Home > Uncategorized > Globalization—how did they get it so wrong?

Globalization—how did they get it so wrong?

from David Ruccio

There is perhaps no more cherished an idea within mainstream economics than that everyone benefits from free trade and, more generally, globalization. They represent the solution to the problem of scarcity for the world as a whole, much as free markets are celebrated as the best way of allocating scarce resources within nations. And any exceptions to free markets, whether national or international, need to be criticized and opposed at every turn.

That celebration of capitalist globalization, as Nikil Saval explains, has been the common sense that mainstream economists, both liberal and conservative, have adhered to and disseminated, in their research, teaching, and policy advice, for many decades.

Today, of course, that common sense has been challenged—during the Second Great Depression, in the Brexit vote, during the course of the electoral campaigns of Bernie Sanders and Donald Trump—and economic elites, establishment politicians, and mainstream economists have been quick to issue dire warnings about the perils of disrupting the forces of globalization.

I have my own criticisms of Saval’s discussion of the rise and fall of the idea of globalization, especially his complete overlooking of the long tradition of globalization critics, especially on the Left, who have emphasized the dirty, violent, unequalizing underside of colonialism, neocolonialism, and imperialism.*

However, as a survey of the role of globalization within mainstream economics, Saval’s essay is well worth a careful read.

In particular, Saval points out that, in the heyday of the globalization consensus, Dani Rodrick was one of the few mainstream economists who had the temerity to question its merits in public. 

And who was one of the leading defenders of the idea that globalization had to be celebrated and it critics treated with derision? None other than Paul Krugman.

Paul Krugman, who would win the Nobel prize in 2008 for his earlier work in trade theory and economic geography, privately warned Rodrik that his work would give “ammunition to the barbarians”.

It was a tacit acknowledgment that pro-globalisation economists, journalists and politicians had come under growing pressure from a new movement on the left, who were raising concerns very similar to Rodrik’s. Over the course of the 1990s, an unwieldy international coalition had begun to contest the notion that globalisation was good. Called “anti-globalisation” by the media, and the “alter-globalisation” or “global justice” movement by its participants, it tried to draw attention to the devastating effect that free trade policies were having, especially in the developing world, where globalisation was supposed to be having its most beneficial effect. This was a time when figures such as the New York Times columnist Thomas Friedman had given the topic a glitzy prominence by documenting his time among what he gratingly called “globalutionaries”: chatting amiably with the CEO of Monsanto one day, gawking at lingerie manufacturers in Sri Lanka the next. Activists were intent on showing a much darker picture, revealing how the record of globalisation consisted mostly of farmers pushed off their land and the rampant proliferation of sweatshops. They also implicated the highest world bodies in their critique: the G7, World Bank and IMF. In 1999, the movement reached a high point when a unique coalition of trade unions and environmentalists managed to shut down the meeting of the World Trade Organization in Seattle.

In a state of panic, economists responded with a flood of columns and books that defended the necessity of a more open global market economy, in tones ranging from grandiose to sarcastic. In January 2000, Krugman used his first piece as a New York Times columnist to denounce the “trashing” of the WTO, calling it “a sad irony that the cause that has finally awakened the long-dormant American left is that of – yes! – denying opportunity to third-world workers”.

The irony is that Krugman won the Nobel Prize in Economics in recognition of his research and publications that called into question the neoclassical idea that countries engaged in and benefited from international trade based on given—exogenous—resource endowments and technologies. Instead, Krugman argued, those endowments and technologies were created historically and could be changed by government policies, including histories and policies that run counter to free trade and globalization.

Krugman was thus the one who gave theoretical “ammunition to the barbarians.” But that was the key: he considered the critics of globalization—the alter-globalization activists, heterodox economists, and many others—”barbarians.” For Krugman, they were and should remain outside the gates because, in his view, they were not trained in or respectful of the protocols of mainstream economics. The “barbarians” could not be trusted to understand or adhere to the ways mainstream economists like Krugman analyzed the exceptions to the common sense of globalization. They might get out of control and develop other arguments and economic institutions.

But then the winds began to shift.

In the wake of the financial crisis, the cracks began to show in the consensus on globalisation, to the point that, today, there may no longer be a consensus. Economists who were once ardent proponents of globalisation have become some of its most prominent critics. Erstwhile supporters now concede, at least in part, that it has produced inequality, unemployment and downward pressure on wages. Nuances and criticisms that economists only used to raise in private seminars are finally coming out in the open.

A few months before the financial crisis hit, Krugman was already confessing to a “guilty conscience”. In the 1990s, he had been very influential in arguing that global trade with poor countries had only a small effect on workers’ wages in rich countries. By 2008, he was having doubts: the data seemed to suggest that the effect was much larger than he had suspected.

And yet, as Saval points out, mainstream economists’ recognition of the unequalizing effects of capitalist globalization has come too late: “much of the damage done by globalisation—economic and political—is irreversible.”

The damage is, of course, only irreversible within the existing economic institutions. Imagining and enacting a radically different way of organizing the economy would undo that damage and benefit those who have been forced to have the freedom to submit to the forces of capitalist globalization.

But Rodrik and Krugman—and mainstream economists generally—don’t seem to be interested in participating in thatproject, which would give the “barbarians” a say in creating a different kind of globalization, beyond capitalism.

 

*Back in 2000—and in a series of articles, book chapters, and blog posts since then—I have attempted to rethink the relationship between capitalist globalization and imperialism. Marxist economist Prabhat Patnaik has also made the case for the continuing relevance of imperialism as an analytical construct for understanding and challenging effectively the logic and dynamics of contemporary capitalism.

