a primarily economic phenomenon, involving the increasing interaction, or integration, of

national economic systems through the growth in international trade, investment and
capital flows

Anthony Giddens, defines globalisation as a decoupling of space and time, emphasising

that with instantaneous communications, knowledge and culture can be shared around the
world simultaneously

worldwide drive toward a globalised economic system dominated by supranational

corporate trade and banking institutions that are not accountable to democratic processes
or national governments

globalization is simply the logic of the market playing out. Globalization equals marketization.
And the market takes on a life of its own, beyond the control of any nation

The fact that globalization brings great benefits to the economy overall is well established. Yet in
every country, there are very real concerns that globalization causes painful job dislocations and
exacerbates the gap between rich and poor. In every country, globalization puts greater burdens
on domestic regulatory systems—to ensure safe food, sound banks, and worker protections. In
every country, there is a debate over the expanded interdependence and shared sovereignty of this
global age. And in every country, the jury is out on whether globalization will undermine local
cultures or encourage an environment of mutual respect in which multiculturalism thrives.
http://www.globalpolicy.org/globaliz/define/2004/04heldinterview.htm

Inescapably Side by Side

An Interview with David Held
Mikkel Thorup & Mads P. Sørensen*
Polity
February 2004

There is a line in your work going from work on democratic theory to a

preoccupation with the reconfiguration of democracy in a global age. We’ll come to
your solution of a cosmopolitan democracy in a minute, but first the foremost
challenge to our present concepts of democracy and politics: globalization. It is a
highly contested concept. How do you understand it?

DH: Globalization is a highly contested concept, actually like all concepts in the social
sciences whether you take power, democracy or globalization. In the social sciences you
have contested ideas and theories. It is the nature of social debate. So there is nothing
particularly controversial, it seems to me, about concepts that are contested.

But in the case of globalization, it is contested for at least two or three very powerful
reasons. One is that globalization is not new; if you think of the spread of European
empires across the world during the last five hundred years then most people’s experience
of global interconnectedness is an experience of colonization and exploitation. So the
reasons why parts of the world don’t rejoice over increased global interconnectedness are
quite understandable.

Secondly, globalization has been associated in the last thirty years with the mean-spirited
neoliberal project which is reinforced by the conditionality programs of the IMF and the
World Bank for developing countries. The result has been that many of the developing
countries have been required to lower their tariff barriers more rapidly than developed
countries, and that asymmetries of market access and double standards in trade rules have
not been addressed. And history tells us that the developed world created economic
growth behind protective walls and barriers and, yet, we are requiring of the most
vulnerable economies that they lower their barriers and compete on an equal basis. Not
surprisingly, they find this unconvincing and hypocritical.

And, of course, the third reason globalization is contested, is that it has been associated
with increasing global inequality and, some have claimed, with increasing global poverty.
You first of all asked me how I understood globalization. Well, for me, globalization is
not a very difficult thing to understand and I place it at the opposite end of a spectrum
from the local. So you have social activity that is organized locally, nationally, supra-
regionally and globally. It is a continuous space and to talk of globalization is simply to
talk about the way in which aspects of human activity, such as communications, trade or
finance, are increasingly embedded on an intercontinental or interregional basis. In my
book Global Transformations I try to set up a rigorous framework for mapping these
processes and I use four criteria: the extensity of these processes which stretch across
space, the intensity of the processes, the velocity of them and the impact of their
activities.

And this it seems to me is fairly straightforward. For example, you can measure the way
in which over the last 150 years increasing numbers of countries have been trading with
increasing numbers of countries, involving an increasing proportion of their GDP and an
increasingly rapid movement of goods and services. So there is a measure of
globalization. Or take communications. You probably know that when the British prime
minister in the middle of the nineteenth century wanted to communicate with a
commander in India, it could take two years for an exchange of letters if he was unlucky.
Today we know when to expect an answer to an electronic question. It is practically
instantaneous. So it is possible to measure the way in which the world has become
increasingly interconnected and enmeshed. But it is important not to confuse this fact
with the fact that it is also socially disorganized and unjust. My view is that globalization
has created more wealth and opportunity in the world in which we are inescapably side
by side. But that does not mean the world is more integrated or more just.

Is globalization beyond control? Is this where your distinction between

hyperglobalists, sceptics and your own position as transformationalist come in? As
different approaches to the nature and impact of globalization?

