of the 20th century, but that did not stop World War I from happening.

The long supply lines of the global production chain extend into many countries ruled by authoritarian regimes. Any serious threat to these regimes will have global repercussions, and it will not be easy for democratic states to side with dissident movements. Free trade requires stability more than democracy, and this is especially true when production is globally dispersed. At the same time, stability is not ensured in the current state of international affairs. As in the past, states have divergent strategic objectives; they prize their own security highly and will seek to thwart global market forces if they seem to threaten what are seen as vital national interests. It is only reasonable to expect that these differences will sometimes lead to conflict.

My personal belief is that, on balance, globalization--to the extent it exists--is probably more beneficial than it is harmful. But I think Gray is correct that globalization is not a self-correcting mechanism any more than markets themselves are. People often accuse those concerned about outsourcing with being "protectionist" but it's not unreasonable for workers to worry about their jobs leaving. Simply assuming that the market will replace those jobs is not much comfort. The point is that globalization does have a dynamic of its own, whose consequences are often, but not always, beneficial to society. Government needs to manage these dynamics--difficult as that undoubtedly is--rather than simply let itself be swept along by the tide.

Posted by MW Schneider at April 24, 2006 02:31 PM
Comments

Excellent points and well said.

Gloablization is truly a misunderstood mixed bag. I don't claim an ability to fully visualize its effects and I'm far from alone. For this reason, its results are easy to exploit since the information on its effects are often asymentrical or cloudy.

An important point is that growth fuels pursuit of finite resources...which will and do lead to international conflict and tension.

On a personal belief note, I think globalization is not done, in practice, that way its sold in spirit. Much like anything involving money and power, it's corruptible and exploitable to favor groups with more financial influence.

Energy resources aside, I believe the rules of conduct need to be more fair...both from the developed world in terms of not rigging the rules and the third world in terms of basic rights and regulations. This will do more to create stability in poorer countries where it is needed. But, as the author mentions, what's best for the people in these poorer countries, may conflict with our convenience...not to mention the power of corrupt. authoritarian leaders whose cooperation we need to make things better on our end. Dicey, dicey topic.

But still, it's truly one of the more important issues of our time since it touches so many things.

Posted by: John at April 24, 2006 03:38 PM

It may be profitable to computerize a grocery store in New York, but in Lagos customers are too poor to pay the prices required by such investment. The result is that technology is very unevenly diffused, and the poor stay poor.

Forgive me if I'm wrong, but doesn't this mean that customers in Lagos say less poor than if they did have to pay for computerization they can't afford? It seems to me that customers in Lagos are actually wealthier when they don't try to invest in advanced commercial technology they don't need--or at least that they can't operate at a profit.

Posted by: stutefish at April 24, 2006 04:03 PM

Gray's first contention, even should you accept it (and I don't) is a complete non sequitur, and you'd think such a highly credentialed philosopher would know better. His second isn't far behind.

Globalization isn't all that controllable in any case. It's a non-linear organic process, not a conscious mechanistic one. And it's much misunderstood.

The point is that globalization does have a dynamic of its own, whose consequences are often, but not always, beneficial to society. Government needs to manage these dynamics--difficult as that undoubtedly is--rather than simply let itself be swept along by the tide.

It has very complex dynamics (plural), but oh my yes, indeed. We can and should try to manage the aspects of it that affect us adversely, rather than just lay back and accept it all as inevitable. Water flows too, just as does change, but that doesn't mean you shouldn't build reservoirs or canals.

Posted by: Tully at April 24, 2006 04:21 PM

What on Earth leads you to believe that government(s) can "manage" the dynamics of globalization?

Posted by: Joshua Macy at April 24, 2006 04:59 PM

How can we control the effects of globalization??

Without specifics, the same we control capitalism with certain measures to protect workers and businesses alike.

If I may attempt the wonk role for a moment, since globalization is harder to deal with than domeastic capitalism due to the integration of vastly different economies, I believe, at least in its infancy, that, first, conditions need to be considered to evaluate strengths and weaknesses of different countries and economies.

