Making Sense of Economic Globalization

In the midst of all the turmoil over the past decade, which brought us not only a "new economy" (and an accompanying recession), but new threats to our physical and psychological security, it can be difficult to navigate the terrain surrounding "globalization," one of the most used (and overused) buzz words to emerge in recent memory. People speak of the globalization of culture, religion, information, media, crime, social movements and of politics, but the heart of this massive shift toward the global is undoubtedly trade and commerce, with all the controversy that surrounds it.

"Globalization" may be one of the few words to be its own antonym. To many, it means bringing the benefits of wealth to the world's underprivileged. Globalization of trade is the only means that will ensure, through sustained and rapid economic development, nothing less than the peace and prosperity of the whole world. Economic development increases the chances that a country will embrace democracy, the theory goes, and democracy in turn increases a country's willingness to open itself to trade. More on this later.

To others, the globalization of trade is synonymous with environmental destruction, the shrinking of labor and civil rights as well as the weakening of national governments, the bullying of smaller nations by bigger ones, and secret, backroom decisions made by elitist organizations. From this perspective, globalization is nothing less than the antithesis of democracy, and the more democratic a country becomes the less likely it is to embrace trade liberalization.

So, who is right? As with all important and controversial debates, there is truth to both sides. And as with most public, heated controversies, each side has its serious blindspots, making true dialogue so far difficult. While we don't have space to do justice to all of these issues, we'll look closely at one of the most important elements of the globalization discussion: free trade.

Free Trade-Panacea or Poison?

Something often heard in the globalization debate is the need for (or against) free trade. By "free trade" is meant the elimination of legal and practical barriers to international commerce, including tariffs, quotas, and subsidies. Tariffs and other barriers to trade come in all shapes and colors. Taxing a particular class of goods at the border is one kind of tariff; subsidies to domestic producers of a good (in order to enable them to sell their product at an artificially low price, thus undercutting competitors) is another kind of limitation to trade. "Free" trade would have none of these walls, and thousands of pages of economic analysis since the 1700's onward have been devoted to extolling the potential benefits of free trade. Globalization boosters cite these arguments often, saying that a poor country need only tear down its limitations to trade and wealth and riches will follow.

An important thing to keep in mind when examining the debate, however, is that no country in the history of the world has ever practiced free trade. To be sure, there are great variations in each country's engagement with international commerce-some countries have more tariffs than others- but any nation that immediately abandoned all of its trade barriers, including the United States, would be plunging itself into an economic maelstrom, and any government that did so would be committing political suicide. This is true for a variety of reasons, chief of which is the fact that unrestricted competition, which after all is what free trade means, creates winners and losers. But in the game of modern national economies, "losing" can mean you starve. Particularly for poorer countries, suddently subjecting under-capitalized, technology-weak industries to the rigors of international competition, especially when those industries form the backbone of a national economy, can be financially, socially, and politically devastating. This is in fact what has happened and is happening to many countries, forced by international pressure to tear down the various tools they use to protect domestic producers.

This dynamic is a main source of the anger of the hundreds of thousands of street protestors; journalists; labor, environmental and political leaders; and academics railing against what they characterize as unfair bullying on the part of richer countries against poorer countries. Poorer countries are being asked, they say, to lower all sorts of protectionist barriers to trade, but-and here's the rub-richer countries are not following up on their promises to do the same. Thus American and European farmers are still heavily subsidized by their governments, enabling them to sell their goods on the world market at artificially low prices. Farmers in poorer countries, whose governments can't afford the luxury of farm subsidies, are simply being run out of business. Corn farmers, for example, long the foundation of Mexican agriculture, are slowly withering away under the onslaught of cheap, mass produced American corn now sold under the free trade framework of NAFTA.

This isn't to say that protectionism is necessarily so great, either. There is a compelling economic logic to free trade theory, and many theoretical models predict great benefit to the countries which embrace it. Nations which have relied heavily on protectionist measures too often protected companies and industries which weren't worth saving, spending decades using precious tax revenue to prop up unprofitable enterprises. When such protection of native industry is used solely for political purposes, such as to ensure worker support for a sitting government, there is an obvious argument in favor of weaning a country away from such nakedly opportunistic economic policy. The obvious direction to move toward in such a situation is trade liberalization.

But liberalization of trade can come in more than one size and at more than one speed. Asking a country to simply leap from point A to point Z, as many charge that institutions such as the World Bank and the International Monetary Fund have asked poorer countries to do, is simply naïve. Freer trade works for a country provided it possesses the requisite infrastructure of capital, education, physical infrastructure such as a modern transportation system, and political stability (including freedom from corruption) to create and sustain an environment in which modern, competetive companies can flourish. Without those prerequisites, asking a country, in only a year or two, to adopt liberal trade and investment policies is like asking them to traverse developmental ground that took the United States 200 years to complete. Multilateral lending and development organizations such as the World Bank and the IMF have spent decades slowly learning this lesson, after watching nation after nation quickly adopt trade and investment liberalization only to experience crisis after crisis in response. The advice these institutions offer poor countries now is dramatically different than the prescriptions they pushed 15 or even just 10 years ago. Many commentators in the media who push for free trade have not yet caught up to the thinking of the World Bank and other development experts, and still seem to think international development is just a matter of changing a few laws and loosening restrictions on investment.

What is now clear, after the accumulated data of six decades of experience, is that effective, sustainable development- in any country, rich or poor- requires a close examination of the country's particular circumstances, challenges, and resources. Development is a slow, complex, and difficult process, requiring a tremendous degree of patience, creativity and expertise. Simplistic, sloganized solutions from either side of the debate help no one, as well as heated accusations of behavior and motives that border on the slanderous. The world is slowly realizing that poverty affects and threatens everyone, but we are even more slowly realizing that our path out of world poverty will require all of our collective effort, cooperation, and wisdom.

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