The good of globalization

Thousands of protesters disrupted the 1999 Seattle meeting of the World Trade Organization in the firm belief that rapid globalization is harming the developing world. Other protesters tried to disrupt meetings in Genoa, Italy, and Cancun, Mexico; union leaders supported all of them.

Many economists believe just as firmly that economic globalization is helping poor countries, and officials in many developing countries and international organizations agree.

All over the world, a struggle for hearts and minds is taking place, and the stakes are high. The outcome of the globalization debate will affect for good or ill the livelihoods of Colombian coffee farmers, African cattle herders, and Indians developing software for U.S. companies. It also may affect the security of Americans.

“Economic globalization,” as distinct from cultural globalization, is the integration of national economies into the international economy through increased trade in goods and services and greater cross-border movements of capital investment, business executives, workers, ideas and technology.

In recent decades most countries, both developed and developing, have encouraged economic globalization by lowering their tariffs and other barriers to imports. Some countries have gone further, adopting additional measures to take advantage of globalization. These include reducing government deficits, curtailing inflationary monetary policies, maintaining market-oriented exchange rates, increasing competition among domestic firms, and improving education.

Supporters of globalization advance powerful arguments: Economies grow through globalization because tapping into world markets gives people and companies access to greater capital flows, better technology, cheaper imports, and larger export markets. Larger markets, in turn, are likely to promote efficiency through international competition and the division of labor.

Some simple facts support this viewpoint. From 1950 to 1998 world trade expanded 20 times, or 2000 percent, according to the economist Angus Maddison, while the transfer of capital into the developing world grew by leaps and bounds. Meanwhile, the world’s gross domestic product increased six times, and the GDP of Africa, Asia and Latin America combined grew even faster, 10 times. And between 1970 and 2001, GDP per person also grew in every region of the developing world except Africa.

Was it just a coincidence that economic growth and rising output per person came with globalization? To the contrary, most economic studies suggest that globalization has benefited poor countries.

A study released last month by Gonzalo Salinas of Oxford University and Ataman Aksoy of the World Bank examined 39 developing countries in Africa, Asia and Latin America that radically reformed their international trade policies. They opened their economies to international trade and investment and adopted economic policies to support this openness.

Salinas and Aksoy found that these reforms boosted the growth rate of GDP per person by at least 1.2 percent per year and perhaps as much as 2.6 percent. This boost took place in every region – Africa, Asia and Latin America – regardless of the size of the country or its initial income per person. If output per person grows 2.6 percent each year, it will double in 27 years. As output per person rises, incomes and living standards also tend to rise. In the larger countries, globalization probably has benefited many millions of people already.

Salinas and Aksoy examined 15 other studies and found that all but one support the idea that globalization helps poor countries prosper. I know of no fact-based study that supports the idea that anti-globalization policies usually help economic growth.

While these reports provide strong evidence that globalization usually helps poor countries, especially those that implement policies to take advantage of it, not everyone has benefited. The Salinas-Aksoy report, for example, found that while their 39 countries, examined as a group, benefited strongly from their policy reforms, eight of the countries did not.

Also, within countries benefiting overall from globalization, some people will be affected adversely. A peasant family that sells part of its grain production on the market may be harmed if cheap imported food drives down the prices of its crops. International organizations should help create safety nets, similar to the welfare measures established in Western countries, to help those not benefiting from globalization.

Americans too have a stake in the debate over globalization. If the developing world becomes more prosperous, its people will see the benefits of political stability and become less vulnerable to recruitment by jihadists and other terrorists. Americans will be more secure. So we should support globalization because it almost certainly helps most poor countries prosper, but also because it likely enhances our own security.

Anti-globalization protesters should know that they are opposing a process that apparently helps millions of people in poor countries and may also contribute indirectly to the security of Americans. They should ask Colombian coffee farmers or Indian software technicians – workers whose products are exported to the West – what they think.

Edwin Dean, a seasonal resident of Vinalhaven, writes monthly about economic issues.