Why Globalization Works

Citation

Khilji, T. (2005), "Why Globalization Works", Journal of Economic Studies, Vol. 32 No. 3, pp. 294-296. https://doi.org/10.1108/01443580510611065

The onslaught of globalization

In his recent book, Martin Wolf, chief economic commentator for the Financial Times, attempts to prove that globalization is not only the most viable means towards economic prosperity, but is an inevitable outcome dictated by the course of history. The book does not really argue in defense of globalization, as much as it attempts to build a strong case for why increased global integration will and must occur. In this respect it differs from other books on the shelf, Bhagwati's In Defense of Globalization, for example, which tends to make their case for globalization by defending it against other economic paradigms. Starting from such a vantage point, Wolf quite naturally argues that the world needs to embrace globalization, not resist it.

People have always had a strong tendency to interact with each other, both as individuals, and as nations. History is rife with examples of exchange and spread of ideas, technology and goods through travel and trade. In effect, by virtue of being social creatures, we have always pursued globalization in one form or another. The “modern” market, Wolf believes, is just the fruition of this inherent drive. The belief is that the global market economy is just a more advanced form of integration. It is better than previous varieties of globalization, because it propels and sustains growth, and provides greater opportunities to strive for what we desire in life. Hence, for all intents and purposes the idea behind modern globalization is nothing new. The current wave of globalization only differs in its speed from previous examples of economic integration. Therefore, the claim is made that the movement towards globalization is irreversible, at least in the long run.

An attempt is made to settle the globalization‐income inequality issue. Wolf claims that in all probability global inequality among individuals has decreased in recent decades, as has and the number of people living in extreme poverty. What is certain is that human welfare (as measured by indicators including life expectancy, infant mortality, literacy, hunger, fertility, incidence of child labor) has improved. Increases in human welfare during a time of greater economic integration helps to bolster Wolf's argument for more globalization.

Wolf believes that some of the critics' complaints against globalization are misplaced. For instance, the criticism that at least in terms of trade, “the treatment of developing countries by high income countries has been a disgrace” is a circumstance that has not come about because of greater globalization, but due to a lack of it, as reflected by imposition of tariffs and subsidies to protect local markets and livelihoods, at the expense of the greater welfare of the whole.

The case for globalization is further strengthened, by forging a link between the market and democracy. However, the market is assigned the dominant role for it provides the “underpinnings of stable democracies”. In this scenario, the prevalence of integrated markets and democracies across countries form the new world order – the liberal global economy. Wolf calls upon social democrats, classical liberals and democratic conservatives to unite in their effort to preserve and improve the liberal global economy. His rationale for this plea is the belief that the market and democracy together provide the preeminent means to greater prosperity. They also embody, instill and foster virtues such as trust, honesty, and credibility. What is implied is that the “market” and “democracy” and their proliferation (globalization) are intrinsically good. They become value‐laden, and are treated almost sacredly.

The problem is that a host of related issues emerge by assigning a value to these concepts. If markets are inefficient, or democracies fail, the governments, their politics and institutions are blamed exclusively, as nothing can be essentially wrong with markets or democracies. They – the market; democracy – get treated as entirely separate entities from the governments and institutions that support it. In fact, quite ironically, if one is to adopt this view, their legitimacy is above question, which undermines the new world order's claim to democratic representation.

By viewing “market”, “democracy” and their globalization as intrinsically good, Wolf makes it easier to view any criticism with contempt. He ends up on a somewhat slippery slope as he strongly accuses the critics throughout his book of being either lunatics or somehow intellectually less gifted. The idea that maybe the critics are not against globalization per se, but question certain manifestations of it, is ignored. Wolf often fails to note that criticism does not imply opposition – one can criticize an idea and yet, not be against it.

Part of confusion comes from Wolf's idea of what a market or democracy is. Democracy and markets take on many forms, with some better than others at achieving certain ends. All these forms collectively contribute to our understanding of the market and democracy. The government, politics, institutions, and a number of other factors – social, historical and geographical – help determine the form of democracy and of markets. To say that the market and democracy are inherently good would be to miss the point. They are independent of value, as there have been instances of market failures, and of democratic breakdowns, just as there have been instances of their successes. What is important is the form they take, and the form they take depends partly on the prevailing circumstances and initial conditions of a market or democracy's birth. For instance, a democracy in a tribal society will differ in crucial respects from one in an industrial society. A democracy in a post‐war country like Iraq will differ from one in a stable country like the UK. Similarly, markets without adequate institutions will differ in important respects from markets supported by proper institutions. While Wolf may not deny this, he may deny that “non‐optimally” functioning markets and democracies are true markets and democracies. However, that is not the case, as they contribute as much to our understanding of the market and democracy, as do the latter examples. We learn lessons and build our understanding from all types of markets and democracies.

In the case of Wolf's basic argument for our strong propensity to interact, we notice an equally powerful propensity for disengagement. The tendency towards anti‐globalization is at least as strong as the tendency towards forms of globalization. We notice countless examples of people and nations creating barriers on the basis of race, religion, income, education, gender, trade etc. For instance, the USA pursed an isolationist strategy in the earlier part of the twentieth century, while remaining a dominant power in the world. China, presently the fastest growing economy, is centrally planned. The caste system of India is a reflection of social fragmentation. Therefore, it seems that the human inclination to isolate is as strong as the tendency to interact. Both human tendencies seem to co‐exist. The point overlooked is that we integrate and isolate depending on certain geopolitical and economic circumstances, and perhaps there is nothing absolute in our nature that drives us towards interconnection. Therefore, it is not surprising that Kerry's USA does not champion outsourcing, whereas Jiabio's China is keen to open its borders further.

If we scratch beneath the surface, and take into account the diversity in forms of markets and democracies, in addition to our dualistic tendency to disengage and integrate as people, we get an entirely different picture from what Wolf tries to portray. For instance, we observe that when stronger nations, generally the most enthusiastic proponents of globalization, want to integrate (or globalize) with relatively poorer nations/regions of the world, there is a clash. This is because respective democracies and markets differ across countries and regions, and there will naturally be an adjustment process. As the rules of integration (and disintegration) are laid out, usually ones that favor the stronger countries, the irony becomes apparent, as proponents of globalization begin to pursue policies that are protectionist, through an increase in tariffs and agricultural subsidies, for example. Both forces – integration and isolation – are apparent here, and they set themselves into play, as the balance of power begins to tilt. And obviously these opposing tendencies hold true for the poorer countries as well. The point worth noting is that globalization may not always be attractive for everyone, at least in the short run, as the perceived economic consequences may be severe.

Why Globalization Works in the end provides us with a thought provoking argument for a world in which globalization must work. The book remains true to its aim, it is persuasive, but whether it is persuasive enough to convince the skeptics remains questionable.