DH: Well, that distinction helps understand the debate a little. There are those people, the
hyperglobalists, who argue that globalization increasingly hollows out the state, hollows
out citizenship both at the level of global market forces and at the level of regional blocs
like the EU, and that this has circumscribed the range of choices of states; states become
conveyer belts between citizens and global market forces. The result is, let us call it,
‘redistributive repression’ at the national level. Then there are those, the sceptics, who say
that this misunderstands the importance of institutions; that the hyperglobalist view is
wrong because political institutions still matter, political institutions can broker trade-
offs, politics still counts, democratic mandates still matter. And finally there are those, the
transformationalists, who argue, that for better or worse, the position in the middle is the
right one. That to some extent is my view.

That is to say, I think there have been major spatial shifts in trade, financial flows,
environmental challenges and so on. You can’t compare the environmental challenges of
four or five hundred years ago to today. You did get onerous interregional environmental
shocks with colonization. You know the western world didn’t conquer North America, for
example, just because it had superior technology. It conquered it because it brought
bacteria and all manner of diseases which had a catastrophic impact on the immune
systems of the indigenous peoples. So that is a serious environmental shock, but the
extensity, intensity and velocity is not the same as global warming.

However I think that whilst there has been a massive global shift over the last fifty years
or so, and we can reasonably talk of that as globalization, I don’t think that there has been
a simple hollowing out of states. I think politics has become more complicated and
multidimensional. So we live with an increasingly multilayered politics. There has not
just been economic globalization; there has been, in part, political globalization; that is,
the growth of politics across cities, regions, supranational regions, international
organizations, alongside the development of a global civil society.

So globalization is not beyond control? It is just beyond national control?

DH: I think that globalization creates global systemic challenges to our humanity, to our
global commons and to our rulebooks which can’t be dealt with by single nation-states
acting alone. In that sense I think we no longer live in what I call ‘national communities
of fate’. I use the phrase ‘overlapping communities of fate’, where the fates of nations are
increasingly intertwined with one another. And that is true in economics; it is true in
communications, in the environment and so on. There is a huge number of challenges,
from deforestation, fisheries depletion and global warming to how we write e-commerce
rules, tax rules, financial rules, trade rules and so on. And none of these issues can be
dealt with alone by single nation-states.

I’ll just give you two very poignant examples. The failure to come to agreement in
Cancún; if this failure remains in the long term it means that the asymmetries, rules and
double standards of the world trading system, which penalize the world poorest countries
in particular will not be addressed. This is not an issue which can be resolved by a single
nation-state acting alone. And, of course, other, urgent issues, like the spread of AIDS and
other pandemics, are not issues that can be dealt with by Subafrican countries acting
alone. It requires a global response.

Zombie state? We should be so lucky!

We’ll get back to the nature of these responses. But to return to the question of the
nation-state what do you think of Ulrich Beck’s concept of the nation-state as a
zombie category. Should we understand the nation-state as a zombie?

DH: Well, it follows from what I’ve said that we probably shouldn’t. I don’t think that
many of the categories thought of as zombie categories are zombie categories: class, race,
ethnicity, gender remain powerful stratifying forces in the world and so is the state. If you
look at the distributive consequences of global economic integration for the people
around the world, both inside nation-states and outside nation-states, then you must
conclude that states still matter. And if you look at the distributional outcomes of welfare
states across Europe, you see that in the last thirty years, despite increased geopolitical-
economic integration, there are very different welfare state regimes.
There is nothing in my work that says that nation-states are zombie categories. All the
work we have done empirically in the social sciences on the impact of globalization, on
economic growth, on inequality within nation-states, on inequality between nation-states,
all shows that national politics still count; that effective state management is still better
than ineffective state management; that intelligent leadership still makes a difference; and
that countries that have strong national traditions, social compacts or social contracts, can
still protect themselves from some of the worst consequences of rapid economic
liberalization. States can, in their space, still make a big difference to dampen inequality,
to empower citizens through education and learning, to increase the competiveness of
their economy while also ameliorating the worst consequences of exposure to the world
economic market. And this is true not just for advanced countries but for many
developing countries as well. We live in a world where politics is now multilevel and
multilayered. I talk of this as the reconfiguration of political power.

So states are not just players on the level of other players. They actually have a
supreme status still…

DH: They still have a distinctive capacity to make and break rule systems with coercive
consequences. We don’t need to go much further than the response to 9/11 and Iraq .
Underlying these is a very serious issue which is that, with the end of the cold war and
the end of the competition between the world’s two superpowers, we have the emergence
of one hegemonic state which has the capacity to turn its back on the political
globalization of the last fifty years, to turn its back on the growth of a rule-based
multilateral system. It has the ability to resist cooperation on vital matters. What are the
consequences of this? The consequences are not just a crisis of multilateralism, and the
weakening of the UN after Iraq , but the failure of trade talks at Doha ; the failure to
address issues of global warming, and the failure to make progress on the moral standards
of the international community: the Millennium Goals. If you take these things together,
the one thing you must conclude is that states still matter. The big question is how we are
going to deal with the biggest rogue state of all in the modern world! How do you create
a multilateral world political system that can deal with the asymmetries of power posed
by the United States? Zombie state? We should be so lucky!

