Rival visions of globalisation - anything new after September 11th?

Dr Razeen Sally

January 2002.

It is said that September 11th has changed the world. Has it changed the climate for economic globalisation?

True, prospects for an already slowing world economy have worsened, although this may be a blip on the screen. Much depends on how the international political situation evolves. “Crisis” interventions have multiplied, especially in the US. The extremist anti-globalisation camp has gone quiet, at least for a while.

Nevertheless, the era of globalisation is far from over. Like Mark Twain, rumours of its death are exaggerated. The reintegration of the world economy in the last half-century has created sufficiently robust linkages to withstand occasional crises. Moreover, the underlying debate on globalisation has not changed. The world is still confronted by the rival visions of globalisation clamouring for attention pre-September 11th.

Anti-globalisation sentiment has always been around, including a root-and-branch rejection of capitalism. Less easy to dismiss is a more mainstream critique, which could be termed Globalisation and Social Democracy. This vision recognises some of the benefits of market-based globalisation. Nevertheless, it rejects the comprehensive liberalisation attributed to the so-called Washington Consensus, and advocates more-or-less radical change in the governance of the world economy.

This vision was powerfully reiterated by Mark Malloch Brown, the Administrator of the United Nations Development Program, at a recent public lecture at the London School of Economics.[1] His core diagnosis is twofold. First, globalisation is an engine of inequity, creating minority winners and majority losers within and between countries, and particularly marginalising and excluding the poor in the developing world. Second, the nation-state is in retreat. The core prescription follows: “global solutions” are needed to provide “global public goods”. Global governance should take the form of partnerships involving governments, international organisations, NGOs, international business and organised labour, acting in concert across a very wide range of public policies.

A more systematic, economically literate treatment in this genre comes from Dani Rodrik, the brilliant Harvard economist.[2] Professor Rodrik argues that as globalisation bites deeper into national social fabrics, conflicts emerge over domestic norms and institutions. What is needed, therefore, is a trade-off between the gains from globalisation, on the one hand, and domestic social stability (especially in developed countries), on the other. Developing countries should also be able to restrict imports and pursue industrial policies as part of their development strategies. This leads Mr. Rodrik to advocate a “social-cum-development safeguard clause” in the WTO, which would sanction considerable trade protection by both developed and developing countries.

Set against Globalisation and Social Democracy is the case for a liberal international economic order, which goes back at least as far as David Hume and Adam Smith.

In this vision, globalisation is essentially a positive-sum game. Basically, removing restrictions on trade, capital flows and the movement of people expands the freedom of individuals to choose how to dispose of their property rights and strike contracts with foreigners. This allocates resources more efficiently and, over time, feeds into productivity gains, a rise in real incomes and economic growth.

Often overlooked, there is also a moral case for a liberal economic order, which is based on individual liberty as a “good” in itself. This includes the freedom to engage in international transactions. Free choice, moreover, is the foundation of the “wealth of nations”, enabling the broad mass of individuals to lead more varied and interesting lives. Freedom and prosperity, therefore, are two sides of the same coin.

Economic liberals would argue that the evidence of economic history is on their side. Countries that have become more open to the world economy have grown faster, i.e. become richer, than those that have remained closed. Indeed, no country on earth has delivered a sustained rise in the living standards of its people without being open to the world.

A new World Bank study, for instance, concludes that 24 developing countries, with a total population of 3bn, and with progressively more liberal trade policies, are increasingly integrating into the global economy. They have rising shares of manufactures in total exports; their ratios of trade to national income have doubled since 1980; and the growth of income per head in this group has increased from 1 per cent a year in the 1960s to 5 per cent in the 1990s. The bad news, however, is that about 2bn people live in 75 countries with stagnating or declining aggregate growth. These happen to be countries that have liberalised less, although they suffer too from other intractable problems, such as poor climate and geography, rampant disease, civil war and chronically corrupt governments.[3]

Globalisation, then, is growth-promoting. Growth, in turn, reduces poverty. China is the emblematic example, with over 300 million people lifted out of absolute poverty since 1978. This reflects the wider East Asian experience of dramatic poverty reduction in tandem with external opening and high growth over the past three-and-a-half decades.

This is not to say that trade and other forms of liberalisation are a panacea. Other policy changes and thoroughgoing institutional reform are also vital. On the other hand, huge political, financial and technical obstacles block the path of sustainable policy reform, especially in developing countries, and these constraints differ between countries and regions.

Still, bearing these caveats in mind, the liberalisation of international transactions is good for freedom and prosperity. The anti-liberal critique is wrong: marginalisation is in large part caused by not enough rather than too much globalisation.

One final point. “Global governance” advocates are wrong in saying that the nation-state is in retreat. Quite the reverse: national governance is as vital as ever. Not least, national trade, exchange rate, capital market and migration policies determine how integrated the national economy becomes with the global economy. Globalisation continues to depend fundamentally on law-governed nation-states and the exercise of national policy choice.

This is not to deny the importance of well-designed international co-operation where necessary, as a helpful auxiliary to national governance rather than as a substitute for it. Unfortunately, most international organisations have been meddlesome, bureaucratic failures. The GATT, on balance, was an exception, with a relatively clear mandate – to progressively liberalise international trade through non-discriminatory rules. These rules on the whole limited rather than expanded the ability of governments to intervene in markets in an arbitrary and discretionary manner.

September 11th has not fundamentally altered the debate on globalisation, but it does reinforce the need for more, not less globalisation. Market freedoms enable the progress out of poverty to prosperity, and are vital to civilised life across the world. Their expansion in the poorest countries on earth is arguably the best long-term insurance policy against religious fundamentalism and international terrorism.

2 Dani Rodrik, Has Globalisation Gone Too Far? (Institute of International Economics, Washington DC); “Trading in illusions”, Foreign Policy, March/April 2001 (www.foreignpolicy.com)

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