Globalization Without Tears

An economist debates the NGOs.

Prakash Loungani from the August/September 2004 issue

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So Bhagwati thinks multinationals' capital shouldn't necessarily be able to flow wherever it wishes. He also thinks ideas should flow freer than those companies wish. He condemns lobbying by multinationals for intellectual property protection through the WTO, arguing that trade and intellectual property should be separate issues. He says their forced union in the Trade-Related Aspects of Intellectual Property Protection agreement was a triumph of lobbying over logic.

"Pharmaceutical and software companies muscled their way into the WTO and turned it into a royalty-collection agency simply because the WTO can apply trade sanctions," Bhagwati writes. Intellectual property is now one of the three legs of a tripod -- the other two being trade in goods and trade in services -- on which the WTO is supposed to rest. Now other lobbies in rich countries want to inject their own agendas into the WTO. The trade unions want a social clause that would trigger trade sanctions against countries if Western labor standards were not met, and the environmentalists want the same done for nature.

Bhagwati suggests some ways to keep globalization going while easing its opponents' concerns. Unfortunately, these ideas are vague, and there's little evidence they'd do much good. Bhagwati wants, for example, to take steps to "accelerate the pace" of progress on social issues. That globalization delivers progress on social goals is no reason, he says, not to do more by deploying "additional policy instruments." But the major instrument he recommends is "a good tongue-lashing." He says "our ability to zero in on morally offensive practices has increased hugely. Embarrassment, if not shame and even guilt, allow tremendous leverage." He favors strengthening the review and monitoring functions of international agencies toward this goal of shaming malefactors, but he doesn't provide any convincing examples of where these sorts of instruments have worked as he posits they might.

Bhagwati also says we must "put in place institutional mechanisms to cope with the occasional downsides of globalization." He notes that in principle there's no reason to single out trade as a cause of grief; he thinks all displaced workers should be supported through general, comprehensive schemes such as unemployment insurance and retraining programs. But because job loss from foreign competition evokes more outrage than job loss from domestic competition, he says, governments must "intervene with special support" when trade causes distress to preserve globalization's benefits. And the World Bank, he thinks, must be mobilized to provide the cash to do this for poor countries.

Bhagwati does not come to grips with evidence that existing trade adjustment assistance programs are ineffective. In the United States, for instance, many studies, including a comprehensive October 2000 investigation by the Government Accounting Office (GAO), have shown that such programs end up being very expensive and ultimately ineffective.

They act as a disincentive for workers to find new employment quickly. And there is little to suggest that workers use this time to undergo the training that is supposed to shield them from moving to jobs that pay considerably less than the ones they lost. The GAO found that only one in five workers actually signed up for training, that three in five workers ended up in jobs where they had to take substantial pay cuts, and that weaknesses in administering the programs resulted in payments to ineligible workers.

Bhagwati also thinks we must manage "the speed of transition" to globalization. Far better to lower tariffs at a rate that does not endanger a country's political stability, he says, than to lower them to the floor right away and risk a backlash against the entire reform process.

Bhagwati faults Western "shock therapists" for wreaking "havoc" in Russia by recommending too fast a pace of reforms. But he does not acknowledge that the danger with moving slowly on reforms is that the pace often comes to a full stop. This is what has happened in countries such as Ukraine and Moldova, where gradualism has in effect meant little reform and prolonged misery.

Bhagwati is equally unrealistic in his apparent belief that his proposals would win over globalization's strident enemies, bringing pro-globalization and anti-globalization forces together over "a shared success." He ignores his own suggestion that many NGOs have an emotional stake in their anti-globalization positions: They protest to fill the void in their hearts created by the failure of socialism. NGOs may also have a financial stake in continuing to protest. Bhagwati notes that Lori Wallach, a noted anti-globalizer, refused to release the list of contributors to an NGO with which she was associated, despite allegations that its anti-trade activities were funded by the protectionist textile magnate Roger Milliken.

Bhagwati has held out a hand to the NGOs in friendship but, to paraphrase one of his own lines, they have too much incentive to continue to bite it.