If it is not the case, as a great deal of the globalization debate maintains, that the
nation-state is being hollowed out as the most important container of our lives, what
are then the principal dangers coming from globalization; welfare and democracy as
the most pressing?

DH: I don’t say that the nation-state remains the only precious container. I maintain that
it is one of the important containers. If you look at Europe today, a citizen of Glasgow
can vote in the city elections as a citizen of the city; he or she can vote in the Scottish
election as a citizen of Scotland; he or she can vote in the UK elections as a citizen of the
UK; he or she can vote in the European elections as a citizen of Europe and, if that is not
enough, he or she can engage in any number of INGOs campaigning on issues like the
environment, human rights and so on. This is a world of multilevel politics and of
multilayered citizenship-already in some part at least.
The idea that cosmopolitan citizenship is a myth of the future trumped up and imagined
by political theorists distant and remote from the world is erroneous. We already live in a
world of multilevel power and multilayered citizenship. It is fragile. It is subject to the
uncertainties of politics. So my first point is that states still matter but not only and
exclusively. Moreover, in the post world war period, we have entrenched cosmopolitan
values in international institutions which have given genuine expression to the
delimitations of sovereignty on a national basis.

There has been a dramatic shift on the international stage from sovereignty as effective
power, which was the basis of, and justification of, the state order, to sovereignty as
legitimate authority - authority defined in relation to, and as circumscribed by, democratic
values and human rights. However fragile that achievement is, it is embedded in
international legal arrangements from the UN Charter to the ICC. This is a most
important set of legal trajectories that splice together cosmopolitan values and principles
with the state order and the state system, and place limits, in principle, on the legitimate
nature of power.

Now this system is ‘in play’ and once more subject to dispute as a result of 9/11 and the
war in Iraq . This is a very challenging moment where the legacy of cosmopolitan values
and principles, which have been enshrined in our multilateral and more progressive
institutions, is subject to threat as a result of the neo-liberal and unilateral politics of the
Bush administration.

Neo-liberalism remains a principal danger

DH: The whole tenor of the last thirty years has been set by the neo-liberal agenda:
simply opening up your borders is good for you, and the nature and scope of states should
be restricted to a minimum. The evidence says that this needs heavy qualification. What
does it show? It shows that broadly speaking economic globalization has been good for
high income countries, pretty good for middle income countries, and pretty terrible for
low income countries. What else does it show? It shows that liberalizing trade barriers is
generally good for the world’s poorest countries; and that rapidly liberalizing capital is
generally disastrous for the economic prosperity, inequality and the life chances of the
poor. And what we know also is that states that build their capacity to manage their
national economies, build up infrastructure, build human capital and manage elements of
investment-strategies - these sorts of states can make a difference.

Now, where do we see the most successful results of such programs today? We often see
them in the very economies that were held up for a long time as models of neo-liberal
values such as South Korea. The most successful economies of the Far East from South
Korea to Taiwan, from India to China, have managed liberalization very carefully. They
have decreased their trade barriers only once economic growth has taken off and they
have managed capital flows tightly. So, the lessons of this are that good state
management matters that states still have the capacity to make a difference, that they need
to resist the narrow neo-liberal model of globalization which says that if you open up
your markets all will be fine. We need a different agenda at the global level to the one
that we have.

Cosmopolitanism.
Let us talk about that different agenda and your concept of and program for
cosmopolitan democracy. First of all, why cosmopolitan? Why not global or
universal? What is there more in that concept of cosmopolitanism?

DH: Well lots of things. First of all when Machiavelli, Hobbes and Locke defended the
idea of the modern state, they didn’t defend anything they thought would be there the
next day. It took over two hundred years to reconstitute Europe into a modern system of
states. Now, I am a champion of cosmopolitan ideas but I don’t think you can create a
cosmopolitan democracy in a decade or two.

Secondly, why cosmopolitan? Because I take cosmopolitan to be the defense of the set of
principles that articulate the equal moral status of each human being; the reciprocal
extension of this principle to all; the concept of personal autonomy and responsibility; the
principle of consent and the management of collective differences through democracy,
and so on.

