[Capítulo VI: El Mundo y las reglas del juego] Globalization's Missing Middle
[http://www.magazine.ucla.edu/year2004/spring04_09.html]
In the new global economy, rich and poor nations are doing fine. It is those like the countries of Latin America in the middle that are struggling
By Geoffrey Garrett
It is sometimes hard to remember that the debate over globalization dominated world politics from the end of the Cold War in the late 1980s until September 11, 2001. On one side of the discussion stand the boosters of globalization, represented by the "Washington consensus" among the International Monetary Fund, the World Bank and the U.S. Treasury, as well as the globetrotting pilgrims to the World Economic Forum in Davos, Switzerland. They assert that the integration of global markets is not only good for them, it is also the best way to enrich and empower the world's have-nots.
Critics of globalism — populist politicians, labor leaders, environmentalists and other activists — come together wherever and whenever the Washington consensus meets, most notoriously during the "battle in Seattle" at the meeting of the World Trade Organization in December 1999. For them, globalization only lines the pockets of the global elite at the expense of working people, developing countries and the planet.
The debate over the spoils of economic globalization has taken on new meaning since September 11. President Bush made his views clear on the first anniversary of the terrorist attacks: "Poverty, corruption and repression are a toxic combination in many societies. . . . Free trade and free markets have proved their ability to lift whole societies out of poverty, so the United States is working . . . to build a world that trades in freedom and therefore grows in prosperity." But the criticisms continue, with the Democratic candidate for president lamenting the "offshoring" of not only manufacturing but also call centers and other services during America's "jobless" recovery.
Is the president right that "a world that trades in freedom" is one that also "grows in prosperity"? My answer is yes — and no. I believe that there are three discrete worlds of globalization, and each has important but different implications for the future course of global politics.
Free trade and free capital movement have been good for economic growth in the U.S. and other rich nations. Globalization has allowed these countries to exploit the growing "knowledge economy" (in which workers' education and skills matter most to the quality of products) while importing low-cost standardized goods and services from the developing world. But since not everyone is equipped to participate in the knowledge economy, the gap between rich and poor in the West continues to expand — with workers' education and skills being more important to their life chances than ever before.
In the U.S. and other rich countries, the drumbeat of globalization goes on — because it is always possible to compensate the losers so long as the aggregate benefits are big enough, and they are; and because it is not clear whether the genie of globalization could be put back in the bottle even if governments wanted to do so. But whenever the economy stagnates, globalization will incur the ire of the disaffected and politicians will be sorely tempted to court them with populist rhetoric and actions. This is nothing new, but handling the social dislocations associated with the transition to the knowledge economy will remain a major challenge for politicians in rich countries for decades to come.
Poor countries that have cut their tariffs more have grown faster, with liberalized trade bringing substantial benefits to one-time subsistence farmers who now work in industry, just as the economics textbooks wrote it up. This is the second world of globalization, comprising the roughly half of humanity that lives in countries with per-capita incomes of less than $1,000 a year — including most of sub-Saharan Africa as well as China and India. Poor countries have not benefited much from, and may have been hurt by, global "footloose finance," and legitimate questions about child labor and working conditions remain. Nonetheless, global trade — as manifest in manufacturing "sweatshops" and "offshored" services — really does seem to be creating a path out of poverty for many of the world's poorest people.
The bulk of people in poor countries still work on the land, yet today manufacturing and service exports are far more important to economic growth in poor countries than agricultural ones. The real stakes for these countries is making sure that the rapid diffusion of technology, which has made it possible for poorer societies to catch up to richer ones for centuries, continues. This will be far from easy, however, given the high stakes attached to protecting intellectual property in wealthy countries.
The benefits of free trade, however, just have not materialized for middle-income countries (with per-capita incomes between $1,000 and $10,000). Notwithstanding the promises made by the Washington consensus and the rhetoric of reformist governments, tariff reductions and freer finance have only been accompanied by stagnant growth and rising inequality — particularly in Latin America, but in the post-communist countries as well. This is globalization's missing middle.
