Trade and Rage

In Defence of Globalisation
by Jagdish Bhagwati
(Oxford University Press, 2004, 320 pages;  $62.95)

This eminently readable book is a synthesis of Professor Bhagwati's views on globalisation as expressed in his articles and speeches over the past few years.  As the doyen of trade economists, these opinions presented in one volume are a valuable addition to the ever-growing library on globalisation.  Most of his views are predictable for anyone who has followed Professor Bhagwati's distinguished career.  In particular, the reader's attention will be drawn to the contradictions he identifies in many familiar anti-globalisation arguments.

International economic interdependence (integration) has dominated economic development for the past 50 years, as it did during "La Belle Epoch" before 1914.  Only in the 1990s was the term "globalisation" fabricated, and its adoption has allowed all the world's malcontents to unite against this single "cause".  By focusing their attacks on globalisation, left-wing activists, nationalists, anarchists, environmental groups, communitarians, animal liberationists, church charities, etc., do not need to discuss their differences.

In the early stages of this volume, Bhagwati acknowledges that NGOs have captured the media-sensitive and sympathetic subjects of social justice and human rights as their territory.  It is a simple step from there to establish that since poverty and social injustices still exist under "capitalism", an alternative system of direct controls, regulations and planning must be tried.  History is irrelevant to NGOs!  However, Bhagwati explains how increasing prosperity from more efficient and more technologically advanced production and distribution could be used by NGOs to increase their chances of achieving their goals.

The economic analysis in the early chapters makes telling points against the anti-globalisation lobbies.  The long history of trade liberalisation established that net economic benefits are generated by trade.  So the policy question relates to distributing these gains within the community.  NGOs continue to argue that interdependence among nations restricts their ability to provide social welfare programmes to their citizens.  Any social welfare shortcomings, however, depend not on liberal trade policies but on domestic policy settings.

This kind of reasoning is evident in much of the criticism of globalisation (that is, any residual "bads" are enough to reject a policy).  For example, cultural damage has little to do with economic globalisation, and much more to do with advances in communications, travel and migration (in other words, enabling technology) that expand consumer choice (films, Internet, TV, books, etc.).  Any "loss" of indigenous culture, however, is surely compensated by access to other cultures, as marketing opportunities for all cultures expand.

As his argument progresses, Bhagwati modifies his views on NGOs.  In the early chapters, he argues that although environmental problems may be global, they are not necessarily the consequences of globalisation.  Later, he accepts the Kyoto Protocol without demur, even though the schedules for OECD countries to reduce their CO₂ emissions will achieve little if developing countries are free to expand their output.  The CO₂ reductions in the Kyoto Protocol were designed to suit EU interests, with no allowance for net energy exporters, such as Australia.  Moreover, the effects of increased CO₂ emissions on climate are uncertain;  after all, climate warming could increase agricultural productivity in some regions.  The IPCC modelling of climate change has been seriously criticised because of its dubious assumptions (see Castles and Henderson, among others).

NGOs' opposition to genetically modified crops is treated gently, too.  Bhagwati argues that Europeans' fear of GMOs persuaded their governmentsand the EU Commission to introduce a moratorium on GM crops.  It has also generated support within Europe for adoption of "the precautionary principle", which would give blanket protection to EU farmers, and could be extended to almost any import (GM or not).  On this, Bhagwati comments, "... [this is] an open-ended approach to safety regulation, denying science the decisive role it ought to have" (page 152).  Similarly, he criticises "eco-labelling" as another form of anti-GM protection.

Multinational corporations' activities are analysed (chapter 12) to show that the alleged exploitation of workers and resources, and the corruption of governments in developing countries, are less widespread than NGOs claim and that, on balance, they contribute to economic development.  The benefits from this private investment are often greater than benefits from aid flows, which bring onerous terms for capital repayment and interest charges.  By establishing standards for corporate responsibility (CSR), Bhagwati believes these benefits should be enhanced.  However, he makes no mention of the hectoring "blame and shame" campaigns by some NGOs that infringe shareholders' rights.  And although he mentions favourably the UN's Global Compact (2001), which sets out standards for corporate behaviour, there is no suggestion that a similar concordance should be proposed to set standards for NGOs' statutes and reporting.

The Bretton Woods' twins (World Bank and IMF) have been under the lash from Bhagwati for some years for deregulating short-term capital flows too quickly, for failing to predict incipient problems and for reacting inappropriately and slowly.  He blames the IMF for the severity of the Asian financial crisis (1997) because Fund staff had encouraged de-regulation of short-term capital flows, but did not give any warning when short-term debt accumulated.  That financial disruption was painful, but it became a crisis because Asian governments had inadequate financial regulations and no prudential requirements for their financial institutions.  They were also committed to fixed exchange rates against the US dollar.  When the IMF assistance package was offered, it was immediately criticised and quickly amended.  However, it was the Fund board that approved the package.  As with other international institutions, World Bank and IMF policies are determined by their articles of association (agreements) and by their governing councils, drawn from member governments.

As one would expect, given the author's knowledge, the WTO is a recurring topic in this volume.  The WTO has been a major target for NGOs seeking to influence trade liberalisation as a key component of globalisation, and to sacrifice trade to other gods.  Bhagwati analyses the evils of trade sanctions, trade remedies (safeguards, antidumping, etc.), agricultural protection, dispute-settlement procedures and protection of intellectual property as impediments to growth in developing countries.  Like the Bretton Woods' institutions, the WTO is also facing demands for reforms.

In the final section, Bhagwati seems complaisant about NGOs and sees their attitude to globalisation as benign, despite his earlier scepticism.  He is optimistic that NGOs would be willing to compromise to draw up new policies, new institutions and "appropriate governance" to promote "the human face" of globalisation;  "... none of these difficulties is beyond resolution by compromise and good sense".  Since most NGOs make openended demands and have developed a life of their own, this is not a convincing line of argument.

Bhagwati concludes that globalisation is "a force for advancing several social agendas", that he believes "will yield better results if it is managed" (page 221).  To achieve what he calls "appropriate governance", based on new policies and institutions, he wants to incorporate NGOs into the negotiations, and to use them to monitor international co-operation.  This ignores recent experience with NGOs, and conflicts with his own views in earlier chapters.  Demanding changes to the constitutions and governance of international institutions is fraught with difficulties.  Arguments over the WTO and the Bretton Woods' institutions have shown that any amendments to a founding agreement or changes to the governing bodies are difficult to negotiate.

One proposal to elicit more support for economic globalisation from developing countries and NGOs would be to provide outside financial assistance to facilitate economic adjustments to external shocks, such as tariff reductions or falling export prices.  Bhagwati suggests that World Bank and IMF resources should provide such finance (page 223).  This was proposed also in the Declaration on Greater Coherence in Global Economic Policy-Making in the Uruguay Round Final Act.  International institutions guard their territory fiercely, however, so no progress was made towards institutional policy coordination.

After reading this volume, one is left wondering whether globalisation is in retreat.  Bhagwati's comprehensive survey leads him to seek to accommodate dissenting voices.  This can only offer opportunities to the anti-globalisation lobbies.  Already international political tensions, as well as NGOs' activities, are weakening the forces of global integration.  As terrorism raises security concerns, and increases communication and transport costs, international co-operation may be weakening.  Ultimately, globalisation depends on domestic economic policies and governments' commitments to policies that support the market economy:  property rights, the rule of law and free competition.  This makes some of the concessions offered in this volume worrying.