The cosmopolitan world view is consistent with democracy, but it departs from
democracy in one particular sense; it argues that whereas the history of liberal democracy
is associated with a single political form - the territorial nation-state - today we need to
cash these principles in at different levels: locally, nationally, regionally, globally. So
cosmopolitanism is not interested in, let us say, a single conception of top-down authority
in a single bordered space; rather, it is concerned with the renaissance of legitimate
authority and legitimate power at multiple levels. It is about the diffusion of public power
to those who are critically affected by issues and processes locally, and also about the
extension of public power to higher levels where in order to be inclusive you have to
accept larger constituencies and political communities because issues like world debt,
global warming, the instability of the world financial system are global in scope. These
matters can’t be resolved locally. To be inclusive about them you need to go global.

So I take cosmopolitanism to be a way of specifying a democratic multilayered,

multilevel system of authority marked by multilayered, multilevel citizenship, enshrined
by and defending the equal worth and dignity of each human being.

There is no clear connection between my books on cosmopolitan democracy and my

books on globalization – that is, until my new book, The Global Covenant: The Social
Democratic Alternative to the Washington Consensus. The question I have tried to
address in this book is: how can we make political progress towards a more
cosmopolitan, integrated and just order? And my new book tries to do that by confronting
the failures of existing international politics: that is, the reaction to 9/11 and the war
against Iraq. In my view, these efforts aimed to impose a unilateral political will on an
increasingly interconnected and complex world and the result is failure.
It is failure in Afghanistan. What is Afghanistan today? It is essentially Kabul at the cost
of a billion dollars a month. What is Iraq today? It is divided already into three zones; and
the Americans are seeking the quickest exit option they can with precious little dignity.
Iraq will be weakened and undermined as a result, and may well contribute to more
instability in the Middle East. These adventures have not made any systematic effort to
address the crucial sources of instability in the Middle East which feed global terrorism:
the problems of the Palestinian-Israeli conflict. Moreover, we have made no attempt to
better connect issues of economic globalization with wider issues of poverty reduction
and so on. The existing prescriptions do not work. So my view is that it is the existing
agenda which needs defense, not the cosmopolitan one. The existing agenda is failing.

We are not without principles, alternatives, and policies. I actually think the steps we
need to take are not very big. Whether we take them is another matter.

Politics is about choices

DH: I don’t argue that all aspects of the Washington consensus and policies are wrong.
You can’t simply say that being committed to balanced budgets, the market determination
of interest rates and so on is simply ideological. The problem with the Washington
consensus, it seems to me, is that it represents too narrow a set of economic doctrines.
These are doctrines which don’t address the challenges of development adequately. The
Washington consensus is a pernicious set of doctrines on its own. But if you say that what
we need is sensible macroeconomic management in the context of sustained investment
in the human infrastructure and social capital of the world’s poorest countries; the
sequencing of global market integration and not simply wild liberalization; phasing in of
trade liberalization but not capital market liberalization; the reform of international
aspects of economic institutions and so on, then we can put together a conception of what
is needed in economic and political terms. Can the resources be found to invest in
development?

People often say: ‘Well, we spend so much money on the UN and it is such a waste’. And
I say: What is the UN budget? I’ll tell you what it is. It is $1.25 billion + a lot of
peacekeeping. Do you know what UCLA budget is? It is more than twice that amount,
and that is just one university in California. Do you know what the Americans spend on
confectionary (expenditure on chocolate and bubble gum)? It is $27 billion in 1997-
figures, and it is more now. Do you know what the US alcohol expenditure is? $73
billion. Do you know how much Americans spend on cars a year? It is over $600 billion.
The issue is not about resources. It is about choices.

And this is not to let the Europeans off the hook. In Europe we spend $150 billion a year
on cigarettes and alcohol. In US and Europe we spend $17 billion a year on pet food. And
how much do we need to make a difference to the basic education, health and welfare of
the world’s poorest people? We need $30-40 billion a year. The removal of the EU’s
subsidies on agriculture and other related products alone would release $300 billion
dollars a year! This is astonishing. It is enormous. So it is not that we do not have the
money. It is just that we don’t allocate it in certain ways. And that is a choice – a tragic
choice.

So I ask my students to consider that we went to war – we the government, not me, not
you, some went to war …

Denmark too …

DH: We went to war after 9/11 because, very seriously, 3.000 people died in the United
States. Now, this was a crime against the United States and it was a crime against
humanity. This was a very serious criminal act, but, as I point out, to them, every day
over 30,000 children die of poverty related diseases which are preventable and could be
eradicated. What does this tell us about our priorities?

So my view is that politics is about choices. We need to be clear about what those choices
are. We need to be clearer about the principles we need to make choices, and we need to
be optimistic whilst recognizing that this is a very delicate historical moment. Not
because the state is a zombie category but because the state is alive and well and
threatening to undermine many of the collective achievements of the post-world war
period.

The cosmopolitan agenda still seems like a rather ambitious and radical agenda.
How is it compatible with the current distribution of wealth and power? And maybe
more to the point: Is it compatible with the present liberal-capitalist system?

