Jagdish Bhagwati's Defense of Globalization

One of the seminal defenses of economic globalization was provided by Jagdish Bhagwati's, appropriately titled, In Defense of Globalization. The book was first released in 2004 and then re-released in 2007 with a new afterword  that addressed new criticisms of globalization that had arisen in the interim.

The globalization that Bhagwati defends is economic globalization. He defines economic globalization as the "integration of national economies into the international economy through trade, direct foreign investment (by corporations and multinationals), short term capital flows, international flows of workers and humanity generally, and flows of technology" (Bhagwati, 2007, p. 3). However, throughout the course of the book it becomes clear that he is most committed to the defense of trade and foreign direct investment which he sees as part of an outward oriented economic policy strategy that is necessary for growth. Indeed, as discussed in a previous post, he is very critical of financial liberalization, which he terms Gung Ho International Financial Capitalism. As for flows of people across border, while he does call from more flexible immigration policies, when it comes to issues such as the treatment of domestic workers in Middle East countries, he sets these issues aside as separate from economic globalization.

This is not to suggest that Bhagwati is being inconsistent. In fact, once one understands that he is defending the liberalization of trade and foreign direct investment from domestic and international political meddling, many apparent inconsistencies in his argument vanish. For instance, Bhagwati is highly critical of protections for intellectual property rights that are being written into the WTO code. While he provides an argument against the soundness of the basic principle (i.e., that preventing the diffusion of intellectual property can be as bad as undermining the incentives of innovators to create it), he also regards adding side issues to the WTO as ultimately harmful to its primary function of enabling greater trade. Furthermore, he sees an imbalance in power and capability between Western nations and NGOs that will ensure that any WTO rules will reflect their interests and values more than those of developing nations and their much less affluent NGOs.

The bulk of the original book is aimed at defending globalization from charges that it creates onerous social effects, or as Bhagwati puts it, that globalization does not have a human face. Going through these various criticisms, Bhagwati argues that when nations pursue outward oriented growth, the benefits far outweigh the ill effects which are often exaggerated, nonexistent, or the result of other factors unrelated to increase trade and foreign direct investment.

Poverty: Bhagwati argues that economic growth is necessary to reduce poverty and that increased trade can lead to economic growth. While there may be obstacles that prevent the war from fully anticipating an economic growth of the nation, without economic growth, there will not be resources available to lift them out of poverty. Thus, in contrast to the cliché that “a rising tide lifts all boats”, is essentially arguing that without a rising tide it will be hard to lift anybody’s boat. As for the link between trade and growth itself, Bhagwati argues that outward oriented strategies of growth have proven themselves to be superior to inward oriented strategies such as import substitution industrialization.

Child Labor: With regard to child labor, Bhagwati argues that the prevalence of child labor in developing nations is largely the result of domestic factors that have little to do with globalization. Poor people in developing nations face incentives to send their children to work, rather than to school, that are unlikely to go away if the governments of these nations simply proscribe child labor, which is essentially what globalization critics call for. However, citing research into households in Vietnam, Bhagwati argues that, if parents receive more income because of increases in prices or wages due to outward oriented economic growth, then they are more likely to send their children to school.

Effects on Women: Bhagwati analyzes many of the criticisms by feminist groups in depth, so it is hard to summarize here. However, one piece of research he cites stand out. Black and Brainard (2004) look at wage discrimination in the US and find that the wage gap between men and women decreases in industries that face increased competition from trade. Therefore, to the extent that globalization exposes industries to greater competition, it should diminish any wage gap that is the result of non-economic (and, thus, inefficient) discrimination.

Exploitative Wages: The charge that globalization forces people to work for exploitative wages comes up in connection with effects on women and criticism of multinational corporations. Bhagwati cites several studies that show that, rather than paying their workers poorly, muiltinationals pay their workers a wage premium of up to 10% and that US affiliated multinational often pay a premium of 40 to 100% above the local market wage. One of the cited works, Brown, Deardorff, and Stern (2004), reviews a range of empirical work on the subject and concludes:

• It is true that, as a theoretical matter, multinationals can have an array of positive and negative impacts on host-country workers. However, as an empirical matter, some anecdotal evidence notwithstanding, there is virtually no careful and systematic evidence demonstrating that, as a generality, multinational firms adversely affect their workers, provide incentives to worsen working conditions, pay lower wages than in alternative employment, or repressed worker rights. In fact, there is a very large body of empirical evidence indicating that the opposite is the case. Foreign ownership raises wages, both by raising labor productivity, and by expanding the scale of production and, in the process, improves the conditions of work. Furthermore there appears to be some evidence that foreign-owned firms make use of aspects of labor organizations and Democratic institutions that improve the efficiency characteristics of their factor, the operations. (Brown, Deardorff and Stern, 2004, p 322)

In general, Bhagwati concludes that globalization does have a human face in the sense that it has a benign impact on most of the issues that concern its critics. However, it can have occasional unintended bad effects. He argues that the way to deal with these is, not to try to avoid them ahead of time by limiting the liberalization of trade or FDI, but to deal with them as they occur. One of the main reasons for taking a reactive approach is that the specific effects of changes in trade policy are difficult to predict, and many anticipated problems may not arise, while other unanticipated ones almost certainly will.

When a problem occurs, policy makers should either take steps to mitigate the negative impacts of the trade policy, or modify the policy. Bhagwati favors the first approach as generally being more efficient, but is surprisingly non-ideological about entertaining the possibility of the second.