Searching... For Something to Say

Somewhat by accident, I have been launched into an expedition to learn about globalization. I realized a week or two ago that globalization is central to many of the arguments that come up in debate and extemp, so, having a cursory knowledge of the basic economic arguments in its favor, I checked out Joseph Stiglitz book Globalization and Its Discontents. While being an excellent read, it is more of a memoir on his experience working at the World Bank, and is consequently conspicuously devoid of references. Nevertheless, his argument is compelling.

There are plenty of abstract reasons why globalization and trade liberalization should lead to improved economic performance for all countries. I don't need to repeat them. They're the stuff of economics 101, so you probably already know them. And they are valid, at least in the absence of market imperfections. Yet looking at the world, globalization has created about as many failures as successes. The optimist exuberantly points the rapid rise in economic output and standards of living in East Asia. Last time I checked, China's economy was growing at around 9%. True, China has a heck of a lot more problems that a single growth rate reveals, but it has been at least partially successful recently due to the gradual loosening of trade barriers. Singapore is another good example of globalization's benefits.

For each of these successes, the pessimist can wave his arm at most of Sub-Saharan Africa and Latin America. American and IMF liberalization policies have conspicuously failed, leading to events like those of yesterday and today at the Summit of the Americas. Violent protests erupted and Venezuela's left-wing Hugo Chávez attempted to market his "Bolivarian Alternative for the Americas" as a counterplan to Bush's Free Trade Area of the Americas. The Economist notes that Mr. Chávez's "alternative" is not much more than an offer for cheap oil and a declaration against poverty--no better than the US-IMF liberalization plans.

The question then comes to mind: why should there be such a distinct discrepancy between countries that have flourished and failed? The answer seems to lie in the means by which market and trade liberalization is executed. East Asian economies, especially that of China have come to power because of a very slow and deliberate reform process that is still occurring today. IMF policy calls for having client countries dismantle government controls as quickly as possible. Since many of these countries are desperate for money, they are forced to acquiesce to IMF demands. The IMF argument goes something like this: if the government controls are eliminated, money will naturally flow to the industries in which the country operates most efficiently and at a comparative advantage. But the fact that the US and EU maintain extensive subsidies and tariffs for their industries that do not have a comparative advantage means that developing countries are often priced out in the global marketplace. Agricultural subsidies are a classic example. In Senegal, one of the major industries is the harvesting of peanuts. US agricultural subsidies have created a global glut of peanuts that has depressed prices and undercut Senegal's peanut industry. Most of these developing countries don't really have a hope of being efficient in more than one or two industries--usually cash crops. Colonialism caused their economies to generally focus on one or two key products. The solution to globalization's dillemma seems to be to give time for free marketeering to arise naturally as opposed to the shock therapy that has routinely failed throughout the globe, and that the IMF and US (to a lesser extent) tend to support.

Stiglitz's book contains an extensive indictment of the mismangement in the IMF in particular, which I won't repeat. Generally speaking, the IMF models and prescriptions for the American economy are bad enough that US policy-makers pay little or no attention to them. Unfortunately, other countries don't always have the ability to shun the IMF like we do.