DH: On the question of the current distribution of wealth and power, it is clear that if you
take these ideas seriously you will find, as you do find, huge resistances on the part of the
world’s most powerful players to such notions. But what I am saying, in the first instance,
is that to make a very big cosmopolitan difference you don’t need a very big amount of
non-cosmopolitan money. Huge shifts in resource allocations are not required. What is
required is rethinking some aspects of our priorities, and the policies that relate to them. I
don’t think this is beyond us.

Secondly, I think it is in the interest of the world’s largest companies to find a stable basis
for world economic and political development. What do big companies want? They want
stable regimes, stable markets so they can get a return on their investments. What they
don’t want is a world undone by terrorism, global struggles, conflicts and instabilities.
Just think of the number of consumers available in India, China, and eventually, in parts
of Africa! I think that large-scale, knowledgeable corporations have an interest in solving
global problems. Some corporations are at the forefront of searches for new solutions.

Just as there are differences between a rogue state and an accountable state, there are
differences between a rogue company and a responsible company - and the difference
matters. The difference is not utopia but it still matters, and companies today such as
Shell and BP, that five-six years ago were badly stung by protest, have learned some of
the lessons. The (now ex-)head of Shell says he has learned more from Amnesty
International in the last few years than he has ever learned from managing consultants.

Now, there is a problem of course. Clearly, companies do not want to take on great social
costs by themselves. But, if all players have to play by the same rules then you can accept
an increase in costs. So I think companies can be embedded in rule based systems that
push their activity in socially responsible directions. In other words, what I’m saying,
which I suppose is a bit controversial, is that I do not think that a cosmopolitan multilevel
political order oriented towards redistribution and poverty reduction, oriented towards
democracy and social justice, is necessarily in itself incompatible with liberal capitalism.

So what does that mean? It means that there is either a solution to some of these problems
creating a social market economy at the regional or global level by introducing things like
a global compact with teeth - new ways that circumscribe the operations of commercial
services and production - or it is not going to happen. Is it going to happen? It is not
going to happen by itself. We have to find a new politics to make it happen. And in that
sense, it seems to me, cosmopolitanism is the way forward. Will it happen tomorrow? No.
Will it happen in thirty-forty-fifty years time? I have no idea. Ought it to? Definitely. Is it
worth fighting for? Yes.

Are you optimistic?

DH: I am optimistic in the long term because I think that some of the most important
problems that we face, from health and disease to global warming, can’t simply be sorted
by individual nation-states anymore. And I think, as Habermas once put it, ‘humans are
unable not to learn’. On the other hand you have to say, of course, that this is a moment
of very intense political conflict: the neoconservative agenda in the United States is very
clear cut and wishes to accept no constraints on American power; and it is a formidable
challenge to the cosmopolitan set of ideas. Unfortunately, Blair has played into their
hands. What a tragic irony!

One last question. Where does the EU fit in the cosmopolitan project?

DH: In the last thirty or forty years regionalization and globalization have been largely
compatible with each other. That is because most regional blocs have been agents of
globalization; they have been mechanisms which have aided the globalization process;
they have helped nation-states adjust to a more integrated international economic system.

Having said that, the EU has pioneered remarkable changes in the context of Europe’s
history. It wasn’t China or Africa or Latin America that nearly destroyed humanity twice
in the twentieth century. It was Europe. Europe has been a very dangerous place for
European citizens and for the wider world. And in that sense, the development of EU
after the Second World War has been one of astonishing significance in winning peace,
delimiting national sovereignty, locking Germany and France into the European system,
and in providing a mechanism to sue states for the entrenchment of rights if they violate
fundamental human liberties. This, in But today, just as there is a strong reaction to neo-
liberal globalization, there is a strong reaction to a Brussels-led European project which
appears to many people as globalization does; that is, as a hollowing out the power of
their countries and weakening the position of their citizens. So just as there has been a
reaction to globalization there has been a reaction to the European project. I think it’s
pretty serious because Brussels politicians have, in many ways, been trying to create a
concept of Europe from the top down and in general European citizens have not been
prepared to go as fast as them, and in the same direction.

There are some optimistic signs. I mean most European countries are much more pro-
Europe than Britain or Denmark. And the European currency has been accepted right
across Europe fairly uncontroversially. This is a remarkable matter. It is far reaching in its
integrative implications.

I suppose the question is: will the European project succeed in embedding democracy
further and winning the hearts and minds of the people, and I don’t know the answer to
that question. I think people have to learn that the solutions to the problems that affect
them as individuals or as groups today can no longer be found just at the national level.
They need to learn to separate out political nationalism from cultural nationalism and,
whilst they need to nurture everything that makes them distinct culturally, they need to
learn to separate this from those institutional developments that are the basis of us
learning to live together in an interconnected and integrated way.