Liberalization's supporters respond to the mismatch between the hype and the reality of globalization in middle-income countries with a plea for patience. But this "just wait" optimism belies the fact that global markets have placed the middle-income world in a no-win trap from which it will be hard to escape. These economies cannot hope to compete today with the West; their basic strategy has been to try instead to compete with the Chinas of the world. This has ended up only hurting workers whose wages have been cut, but not by the enormous magnitudes that would be necessary to make the middle-income countries competitive in mass-produced manufacturing and standardized services.
Teching-up rather than dumbing-down is clearly a better long-term strategy for these countries. But it will take decades to reap the benefits — and the political costs of globalization's failings are already large and mounting. The European Union's response has been to open itself to new members from central and eastern Europe.
But populist backlashes against globalization — and America — are increasingly widespread in Mexico and other Latin American nations. If the U.S. wants to change political and economic realities south of the border, it cannot simply propose more free-trade agreements. The U.S. must recognize that these countries can't hope to compete in the knowledge economy until education levels, physical infrastructure and property rights more closely resemble those in the Western world. The role for "smart" development assistance, from the U.S. and the international financial institutions, should be clear. But the U.S. will also have to use soft power to help heal the wounds in countries that have been burned before by unfulfilled promises about the benefits of globalization.
This is today's world of economic integration. The benefits of globalization are more than merely theoretical, but on the ground they have also been considerably less than was promised. The losers — middle-income countries and poor people in the West — are caught in the crossfire between the stringent demands for success in the knowledge economy and the harsh realities of competing against countries where people will work for much less while still doing a good job.
Improving the lot of the current losers from globalization remains a critical global challenge in terms of not only economic justice, but of political stability as well. The 1990s refrain, championed by the United States, that more markets will ultimately do the job seems increasingly unrealistic, and, for many, disingenuous. Global markets are great for expanding the pie, but the negative fallout of concentrated losses and uncertainty cannot be ignored. Squaring this globalization circle will no doubt be hard, but the stakes could scarcely be higher.
Geoffrey Garrett is vice provost and dean of the UCLA International Institute, and director of the Burkle Center for International Relations.
The full study on which this article is based can be found at www.international.ucla.edu.
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Posted by Alberdi & Urquiza to Capítulo VI: El Mundo y las reglas del juego at 10/27/2004 10:06:00 AM
In the new global economy, rich and poor nations are doing fine. It is those like the countries of Latin America in the middle that are struggling
By Geoffrey Garrett
It is sometimes hard to remember that the debate over globalization dominated world politics from the end of the Cold War in the late 1980s until September 11, 2001. On one side of the discussion stand the boosters of globalization, represented by the "Washington consensus" among the International Monetary Fund, the World Bank and the U.S. Treasury, as well as the globetrotting pilgrims to the World Economic Forum in Davos, Switzerland. They assert that the integration of global markets is not only good for them, it is also the best way to enrich and empower the world's have-nots.
Critics of globalism — populist politicians, labor leaders, environmentalists and other activists — come together wherever and whenever the Washington consensus meets, most notoriously during the "battle in Seattle" at the meeting of the World Trade Organization in December 1999. For them, globalization only lines the pockets of the global elite at the expense of working people, developing countries and the planet.
The debate over the spoils of economic globalization has taken on new meaning since September 11. President Bush made his views clear on the first anniversary of the terrorist attacks: "Poverty, corruption and repression are a toxic combination in many societies. . . . Free trade and free markets have proved their ability to lift whole societies out of poverty, so the United States is working . . . to build a world that trades in freedom and therefore grows in prosperity." But the criticisms continue, with the Democratic candidate for president lamenting the "offshoring" of not only manufacturing but also call centers and other services during America's "jobless" recovery.
Is the president right that "a world that trades in freedom" is one that also "grows in prosperity"? My answer is yes — and no. I believe that there are three discrete worlds of globalization, and each has important but different implications for the future course of global politics.
Free trade and free capital movement have been good for economic growth in the U.S. and other rich nations. Globalization has allowed these countries to exploit the growing "knowledge economy" (in which workers' education and skills matter most to the quality of products) while importing low-cost standardized goods and services from the developing world. But since not everyone is equipped to participate in the knowledge economy, the gap between rich and poor in the West continues to expand — with workers' education and skills being more important to their life chances than ever before.
