USA/Africa Dialogue, No 410: Globalization works!

SO YOU'RE not sure about globalisation and sympathise with its opponents? Read an excellent new book by Financial Times commentator Martin Wolf, who makes the case for globalisation, taking the arguments of its critics and demolishes them one by one.

"The failure of our world is not that there is too much globalisation, but that there is too little. The potential for greater economic integration is barely tapped. We need more global partners, not fewer, if we want to raise the living standards of the poor of the world.

"Social democrats, classical liberals and democratic conservatives should unite to preserve and improve the liberal global economy against the enemies mustering both outside and inside the gates," he argues.

Wolf shows that globalisation has been a progressive force throughout history, that the expansion of markets across borders is both morally and materially superior to placing restrictions on this process. After careful examination he finds the critics' arguments are flawed.

Says Wolf: "They are wrong about global impoverishment, corporate dominance, the threat to the sovereignty of the democratic state and the 'race to the bottom' in environmental and social regulation.

"But they are not wrong on all points. Critics are right about the hypocrisy of the developed world on trade liberalisation, although some critics are trying to make this hypocrisy worse through increased protectionism.

"Critics are right, too, that institutions set up to manage the global economy do not work as well as they might, particularly in finance."

What he shows unambiguously is that policies, institutions and processes that allow people across the world to access markets will lead to positive results.

The antiglobalisation movement is made up of a variety of interest groups. They include sectional interests traditionally opposed to free trade in order to protect their members against its harmful short-term effects (trade unions and some nongovernmental organisations).

The interest groups also include those that believe globalisation is inherently harmful (left-leaning environmentalists, some human rights groups and right-wing nationalists). In short, there is a strong antiliberal strain that binds diverse antiglobalisation groups.

For those who value freedom, this is a disturbing trend. Wolf gives detailed evidence that charges against globalisation have no real basis.

He shows globalisation has not increased inequality and poverty; that developing countries benefit from trade; that corporations have not become all-powerful; that the state is not withering away; and a liberalised capital account remains good despite the Asian crisis.

Each of the points is tackled in great detail. We have space for one example. Has globalisation increased inequality between rich and poor? Wolf shows that globalisation has led to economic growth for less-developed countries, which has had the effect of reducing global inequality and poverty.

China and India in the early 1980s were among the poorest countries in the world. Once they opened up their markets - externally and internally - per capita incomes rose rapidly. Between 1980 and 2000, India's real per-capita gross domestic product more than doubled, while China saw a rise in per-capita real incomes of more than 400%.

Today millions of China's and India's poor have experienced a substantial improvement in their standard of living. Even if, as is likely, inequality increased during economic liberalisation, global inequality would still have decreased as a result of millions of Chinese and Indians becoming less poor more quickly than the rich were becoming richer.

Economically successful countries all share a move towards a market economy, one in which private property rights, free enterprise and competition increasingly take the place of state ownership, planning and protection. They choose, however haltingly, the path of economic liberalisation and international integration.

"This is the heart of the matter. All else is commentary," Wolf says, arguing that countries should view globalisation as an opportunity rather than a threat.

Countries must develop institutions and politics that will allow them to take full advantage of opportunities offered by international markets. People's ability to take advantage of global market opportunities will depend heavily on the quality of their state. The snag is that quality states are hard to find.

There are no easy solutions to this problem, but Wolf gives advice. Problematic or second-rate governments should not engage in activities that can easily lead to inefficiencies and corruption.

"The more government focuses on its essential tasks and the less it is engaged in economic activity and regulation, the better it is likely to work and the better the economy is likely to run. Good markets protect governments just as good governments protect markets. They have a symbiotic regulation," he argues.

Good governments provide regulation and a predictable environment, which make markets work properly. By contrast, regulations or restrictions that create a gap between the market value of goods or services and an official price automatically create a leeway for corruption and should be kept to a minimum.

If governments are restricted in this way, and strengthened through the process, they will become better at making opportunities of globalisation available to their people. Unfortunately, it is difficult to make governments see the wisdom of this course because "predation is lucrative and attractive".

This is where globalisation can help to make governments better. By increasing competition among states, globalisation more readily imposes costs of bad behaviour and predation on states while giving a way out to victims of what is effectively government-sponsored theft.

Once such states run out of people on which to prey, they quickly see the error of their ways. In this respect, Wolf directs a final devastating broadside at the critics of globalisation: if one believes governments are always benevolent, wise and caring, one may well object to the pressure of globalisation.