And that means a remarkable capacity to separate identities and operate at different
levels; to accept that citizenship is now not just a national thing but a local, national,
supra-regional and global thing. It means the capacity to learn that different issues have to
be dealt with at different levels; that politics needs to be separated, in part, from the
nation-state; that we need to defend, as Habermas says, not just civic nationalism but
civic constitutionalism and we need to see that the principles of civic constitutionalism
are rightly embedded at these different levels and not just any more at the level of the
nation-state.

Will we get that far? Nobody knows the answer to that question. I am an optimist but at
this time in history you have to go with Hegel, who said in The Philosophy of Right, that
the owl of Minerva flies at dusk.

About the Authors: Mikkel Thorup, Ph.D.-student, Department for the history of ideas,
University of Aarhus , Denmark
Mads P. Sørensen, Lecturer, Department for the history of ideas, University of Aarhus ,
Denmark
http://www.globalpolicy.org/globaliz/define/2004/10review.htm

The Miracles of Globalization:

A Review of Why Globalization Works
By Arvind Panagariya
Foreign Affairs
September/October 2004

By the early 1980s, a number of distinguished economists had amassed compelling

evidence that outward-oriented trade policies were far more likely than protectionism to
lead to economic growth. The evidence was contained in two multi-country research
projects-one at the Organization for Economic Cooperation and Development (OECD),
led by Ian Little and others, and the other at the National Bureau of Economic Research,
directed by Jagdish Bhagwati and Anne Krueger-and in a series of studies at the World
Bank.

When developing countries, convinced by these findings, began to embrace outward-

oriented policies, pro-free trade economists believed they had scored a decisive victory
over protectionists and turned their attention to other problems related to development.
But the protectionists were not so easily defeated. Over the next few decades, they
regrouped, building a new case for protectionism based on examples of countries that had
apparently opened up but had failed to grow rapidly or had suffered financial crises. They
also forged new alliances with certain nongovernmental organizations (NGOS) dedicated
to preserving the environment and improving labor standards. By the late 1990s, the
protectionists-now rechristened "anti-globalizers" to reflect the expanded scope of their
agenda-seemed to have recovered some of their lost ground. Their newfound vocalism
made headlines during the World Trade Organization (WTO) ministerial meeting in
Seattle in 1999.

Today, however, advocates of globalization are gaining the upper hand again. Bhagwati's
strikingly successful defense of open markets in his recent book In Defense of
Globalization has been bolstered by another influential pro-globalization voice, that of
Martin Wolf of the Financial Times. Wolf's weekly columns have already established him
as one of the world's most respected economic journalists. Now his ambitious new book,
Why Globalization Works, offers a patient and persuasive refutation of many of the
arguments most frequently marshaled by critics of trade liberalization.

STRAW MEN

Wolf's book ranges over many topics, including, in Part III, the rise and fall of what may
be called the period of "first globalization" that flourished from 1870 to 1914. But the
book's most important contents are in Part IV, in which Wolf examines and dismisses
current critiques of free trade, of the role of multinational corporations in the global
economy, and of capital mobility. Since this is the part of the book that will invite the
most attention from pro-and anti-globalization advocates alike, it deserves particularly
close scrutiny.

To those who complain that increased openness to trade during the 1980s and 1990s has
failed to deliver faster growth, Wolf points to the contrary experiences of China and
India. Both countries witnessed significant jumps in their growth rates as they opened up
their economies to international trade and foreign investment. As Wolf points out, "Never
before have so many people-or so large a proportion of the world's population-enjoyed
such large rises in their standards of living."

Wolf argues that although trade openness alone may not always lead to sustained growth,
the former is necessary for the latter. In my own research, I have found that growth
"miracles"-countries that grew at rates of three percent per capita or more on a sustained
basis between 1961 and 1999-almost always experienced rapid growth in trade.
Moreover, there are few examples of highly protected countries that managed to grow
rapidly on a sustained basis without lowering their level of protection. Symmetrically,
countries that had stagnant or declining per capita incomes-what I call growth
"debacles"-were characterized by dismal trade performance. Wolf is correct, therefore, in
asserting that the empirical evidence refutes the claim made by critics of globalization
that trade openness wreaks havoc on economies.

Although the data show that openness to trade is not sufficient for growth, this is readily
explicable by proponents of free trade such as Wolf. Trade is enabling, but if other
obstacles remain in place, it may not lead to results. Thus, for instance, Indian economists
working on the OECD project in the 1960s correctly identified that India's stifling
industrial licensing system would nullify any benefits from opening up trade. More
generally, if trade is embraced but there are no transport facilities, or if potential trading
partners have closed their markets, de facto autarky will continue.

