What enriches the poor and liberates the oppressed?

March 5, 2004

Globalisation - so stop protesting and learn to love it, argues Jagdish Bhagwati.

With all the noise made by vast numbers of anti-globalisers, most politicians may be forgiven for thinking that this is a phenomenon that imperils our economic wellbeing and, more worryingly, the kind of society we value. Thus, Tony Blair, Bill Clinton, the former US president, and Gerhard Schroeder, the German chancellor, the social-democratic proponents of the "third way", lament economic globalisation, even as they pursue it, as a phenomenon that "needs a human face". Of course, if it needs one, it must lack one.

And Mary Robinson, the former prime minister of Ireland, having finished her term as United Nations commissioner for human rights, is now pursuing a project whose aim is to seek an "ethical globalisation", implying that current globalisation is not so.

Indeed, there is in anti-globalisation circles a general tendency to blame globalisation for all the world's social problems. Typically, many reports observe that globalisation has increased and that social ills such as poverty exist or have increased, and conclude from this that the former is the cause of the latter. But, like Tina Turner's What's Love Got To Do with It? , we must ask: what has globalisation to do with it?

My view is that economic globalisation has a human face and that it advances, rather than inhibits, the achievement of social agendas as wide-ranging as the promotion of gender equality worldwide and the reduction of poverty and child labour in poor countries. The choice between these two assessments of economic globalisation is a matter of the utmost importance. It also has immediate implications for what I call "appropriate governance". If you believe that globalisation lacks a human face, then you will favour appropriate governance that encourages policy interventions to restrain globalisation.

Witness the recent presidential campaign in the US. Fears over the alleged adverse effects on US workers (which is clearly a "social" issue) from the outsourcing of services have led the Democratic presidential aspirants to embrace protectionist policies to tax imports or policies that prohibit US firms from outsourcing services to developing countries such as India.

Senator John Kerry has characterised companies that outsource as traitors - even if, after doing so, Kerry and his wife dined on imported French wine and brie, rather than on Kraft cheese and Milwaukee beer, and watched a BBC Masterpiece Theatre drama instead of a US sitcom on television.

But if you believe, as I now do, that globalisation has a human face, then you will want very different policy interventions - ones that preserve and celebrate the good effects that globalisation generally brings and that supplement the good outcomes and address the phenomenon's occasional downsides. One example is plans to reduce child labour in poor countries.

If globalisation brings parents increased wealth, are they more likely to send their children out to work or less so because they do not need children to work and can send them to school instead? If the former is the case, then clearly policies that inhibit globalisation seem sensible. But if the latter is more likely - and numerous studies show that the rise in incomes resulting from the increased exports that accompany trade liberalisation has resulted in peasants stopping their children working and sending them to school - then we should ask: what can we do to accelerate the pace at which child labour will be reduced by globalisation?

If a woman is screaming: "Help, my husband is beating me up", you do not say to her: "Hang in there. In 20 years, the prosperity brought by globalisation will take care of you." You will want to go in and nail the nasty fellow to the wall right away. The interesting question for those who wish to design appropriate governance for globalisation with a human face is therefore: how does one translate that act of nailing the mean fellow to the wall into policies that will deliver the different social agendas that concern most citizens today?

In nearly every respect, one can argue that globalisation is broadly benign, not principally malign, in its impact on society. Consider the effect on gender pay equality. This can be defined in several ways, of course. It can relate to female and male journalists of similar abilities and accomplishments getting equal pay at the same newspaper. Alternatively, a more ambitious approach would be to ask a pay commission, as some European governments do, to establish some criteria by which pay equality may be considered across occupations. Then again, we could take a "meta" approach and say that the average earnings of women are lower than those of men because women are conditioned into going in for, and/or allowed entry only into, low-paying occupations. Taking only the first, fairly easy measure of inequality: does globalisation help to reduce it or does it accentuate it?

A sophisticated 20-year study of recent US experience by two female economists, Elizabeth Brainerd and Sandra Black, found that, because internationally tradeable industries were in fierce competition, firms could not afford to pay men more than equally able women. Prejudice was simply unaffordable. And because they ended up hiring fewer men and more women, so raising the average wages for women and lowering the average for men, the wage differential shrank faster than in other industries.

Another example is the massive outflow of foreign direct investment - through multinationals - from Japan to the West in the 1980s when Japan was running big surpluses in its current account and its savings were flowing out worldwide and creating paranoia among the Americans, many of whom descended rapidly into Japan-bashing. At the time, Japanese firms exported only male executives, with their women and children in tow. But their women, living in the West - in New York, London and Paris, saw how western women were treated. This turned them into powerful instruments of social change back home, ushering in an era when Japanese women's groups started asking for western-style rights, and it became possible for women to become a force in politics. Globalisation in the form of multinational investments was therefore helpful to women's equality and rights rather than detrimental.

And as for that nonsense spouted by anti-globalisation protesters that globalisation accentuates poverty - my debates with the writer Naomi Klein and Lori Wallach, the trade deputy of Ralph Nader (an independent candidate for US president this year), have involved fantastic claims that the North American Free Trade Agreement treaty has hurt both Mexico and the US, turning on its head the economists' view that trade would benefit both - the evidence shows the opposite.

The economies of China and India grew desperately slowly until the early 1980s, and the countries could do little to reduce poverty. After that, both countries embarked on reforms that included opening to trade and investment, and growth rates took off. As a result, poverty in both countries has declined significantly, just as I argued would happen in the early 1960s when I was working in the Indian Planning Commission on the problem of poverty reduction for the bottom 30 per cent of the Indian population. Growing the pie, as the Americans put it crudely, is the main instrument for pulling the poor up from underemployment into sustained incomes. At the time, I called this theory a "pull-up" strategy, which suggested an activist, radical policy option, rather than a "trickle-down" strategy, which denotes more of a passive, conservative policy choice.

I should stress that my argument relates to the central tendencies of the globalisation process. But we must complement the phenomenon in three principal ways to make its human face glow more brightly:
*Occasionally, there will be a dark underside. If peasants turn solely to export crops, they are unlikely to be able to cope with a sudden loss of markets in a volatile world economy. Governments must have programmes to step in to help them or massive distress and disruption will break out
*The transition to more open trade regimes also requires institutional innovation. Thus, as we know from western experience of the postwar period of trade liberalisation, programmes that help countries adjust to these changes are necessary. Poor countries need to have such adjustment assistance financed by the World Bank; they lack the funds themselves and sometimes even the ability to design them. I have argued this for years. At last, the World Bank has responded and announced a decision to do just this
*Finally, we must ensure that the technocrats do not confuse the optimal speed of transition with the maximum speed when it comes to moving to an open regime. My colleague Jeffrey Sachs compromised Russian perestroika by promoting shock therapy. "Never again" must be the slogan for those managing the transition to open regimes.

Jagdish Bhagwati is a professor at Columbia University and senior fellow at the Council on Foreign Relations, New York. His book In Defence of Globalisation is published by Oxford University Press, £17.99.

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