A Future Perfect: The Challenge and Promise of Globalization Read online

  In his other great work, The Theory of Moral Sentiments, Adam Smith compared the pain that you would feel if you lost your little finger to the distress that you would feel over the news that “the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake.” You would be hugely shocked, he said. You would express your sorrow. You would reflect on the precariousness of life. You might even “enter into many reasonings concerning the effects which this disaster might produce upon the commerce of Europe, and the trade and business of the world in general.” But you would sleep soundly and go about your business.[6]

  The first rule of political life is that all politics is local. And people are far more easily moved by their own immediate concerns—by the state of their fingers—than they are by the fate of millions of people in a distant corner of the earth. That is why it is so easy to imagine the current phase of liberalization running out of steam. And that is why it is more important than ever for supporters of globalization to speak out in favor of the endangered process.

  A Call to Arms

  p. xxvi Too often supporters of globalization seem to be on the defensive. Public debate of the subject is largely carried out on the enemy’s terms. The backdrop is usually a shuttered textile factory rather than a young African child sitting at a computer, a burning Amazonian forest rather than a young Brazilian investment banker, a scene from Star Wars: Episode 111 rather than a shot of the Guggenheim in Bilbao. At times the defenders of globalization seem crass: The Wall Street analyst on CNBC who expressed delight that the 1997-1998 Asian currency crisis was “really beginning to hurt” springs to mind. More often they are silent. In particular, the wide class of people who have gained most obviously from globalization—the people whom we dub the cosmocrats in this book—have almost made a vocation out of excluding themselves from local political debate.

  The defense should begin with economics. Put simply, the more open an economy is, the quicker it tends to grow. Before 1980, globalization was largely concentrated in the rich world. Since then it has moved to the developing world, with massively beneficial results. In the 1990s, even allowing for the Asian crisis, GDP per person in the twenty-four more globalized developing countries (i.e., those with a higher ratio of trade to national income, such as Mexico and China) rose at an average rate of 5 percent a year, more than twice the rate in the rich world; meanwhile, GDP per person fell by 1 percent in the less globalized developing countries (many of which were in Africa).[7] Needless to say, literacy and life expectancy also rose in the globalizing countries, which were home to three billion people (against two billion in the less globalized ones, where poverty has increased).

  Confronted with such compelling evidence that open borders help developing countries, antiglobalists usually shift their ground. They argue, first, that globalization harms the poor and, second, that it promotes inequality. The first of these arguments is dubious. Some poor people have been harmed by globalization and many more have seen disgracefully few benefits, but there is no hard evidence that the poor as a whole suffer disproportionately. Another World Bank study, of eighty countries over the past forty years, demonstrates that the incomes of the poor have risen with everybody else. The Fraser Institute also points to a more general connection between freedom and prosperity: In 2000, the income of the poorest tenth in the least free countries was a miserable $728; the figure for the poorest tenth in the freest countries was ten times as high.[8] And fewer of us are really poor: The proportion of people living on less than a dollar a day fell from 20 percent in 1970 to 5 percent in 1998.

  p. xxvii What about inequality? There is no doubt that this has increased in many countries, but it is hard to find a specific link to trade policy. The poorest 10 percent of people in countries the world over have to make do with 2 to 3 percent of national income regardless of whether their economies are open or closed.[9] In the rich world, the rise in inequality has more to do with new technology than with lower trade barriers. One study shows that technology was five times more important than trade in widening inequality in America in the period 1973-1993.[10] In the steel industry, sleeker minimills and computerized production systems have cost thousands of Americans their jobs. Yet politicians are unwilling to risk being called Luddites by condemning technology.

  These dry statistics tend to understate the human effect of liberalization. When developing countries have agreed to open up their economies—be it South Korea in the 1970s and 1980s or China in the 1980s and 1990s—the gains in well-being have been phenomenal. Deng’s market reforms of the 1980s brought the biggest and most rapid eradication of poverty that the world has ever seen: Several hundred million peasants climbed out of a life that had consisted of little more than the relentless struggle to stay alive.

  As we have already conceded, these aggregate figures disguise a lot of individual losers. Globalization destroys some jobs in the same remorseless way that the industrial revolution once did, but it also creates many more. Mourning the jobs lost in Detroit seems a little like regretting the departure of horse-drawn carriages (which Detroit did so much to speed). And it also forgets the jobs created in places such as São Caetano do Sul, Brazil, where General Motors has a factory and has helped push up both local wages and labor standards. There is nothing odd in this. Typically, the average wage at the foreign affiliates of multinationals is 1.5 times the local average; in the case of low-income countries, the figure is double the local domestic manufacturing wage.[11] These factories may pay less than they do in Western countries, sometimes disgracefully so, but usually they push up living standards, bring in skills, and increase the choices open to local consumers.