Wolf also argues that the ability of trade to improve growth may be undermined by poor
governance: "Poor performers have corrupt, predatory or brutal governments or,
sometimes even worse, no government at all, but rather civil war among competing
warlords." But this is not an argument against opening to trade. Indeed, Wolf could have
made his defense of trade even stronger by posing the question, Is a poorly run country
better off pursuing outward-rather than inward-looking policies? More often than not, the
answer would be yes.

Wolf also could have challenged the frequent assertion that Latin America-which has
tried neoliberal reforms, including trade liberalization, with disappointing results-
undermines his arguments for globalization. The fact remains that much of South
America has borrowed too much and has therefore been particularly vulnerable to
financial crises. This, in turn, has made it difficult for many countries in the region to
reap gains from trade liberalization. Chile is a rare counterexample: it has managed to
grow at more than 5 percent for nearly two decades largely because it has reduced its
trade barriers to OECD levels while limiting its foreign borrowing to prudent levels and
maintaining macroeconomic stability.

BEYOND POPULISM

Admirers of Wolf's pro-globalization arguments in the Financial Times will be surprised

by his endorsement of the notion that rich countries practice "hypocrisy" and "double
standards" in setting trade barriers and framing rules at the WTO. He does not make a
convincing case for these charges and, at times, too readily embraces populist arguments
without necessary qualification.

Wolf chides rich countries for imposing higher barriers on imports from poor countries
than on imports from other rich countries. He notes, for example, that the United States
imposed an average 14 percent duty on imports from Bangladesh in 2001, compared with
1 percent on imports from France. But a simple comparison between the two countries'
average duty levels is misleading, because the products they export are different. Under
WTO rules, trade concessions have to be given to all members simultaneously. Because
developing countries kept themselves aloof from the negotiating process until the
Uruguay Round, which did not begin until 1986, developed countries unsurprisingly
concentrated their initial liberalization efforts on the products they traded most
intensively with one another. When developing countries did finally join the negotiations,
they were successful in getting developed countries to agree to end their extensive import
quotas on textiles and clothing by January 1, 2005.

Again, because developing countries did not participate in early negotiations and
therefore were not subject to any liberalizing commitments, they are now saddled with
higher tariff barriers on industrial products than are developed countries. This fact is
tacitly acknowledged by Wolf in his discussion of the benefits of trade liberalization in
the current Doha Round of trade talks: he notes that developing countries will gain more
from their own liberalization than from any other kind.

On agricultural subsidies, Wolf makes a stronger case. Developed countries do indeed

massively subsidize their agricultural exports, whereas developing countries do not.
Unfortunately, however, Wolf undermines the point by buying in to rhetoric-popularized
by the World Bank leadership and by Oxfam-such as the assertion that the European
Union provided $913 for each of its cows in 2000 but only $8 for each person in sub-
Saharan Africa. The economic argument lurking behind this comparison is nonsense. The
truly meaningful comparison is between the damage EU subsidies do to sub-Saharan
Africa by reducing the prices of its exports (damage that amounts to a tiny fraction of the
total subsidies going to EU men, cows, land, and exports) and the grants disbursed by
developed countries to the region. (It is important to remember, moreover, that not all aid
takes the form of grants: the World Bank, for example, gives loans at concessional terms,
rather than grants.)
Wolf also fails to point out the flaws behind the assumption that lifting rich countries'
agricultural subsidies would help poor countries. NGOS are right to point out that
reducing subsidies on cotton would indeed benefit poor countries, because the latter are
unambiguous net exporters of cotton goods. But that does not mean that removing
agricultural subsidies is always in poor countries' interest. As many as 45 of the world's
49 least developed countries (LDCS) are net importers of food and 33 are net importers
of agricultural products, according to the economists Alberto Valdes and Alex McCalla.
The removal of tariffs and subsidies would hurt, rather than help, these countries, because
such a move would raise the prices they pay for their imports. The counterargument-that
these countries would still benefit because as prices rise they would become net
agricultural exporters-is not persuasive. Very few net importers are likely to make this
switch. And those countries that do are unlikely to offset the losses they accrued as
importers-unless they become large net agricultural exporters.

Even those LDCS that are net exporters of agricultural goods could find themselves
worse off. With the temporary exceptions of rice, sugar, and bananas (which are slated to
end during 2006-9), the EU's Everything But Arms (EBA) initiative gives these countries
duty-and quota-free access to the EU market. This means the LDCS sell their exports to
the EU at its internal prices. Given that the removal of the EU tariffs and subsidies would
lower these internal prices, developing countries participating in the EBA initiative would
also lower their export earnings.

