Friday, August 22, 2003

Globalisation: It's working for most -- but not all (The Economist)

In Memory of Rudi Dorbusch: Archive Entry From Brad DeLong's Webjournal

Brad DeLong quotes more of the article than I'd dare to (I'm an Economist subscriber, so I can read it on their web site). I need to update my web page on poverty with this information.

The graph DeLong shows really is fascinating. I will quote the Economist's conclusion:
... the more closely one looks at the charts, the stronger the case for globalisation seems. The real question—at least so far as reducing global poverty is concerned—is not whether globalisation is a good thing, but why some countries (and in Africa's case an entire region) find it so difficult to participate. The answers, as Mr Fischer relates, are complicated. Rich- and poor-country governments alike are partly to blame.

America and the European Union both maintain trade restrictions that hurt the developing countries. They have been promising reform for years, but the world is still waiting. Mr Fischer calls for “significant increases” in aid, though he acknowledges that aid will need to be more selective if its patchy record of success to date is ever going to be improved.

But governments of the poorest countries themselves bear much of the responsibility. Many of the world's highest trade barriers are those imposed by poor-country governments on trade with other poor countries—to say nothing of the failure to provide security or stability, or of the enormous sums (including money received as aid) squandered on vanity public projects or luxuries for the ruling circles and their chums. For countries with governments like this, globalisation is always going to be difficult to achieve.

Like many people I've become a bit less of an advocate of globalisation than I once was, and less than the writer of this piece still is, but I'm still a strong advocate. Ever since I spent a day in 1981 at a Dakka glass factory, I've believed that trade and commerce was a far better approach to reducing poverty than conventional aid programs.

I must note that The Economist has also nuanced their support of globalisation. A recent survey of capital markets emphasized the profound injury that unrestrained capital markets caused many poor nations, and many middle-tier nations, in the 90s. Greed and corruption is universal and must be a part of any analysis of poverty reduction.

All that being said, I still see globalisation as the only way to substantially improve the well being of most of the world. I think for globalisation to suceed we do need to put some significant shock absorbers in place. Poor nations can be whipsawed by capital flows and the displacement of the country-side, rich nations by the political and personal shock of industry transitions. A substantial piece of the US IT industry is moving oversease. Conventional trade theory says that this economic opportunity will be replaced by new possibilities -- but a 45 yo Java guru cannot become a world class violinist or a high earning butler overnight. Humans don't adopt that quickly.

Because humans can't adopt so quickly, we experience significant periods of disequilibria. Disequilibria causes widespread economic, social, and political strains. If, as some expect, change will accelerate worldwide, so too will disequilibria and its consequences.

Look for Nordic-style socialism to make a comeback, even as globalisation must and should continue.

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