The Convictions Of A Convert


By Jagdish Bhagwati

Oxford; 308 pp; $28

Jagdish Bhagwati never tires of proselytizing for free trade and open borders. The Columbia University professor, 69, has contributed so much to trade theory that the great Paul Samuelson once spoke admiringly of "the Age of Bhagwati" in that branch of economics. He is on many shortlists for a Nobel prize and was a top adviser on trade to both the U.N. and the World Trade Organization. In Defense of Globalization, his forceful yet nuanced case for free trade, comes not long after two well-received collections of essays on the same subject: A Stream of Windows (1998) and The Wind of the Hundred Days: How Washington Mismanaged Globalization (2001).

But unlike many other free traders, the Bombay-born Bhagwati isn't an ideologue for laissez-faire capitalism and radical deregulation. He believes that, while governments should open their borders to free trade in goods and services, they should simultaneously fix things that are broken in the workings of their domestic economies, such as inadequate social safety nets. He writes: "I have always argued for freer trade, not as an objective but rather (in the context of the poor nations such as India, from where I come) as an often powerful weapon in the arsenal of policies that we can deploy to fight poverty."

Bhagwati writes at a time when globalization is under hostile fire in the U.S. Politicians blame outsourcing of jobs to India and China as a key factor in the sluggish recovery of employment in the U.S. Bhagwati doesn't buy that argument, which he traces back to Karl Marx's "famously wrong" prediction of the progressive immiseration of the proletariat.

Instead of competition from low-wage nations, it's labor-saving technical progress that has been the main force undermining the wages of unskilled workers in the U.S. and other rich countries, says the economist. Flooding the world with labor-intensive goods is not the way nations such as China and India are getting ahead. Instead, he says, they are going upscale, switching from labor-intensive products to making higher-tech goods as they increase their own levels of automation. Here's a factoid that Bhagwati doesn't cite, but could have: Automation has led to a decline in manufacturing jobs in China itself in recent years. That's hardly what one would observe if China were relying on sheer numbers to trump American productivity.

While Bhagwati tries to allay the worries about globalization that are felt by people living in rich nations, he makes it clear that his highest priority is how globalization can help the poorest of the poor around the world. Here's his argument in a nutshell: "Trade enhances growth, and...growth reduces poverty." He uses statistics and real-world evidence to demonstrate the validity of each half of the assertion. The increases in living standards in China and India since they opened their economies are his prime examples.

In Defense of Globalization could serve as a handbook for debaters, being conveniently broken into chapters that raise and then dismantle the most commonly heard complaints about globalization. Examples: "Culture: Imperiled or Enriched?," "Women: Harmed or Helped?," "Corporations: Predatory or Beneficial?," and "Environment in Peril?" A recurring theme is that globalization unfairly takes the blame whenever something bad is going on, from the erosion of indigenous cultures to mistreatment of women and children to environmental damage. In most cases, he says, the greater fault lies with corrupt or incompetent national governments.

Similarly, Bhagwati is skeptical of the concern that labor unions in rich nations express for the working conditions of their poorer brethren abroad. He thinks it's a pretext to take jobs away from them. Labor productivity is so low in the poorest countries that there's no way for companies to earn a profit there if they pay the high wages that some would advocate, he says.

To his credit, Bhagwati understands the limits of openness. For instance, he realized early -- before the International Monetary Fund -- the danger of allowing unrestricted flows of capital into poor countries with underdeveloped financial structures. The Asian financial crisis was largely a result of the blowup of dumb investments in countries such as Thailand and Korea that had too much hot money on their hands. Investors pulled their money out even faster than they had put it in.

Although Bhagwati's opponents sometimes characterize him as a single-minded advocate for trade, In Defense of Globalization has long passages that would be quite at home in a book written by a leftist critic of trade and globalization. He detests U.S. efforts to employ the WTO to force poor countries to accept American-made cigarettes. Controversially, he also objects to its use of the WTO as a forum for enforcing the collection of royalties on intellectual property, saying that the rules overprotect copyright and patent owners at the expense of poor customers. He's suspicious that the U.S., which he calls a "selfish hegemon," may be trying to assert dominance under a smoke screen of international cooperation. "When I read about interdependence, a red light flashes in my head that reads dependence," he writes.

In many ways, Bhagwati is an old-school political economist, one who knows his math but leavens his theories with insights from both classical and popular culture. He has a weakness for gentlemanly witticisms and literary allusions, ranging from Hierocles, the Stoic, and William Shakespeare to Lady Murasaki, an 11th-century Japanese novelist. In one aside, he complains that the novels of V.S. Naipaul "do not have a single tender love scene."

Bhagwati wasn't always a free trader. As a young economist, he supported India's ultimately disastrous attempt to achieve self-sufficiency by manufacturing all its own steel, cars, electronics, and other products. In 1961, he wrote a technical paper that a free-trade economist called "chillingly agnostic" on the question of whether trade was good or bad.

Converts are always the truest believers. Bhagwati's reincarnation as a free trader came in 1963, in a journal article that one of his former students, Dartmouth College economist Douglas A. Irwin, called in a profile "one of the most influential papers ever written in trade theory." At the time, many reputable economists believed that high tariffs on imports were the best way for countries to bolster essential domestic industries. No, said Bhagwati and co-author V.K. Ramaswami. They used equations to demonstrate that it was more efficient to subsidize the industries directly, while simul- taneously exposing them to inter- national trade.

More than four decades later, Bhagwati continues to argue that countries should solve domestic problems using domestic policy measures while keeping the borders open to take advantage of what the rest of the world has to offer.

In defending globalization, Bhagwati isn't standing up for the status quo. He's making the case for a humane form of globalization guided by enlightened government policies. It made sense in 1963, and it makes sense in 2004.

By Peter Coy

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