  Time and again in debating this subject, we encounter common assumptions about globalization that are simply false. How many times, for instance, have you heard that globalization favors big companies—indeed, that it is encouraging a “silent takeover” in which companies are becoming more powerful than governments? In fact, globalization mainly favors smaller companies, because it allows them to reach markets that were previously monopolized by multinationals. In most developed economies, smaller firms have been gaining ground at the expense of larger ones. Far from being undermined by globalization, governments have grown steadily in size over p. xxviii the past quarter of a century. The “fact,” popular in antiglobalization circles, that companies accounted for fifty-one of the world’s one hundred biggest economies relies on comparing the sales of companies with the GDPs of countries. But GDP is a measure of value added, not sales. Using a measure for value added for companies, only thirty-seven multinationals appeared in the one hundred biggest economies in the world in 2000. That still sounds reasonably impressive. Yet only two companies scrape into the top fifty (Wal-Mart in forty-forth place and Exxon in forty-eighth). Wal-Mart was barely a quarter of the size of Belgium.[12] The country was certainly richer than Peru. But again, what does that mean in terms of power? Wal-Mart has no powers of coercion: It cannot tax, raise armies, or imprison people. In each of the countries where it operates, it has to bow down to local governments.[13]

  Such facts need to be voiced more loudly. Yet merely choosing a better defensive position is not really good enough. Proving that globalization is, on balance, a good thing, one that has generally enriched the world economically, is certainly valuable. But the same could also be said for the lavatory or the lemon squeezer. To engender any political support, globalization needs a surer political base, a reason to believe in it rather than merely to tolerate it.

  Liberty, Fraternity, Globality

  To our minds, globalization is not just an economic process that can be more or less squeezed into the mold of classical liberal political theory; it marks a significant development of it. John Stuart Mill advocated the largest possible measure of individual freedom, as long as it did not involve harming others. So far, most of the battles that have been fought in freedom’s name have involved combating political tyranny of one sort or another. Global
ization has undoubtedly lent powerful support in that struggle—not only by helping to topple corrupt autocrats such as the Suhartos of Indonesia but also by casting light into the darker corners of the world. It is not coincidental that the pace of globalization has picked up with the spread of democratic rights; the two are symbiotic. Yet globalization also widens the concept of what the maximum degree of individual freedom might be.

  Classical liberalism relies on the notion that there is a kind of contract between a government and its citizens, a contract that individuals freely enter into and may freely leave. In practical terms, that proposal has been (and still largely remains) a farce. For billions of people who live in countries that are wretchedly poor, isolated, or tyrannically ruled, there is little choice at all. But even in rich, democratic countries, most of us have faced at least two p. xxix sorts of practical constraints. The first sort are all the things that make rejecting the social contract and leaving the place where you were born difficult—the rules governing where you can live; your ability to remain in touch with family, friends, even soccer teams. To the extent that globalization reduces this tyranny of place, it makes migration more likely to be a matter of choice rather than of despair; and, even if you do not move, it still provides choices where none existed before. Rather than being the worst sort of prix fixe, with only one option for every course (you will live in Germany, eat German food, shop in German shops, watch German sports), it presents a wider range of options. Thanks to globalization, a Berliner can, if he so chooses, eat Moroccan food, read The New York Times on the Internet, and visit Paris without changing money or producing a passport.

  Put in these terms, the effect of globalization can sound a little trivial; but the underlying point is not. Globalization increases people’s freedom to shape their own identities rather than assuming those of their ancestors. Of course, as communitarians point out, there are trade-offs between the comforts of community and the virtues of mobility—but those are surely tradeoffs that individuals should calculate for themselves. It is hardly surprising that globalization scares authoritarians (such as Singapore’s Lee Kwan Yew, who once pronounced that “to us in Asia, the individual is an ant”), not to mention wild-eyed fundamentalists such as bin Laden.

  Indeed, supporters of globalization should realize that the Islamic world represents an opportunity as well as a threat. The fundamental problem in the region is more than just poverty. Remember that bin Laden inherited millions; that many of the September 11 hijackers were university graduates; that Saudi Arabia controls a fifth of the world’s oil reserves; and that the Arab world has less abject poverty (defined as an income of less than a dollar a day) than any other developing region, thanks in part to Islamic traditions of charitable giving. The fundamental problem is a lack of economic and political freedom.

  A report from the United Nations Development Project in 2002 ranked the Arab world lowest out of seven regions in the world in terms of freedom, with abysmal standards for civil liberties, political processes, and media independence. The wave of democracy that washed over much of the developing world (particularly Latin America) during the past decade has passed the Arab world by. The region’s autocratic rulers, whether they dignify themselves with the title of president or king, only give up authority when they die. Women are denied basic economic and political rights. Not one of the Arab states that are commonly accused of spawning terrorism is a member p. xxx of the World Trade Organization. All of them are dominated by intrusive states and freeloading kleptocracies, and all of them are locked in a pattern of relative decline.