  1. July 25, 2017 at 3:20 am

    “The damage is, of course, only irreversible within the existing economic institutions. Imagining and enacting a radically different way of organizing the economy would undo that damage and benefit those who have been forced to have the freedom to submit to the forces of capitalist globalization.”

    Exactly! A host of young eco economists using low brow accounting techniques and calculating with kilo calories leads inexorably to sewer line sensors guarding poop from humans who’s pitiful bodies are only 15% efficient.

  2. Reiner Buchegger
    July 25, 2017 at 5:26 am

    Irreversible are most certainly the suicides of thousands of cotton farmers in Asia due to the market forces.

  3. July 25, 2017 at 9:32 am

    Paul Krugman and many other trade economists adopt either general equilibrium (GE) or partial equilibrium models within a wider framework of GE.

    Whatever the models may be, GE models assume the full employment (except frictional unemployment). By consequence, there is no unemployment in the results they get as a solution to their problems. In the same vein, bankruptcy of firms and industrial decline are excluded by their assumption. And yet, the major problems of the shift to more liberal trade regime are commonly related to unemployment and industrial decline. What they can analyze is the effects of price changes i.e. income gains and losses through the change of factor prices (the wage rate and the rate of profit). Thus, it is quite normal that those economists who use equilibrium framework conclude that trade liberalization has no major problems. Of course, they willingly admit that it may cause some frictions for a short period (until the equilibrium is attained) but these frictions are always negligible and ephemeral.

    Dani Rodriks is rather a political scientist (or at least a political economist) than an economist and it explains why among established specialists it was only Rodrik alone who expressed sincere concerns to the effects of globalization. Even if Krugman had converted a bit, it is not a theoretical one. As he confesses, it is the “data that seemed to suggest that the effect was much larger than he had suspected.” He can easily change his mind.

    It is natural that anti-globalization movements are now accumulating their forces. However, the problems of globalization should not be confined within the policies and policy debates. We should think of the theory that explains and analyzes globalization. As I have pointed above, international trade theory based on equilibrium has no capacity to analyze the major problems of globalization. Consequently it is necessary to construct a new theory which does not adopt equilibrium framework.

    Such a new framework already exists. See my paper: The New Theory of International Values: An Overview
    http://link.springer.com/book/10.1007/978-981-10-0191-8_1
    In section 4 “Gains from trade and possibility of trade conflicts” shows how we can analyze theoretically to whom gains from trade occurs and why conflicts can occur. Theory alone cannot produce any policy recommendation. It must be combined by empirical studies of actual situation and policies.

    It is no more time to argue and denounce neoclassical theory which cannot analyze trade conflicts by principle. We should step forward to analyze how and in what magnitude the liberalization affects national economies.

  4. C-R D
    July 25, 2017 at 3:17 pm

    “In particular, Saval points out that, in the heyday of the globalization consensus, Dani Rodrick was one of the few mainstream economists who had the temerity to question its merits in public.”
    Do we have a date for this? In 1999, I published a book showing that globalization was a fraud. See Unfettered Globalization: A new Orthodoxy, Praeger, 1999.

  5. Risk Analyst
    July 25, 2017 at 5:15 pm

    In mainstream international trade, the contrast between theory and reality is a very rich field for picking out conclusions to support your pet themes. I like to focus on how a main tactic to argue for globalization was the use of contempt. If you did not see the benefits of globalization, then you are not well educated and just need to take some more classes in the topic, or perhaps you are a greedy self-interested union member looking out for yourself to the detriment of the country.

  6. July 25, 2017 at 6:41 pm

    I would suggest that globalization and free trade would have a better chance of working if labor were included in the resources that were freely imported and exported. In other words, immigration policies are a part of the puzzle.

    • July 26, 2017 at 11:58 am

      But Charles, labor comprises people, not resources, and to “work” they require more or less fixed abodes and a familiar network of supporters and supportive institutions. I suggest the root problem is the globalisation of money, and if everyone was responsible for repaying his own credit in the currency of the locality from which it was borrowed, then traders would have to act responsibly and import only the equivalent of what they were able to export.

      • July 26, 2017 at 1:55 pm

        With due respect, I disagree. People, who can supply labor, are a very valuable resource and it is exported and imported in great quantities around the globe. It was an issue in BREXIT, in the US it is a big issue in politics.

      • July 26, 2017 at 4:48 pm

        With respect, what you say may be true as of now, but it is not unproblematic. Brexit is a direct result of popular reaction to TOO MANY people being imported and exported, and as in the US it is a political issue because, jobs having been exported, people are not being actively trained and are ceasing to be (and even ceasing to see themselves as) valuable resources.

        For example, we are training only around half the engineers, doctors, nurses and care workers we need, so half our doctors are foreigners, local government is being run by the technically incompetent and much of our largely privatised infrastructure is now legally owned and run by foreigners. It is one thing to be free to travel and work abroad, quite another to have to do so at the whim of uncaring idiots whose working methods cannot distinguish people from match-sticks. When I have visited relatives in Australia and New Zealand, I am amused by so many of them still thinking of England as “home” many generations after their family left it, but this still really is an important part of their self-identity, which “resources” like matches don’t have.

      • July 26, 2017 at 6:50 pm

        I totally agree with your insight. I just believe people have a right to live where ever they please.

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s