Overall, the benefits from removing protective measures would accrue less to poor
countries than to rich ones, which enjoy the greatest comparative advantage in
agricultural products. Without proper appreciation of this fact, policymakers will fail to
design appropriate compensation and adjustment mechanisms to ease the pain of
agricultural liberalization in poor countries. By the same token, countries that are
promised huge benefits but end up hurt could become badly disillusioned about free
trade, which, in turn, could complicate further global liberalization.

WRONGLY CONVICTED

Multinational corporations are yet another favorite punching-bag for critics of

globalization. Such companies, the argument goes, exploit poor workers abroad and
impoverish workers at home by moving capital overseas. Wolf debunks both myths
eloquently and decisively.

The first charge, commonly made by NGOS and student organizations in the United
States, is easiest to dismiss. If multinational jobs are so exploitative, why do workers in
Bangalore, and even in predominantly Marxist Kolkata (Calcutta), line up to take them?
The answer, as Wolf painstakingly documents, is that multinationals pay their workers
more and treat them better than do local companies. Among other data, he cites a study of
20,000 plants in Indonesia showing that the average wage paid to workers in foreign-
owned plants in 1996 was 50 percent higher than in private domestic plants. Even after
controlling for education levels, plant size, and other relevant variables, wages paid by
multinational companies were 12 percent higher for blue-collar workers and 27 percent
higher for white-collar workers. According to surveys by the International Labor
Organization, moreover, allegations that foreign-owned plants in "sweatshop industries"
(such as footwear and apparel) pay lower wages and provide inferior working conditions
also turn out to be false.

Another prominent concern about free trade is that capital flows within multinational
corporations have the effect of lowering wages in rich countries. Anti-globalization
advocates also argue that the ability of such firms to move operations abroad reduces the
bargaining power of workers in unionized industries. Yet in 2001, the amount of outward
foreign investment from the United States was virtually equal to the inward flows,
according to figures cited by Wolf. Net capital outflows, in other words, were negligible.
(CNN's Lou Dobbs, who concentrates on firms that are outsourcing jobs but fails to
discuss foreign firms that are in-sourcing jobs, should take note.) If anything, increased
volumes of capital flows (both ways) may help labor productivity-and hence real wages-
because they stimulate technological improvements.

As for the second criticism, it must also be remembered that corporations in the United
States have always had the option of moving to another U.S. state. It is not clear how
much extra leverage they gain by threatening to move abroad rather than within the
country, especially when the bulk of the investment flowing from the United States goes
to other rich countries, not poor ones.

Few economists and policymakers will disagree with Wolf's incisive criticism of the anti-
globalizers' position on trade and multinationals. But his views on short-term capital
mobility are much more controversial. Some of the most respected economists today,
such as the Nobel laureate James Tobin, Bhagwati, and New York Times columnist Paul
Krugman, have written against full capital mobility, particularly when it is pursued with
the kind of haste witnessed prior to the Asian financial crisis in 1997-98 under
International Monetary Fund and U.S. Treasury guidance.

In his columns in the Financial Times in the late 1990s, Wolf generally agreed with these
economists. But in Why Globalization Works, he moves away from their position.
Although he recognizes that full capital convertibility can easily lead to crises, he comes
out in favor of convertibility, even though there is no evidence that such conditions
contribute positively to growth. Citing another Nobel laureate, economist Friedrich
Hayek, he argues that if free choice is valuable in its own right, people should be given
the right to hold their savings wherever in the world they choose. He characterizes the
1960s exchange restrictions in the United Kingdom, for example, as a "predatory policy"
that ended up destroying a sizable proportion of that country's middle-class savings. For
Wolf, a well-run financial system, of which he considers currency convertibility to be a
key part, is critical. Controls are costly and ineffective, and they force otherwise law-
abiding citizens into corrupt arrangements. He also sees full convertibility as a vehicle for
speeding the reform of the financial sector.

But Wolf's case is far from persuasive. A large number of countries-including several
Latin American countries during the 1960s and early 1970s, eastern Asian countries
during the 1960s through the 1980s, and China and India during the 1980s and 1990s-
have grown rapidly on a sustained basis without convertibility. Many countries that have
embraced convertibility, on the other hand, have experienced devastating financial crises,
such as Brazil, Indonesia, Mexico, and Thailand.

Despite this quibble, however, Wolf's book offers a series of highly effective rejoinders to
the main criticisms marshaled by opponents of globalization. For those of us concerned
with one of the most far-reaching issues of our time, this elegant and passionate defense
of trade liberalization is essential reading