  This illiberalism is ruining any chance the Arab world might have of providing a decent life for its citizens, condemning the region to long-term economic decline and spawning an alienated and underemployed middle class. The non-oil-related GDP of the entire Arab world is about the same as the GDP of Finland. Between 1985 and 1998, real average income per head declined in Iran, Iraq, Jordan, Qatar, Saudi Arabia, Syria, the United Arab Emirates, and Yemen. It can hardly be an accident that the Muslim-dominated countries that have actually succeeded in offering a better life to their citizens have also been the ones that have been the most democratic and the most open to free trade. The most successful of them all, Turkey, has been a secular state since 1928.

  The Lesson of a Terrible Century

  None of this is meant to imply that the Western brand of globalization is a perfect model. It is not. There are clearly manifold problems—from the governance of companies such as Enron and WorldCom that allow chief executives to behave like tawdry pirates to the persistence of poverty in the developing world. Fixing all these problems requires governments to take an active role.

  One of the few things that the left and the right agree on is that globalization diminishes the importance of government. They are both wrong. There is no statistical relation between the globalness of an economy and the size of its state: Sweden and Denmark are two of the most open economies in the world (with a ratio of imports to national income roughly double that of the United States), but their governments both account for more than 50 percent of GDP, way above the level in America.

  The truth is the opposite: Globalization actually increases the importance of government, in at least three ways. First, markets depend on transparency and the rule of law, things that only governments can provide. The scandals now engulfing American capitalism only underline how important those rules should be. There is nothing illiberal about a government demanding that the accountants who audit companies be rotated. The same need for competent government applies in spades in the developing world: As Hernando de Soto has argued, merely giving people basic property rights—the right to own their home and the opportunity to borrow against it—could unleash trillions of dollars of capital.[14]

  p. xxxi Second, governments have a preeminent role to play in ameliorating the downside of globalization. Like any other efficiency-producing device, globalization mercilessly exaggerates any weaknesses that it encounters. Forcing countries, companies, and people to compete with the best in the world imposes huge strains. Faulty policies—be it Brazil’s push into deforesting the Amazon or Thailand’s adoption of a fixed-rate currency system—are rapidly exposed in a world of mobile information and capital. The doctrine of comparative advantage is a harsh one if you possess little but comparative disadvantages. So far politicians have usually been less innovative than businesspeople in dealing with the relentless pressure to compete. Some of the necessary changes, such as making pensions in Western countries portable, pose awkward bureaucratic problems. Others, for instance changing American high schools or European universities, require a more fundamental review of the traditional role of governments. Wouldn’t America’s urban schools be more efficient if parents were given vouchers? And wouldn’t Europe’s universities be more successful if they weren’t so dependent on the state?

  The third area where Western governments in particular have an important role to play is in coping with third-world poverty. As we have already mentioned, Western countries could contribute enormously by opening their economies to poor-country imports. It is scandalous that agriculture and textiles, the two things most poor countries most want to export, are also the areas with the highest tariffs in the West. Yet the third world needs more than this. It has fallen too far behind.

  Many nongovernmental organizations think the answer is to tilt trade rules—to make trade “fairer” by, for instance, only admitting imports produced by workers with “decent” wages. This is a recipe for hidden protectionism—for preventing the developing world from trading its way out of poverty. Instead, the simplest way to help the third world is to do so directly—by giving money and advice. Debt forgiveness could be dramatically expanded at relatively little cost to the West. Far too little thought has gone into global philanthropy.

  To many Westerners, these issues might seem like a sideshow. Africa is a long way away, and there is a war against terrorism to be fought. History, however, argues th
at complacency is always punished—whether found in a Londoner in 1914 sipping his tea in bed or in a Californian hunched over a cappuccino in Starbucks in 1998.

  We began by comparing September 11 to Sarajevo. But the underlying causes of the failure one hundred years ago went deeper—and were rooted in the complacency of the winners of the first age of globalization. A decade p. xxxii before Princip made his fateful move, the Salvation Army threw a dinner party at Madison Square Garden. The stadium’s lights beamed down on thousands of poor people tucking into free food. The rich hired boxes and galleries to savor their philanthropy. Everybody sang “Praise God from Whom All Blessings Flow.” It was hailed by the Salvation Army commander as “the dawning of a new era, the bridging of a gulf between the rich and poor.”

  Over the next quarter century the masses at the trestle tables turned on the elite in the galleries. The icons of American capitalism—the Rockefellers, Morgans, and Vanderbilts—were denounced as “robber barons” and “malefactors of great wealth.” Even before Sarajevo, antitrust policy was being used to cut them down to size and higher taxes to narrow the inequalities they had created. The First World War provided a spur for more state intervention. The stock-market crash of 1929 (also “their” fault) led the government to interfere even more in business. Then came the Depression, which helped neither the rich nor the poor.

  To avoid such a fate, the world requires better leadership. We have had many reasons to regret the title of our book since September 11. In some way a more honest title would be A Future Contingent. We continue to believe that globalization can produce a much better world for the vast majority of people, but it will not do so simply as the automatic result of technology. The future is contingent on the quality of our political leaders in Washington, London, and the other capitals of the world. That thought, depressing or inspiring, sets the tone for the rest of this book.