In the U.S. and other rich countries, the drumbeat of globalization goes on — because it is always possible to compensate the losers so long as the aggregate benefits are big enough, and they are; and because it is not clear whether the genie of globalization could be put back in the bottle even if governments wanted to do so. But whenever the economy stagnates, globalization will incur the ire of the disaffected and politicians will be sorely tempted to court them with populist rhetoric and actions. This is nothing new, but handling the social dislocations associated with the transition to the knowledge economy will remain a major challenge for politicians in rich countries for decades to come.
Poor countries that have cut their tariffs more have grown faster, with liberalized trade bringing substantial benefits to one-time subsistence farmers who now work in industry, just as the economics textbooks wrote it up. This is the second world of globalization, comprising the roughly half of humanity that lives in countries with per-capita incomes of less than $1,000 a year — including most of sub-Saharan Africa as well as China and India. Poor countries have not benefited much from, and may have been hurt by, global "footloose finance," and legitimate questions about child labor and working conditions remain. Nonetheless, global trade — as manifest in manufacturing "sweatshops" and "offshored" services — really does seem to be creating a path out of poverty for many of the world's poorest people.
The bulk of people in poor countries still work on the land, yet today manufacturing and service exports are far more important to economic growth in poor countries than agricultural ones. The real stakes for these countries is making sure that the rapid diffusion of technology, which has made it possible for poorer societies to catch up to richer ones for centuries, continues. This will be far from easy, however, given the high stakes attached to protecting intellectual property in wealthy countries.
The benefits of free trade, however, just have not materialized for middle-income countries (with per-capita incomes between $1,000 and $10,000). Notwithstanding the promises made by the Washington consensus and the rhetoric of reformist governments, tariff reductions and freer finance have only been accompanied by stagnant growth and rising inequality — particularly in Latin America, but in the post-communist countries as well. This is globalization's missing middle.
Liberalization's supporters respond to the mismatch between the hype and the reality of globalization in middle-income countries with a plea for patience. But this "just wait" optimism belies the fact that global markets have placed the middle-income world in a no-win trap from which it will be hard to escape. These economies cannot hope to compete today with the West; their basic strategy has been to try instead to compete with the Chinas of the world. This has ended up only hurting workers whose wages have been cut, but not by the enormous magnitudes that would be necessary to make the middle-income countries competitive in mass-produced manufacturing and standardized services.
Teching-up rather than dumbing-down is clearly a better long-term strategy for these countries. But it will take decades to reap the benefits — and the political costs of globalization's failings are already large and mounting. The European Union's response has been to open itself to new members from central and eastern Europe.
But populist backlashes against globalization — and America — are increasingly widespread in Mexico and other Latin American nations. If the U.S. wants to change political and economic realities south of the border, it cannot simply propose more free-trade agreements. The U.S. must recognize that these countries can't hope to compete in the knowledge economy until education levels, physical infrastructure and property rights more closely resemble those in the Western world. The role for "smart" development assistance, from the U.S. and the international financial institutions, should be clear. But the U.S. will also have to use soft power to help heal the wounds in countries that have been burned before by unfulfilled promises about the benefits of globalization.
This is today's world of economic integration. The benefits of globalization are more than merely theoretical, but on the ground they have also been considerably less than was promised. The losers — middle-income countries and poor people in the West — are caught in the crossfire between the stringent demands for success in the knowledge economy and the harsh realities of competing against countries where people will work for much less while still doing a good job.
Improving the lot of the current losers from globalization remains a critical global challenge in terms of not only economic justice, but of political stability as well. The 1990s refrain, championed by the United States, that more markets will ultimately do the job seems increasingly unrealistic, and, for many, disingenuous. Global markets are great for expanding the pie, but the negative fallout of concentrated losses and uncertainty cannot be ignored. Squaring this globalization circle will no doubt be hard, but the stakes could scarcely be higher.
Geoffrey Garrett is vice provost and dean of the UCLA International Institute, and director of the Burkle Center for International Relations.
The full study on which this article is based can be found at www.international.ucla.edu.
--
Posted by Alberdi & Urquiza to Capítulo VI: El Mundo y las reglas del juego at 10/27/2004 10:06:00 AM
posted by Pablo Presas at 1:04 p.m.
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