Basic standards need to adpoted that help blend the needs of the first and third world. Third world countries need to be allowed to exploit their strengths (cheaper labor, raw materials and agriculture) without ignoring basic human rights and working conditions to allow them a better quality of life and the ability to consume goods.

First world nations, mainly need to be mindful of these goals and support their implementation without being clouded by benefits of ignoring these measures. We have a real problem with this one and are often made to look like hypocrites...not to mention that we hurt the spirit of globalization and the good it can do. A medium consensus needs to be found.

Ofcourse, this inomplete. But it gives an idea of how intervention can help.

Posted by: John at April 24, 2006 05:11 PM

I agree with John. Clearly, you can't "manage" globalization in the sense of planning how it spreads or operates, but you can manage at least some of the consequences. I would be very disturbed to think that globalization is beyond all control and that we just have to accept any negative consequences. I understand that you may argue that, as a policy position, it makes more sense to accept short-term pain for long-term gain, but that's different than saying there's nothing you can do about it.

And, obviously, not all governments can do this. It's only the major economies, ie, Europe, the US, China, and Japan that could do this.

Posted by: Marc at April 24, 2006 05:17 PM

I just returned from Puerto Rico, an alpha tester of globalization, and am in a strongly pro-globalization mood. More on that in a separate post later. Of course Gray is right that globalization doesn't prevent war. But it does help stability by keeping boats rising most places where it's allowed.

Cohen and Berger fail to understand IMHO the biggest bit about globalization: the associated rising spiral of value and pay in globalized economies (see http://www.centristcoalition.com/blog/archives/002332.html). The US climbed the ladder of agriculture, industry, and now information, and at each stage are letting (with, alas, concomitant job loss) worse-paying jobs go to countries lower on the ladder that value them. Lagosians don't care about computerized checkout counters, but they do care about getting jobs atall, even at the lowest rung, with hope of moving beyond to industrial jobs.

So far, all the evidence of the "downward spiral" I've seen has been the anecdote. Do some peoples' salaries get pulled down? Yes, unfortunately. But more peoples' clearly go up. Not only do increasing product values allow for an upward wage spiral, but the numbers show it.

And contra Lynn, it looks to me like globalization DOES raise stability. He opposes his hypotheticals of many things going wrong at once to the observable reality of us being at war with unhappy people in the only broadly unglobalized region. Hmm....

Unlike Cohen, Gray, of course, is also unaware of the ongoing and clear pattern of exponentially increasingly efficient physical resource usage. One hectare gets you so much more that in this country we're continuing to export food while returning land to pre-cultivated status on a large scale. We find more and more efficient sources of energy; far less mining has to be done to run nuclear plants than oil or gas plants. Plus, pricing effectively imposes a discipline on the market; new hardwoods continue to be available today, thanks to that discipline. That's why globalization can be eternal.

Posted by: Jon Kay at April 24, 2006 09:23 PM

The point about stability and globalization is that trade links don't automatically lead to peace. The fact that various countries are all tied together in trading relationships doesn't mean that those relationships can't be broken or, even, that those relationships could actually exacerbate tensions. For example, China and the US are both entangled in each other's economies to the extent that one or both might miscalculate during a crisis in one of two ways: (1) one or the other might think they have leverage they could exploit (eg, the Chinese holding so much US debt) or (2) that the trade relationships mean that one or the other would be insulated against actions by the other side or by a third party (e.g., if the Taiwan were to declare independendence and the US thinks China would not react militarily because of its trade ties with us).

I don't think anyone (including Gray or the authors he discusses) thinks that, by itself, it's not better to have trading and economic relationships than to not have them. And they can create more stable relationships. But, many pro-globalization advocates think that economics will automatically trump political considerations and that globalization will, therefore, lead to a peaceful steady-state. I don't think this is necessarily true.

Moreover, as the article points out, a little hyperbolically I think, trade relationships can put countries in a compromised position vis a vis things such as human rights. Let's face it, how far is the US likely to go in confronting China on human rights issues when it holds so much of our debt and our business community is so enmeshed in China?

Posted by: Marc at April 25, 2006 09:27 AM
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