Know-Nothings and Know-It-Alls

What's Wrong with the Hype about Globalization

By Jessica Collins and John Miller

Protesters against globalization have no idea what they are talking about. At least that is the verdict of the mainstream press. According to their coverage, the "protectionist" labor unions and the "privileged, cause-happy" college kids that took to the streets of Seattle and Washington, D.C., were content to accept as gospel "the vaguest snippets of knowledge" about the economics of globalization, the World Trade Organization, the International Monetary Fund, and the World Bank.

"[The protesters'] tales rarely get fact-checked," complains Paul Krugman, the M.I.T. economics professor and New York Times columnist. "Nobody asks whether the moral of the story is really as clear-cut as it seems." Quick to dismiss the protesters' views as uninformed and illegitimate, Krugman would have done better to fact-check the mainstream media, which was itself guilty of recycling data uncritically and accepting as gospel the conclusions of the institutional powers themselves.

Take "Parsing the Protests," an article written by Thomas Friedman, the Times' star international reporter turned columnist, in anticipation of the April 16 Washington, D.C., protest. Friedman warned his readers that they would be hearing "much blarney" from the protesters. Under "facts you won't hear," Friedman provided his supposed antidote to the protesters' nonsense: the results from a recent study conducted by the A.T. Kearney Co., an economic consulting firm. The report proves, according to Friedman, that "globalization" promotes faster economic growth, higher standards of living, and greater political freedom. While he does note the downside reported by Kearney—greater inequality, corruption, and pollution —Friedman is quick to point out that, increased inequality notwithstanding, the economic growth he associates with "globalization" still results in decreased poverty.

Despite the appearance of evenhandedness and objectivity, the report contains, to borrow Thomas Friedman's phrase, "much blarney," including "snippets" that Friedman passes around uncritically. A.T. Kearney Co. itself is a for-profit research company with corporations for customers. It boasts a "distinguished 75-year history of helping business leaders gain and sustain competitive advantage." But the Kearney Co.'s stake in promoting "globalization" is a fact Friedman never shared with his readers.

Inside the Kearney Report

To make the pro-globalization case, Kearney's Global Business Policy Council ranked 34 developed and developing countries on a scale from "globalizing slowly" to "globalizing rapidly" based on their scores on ten different indices. The report uses this "globalization ledger" to engage in some crucial sleight of hand. It passes off "the greater integration of the economies around the world," measured by their globalization indices, as the equivalent of free trade. By misrepresenting isolation from the world economy as the only alternative to free trade, the study preordains its pro-globalization (really pro-free trade) conclusions. Opponents of free trade have not endorsed isolation from the world economy as a development strategy since the early days of dependency theory some three decades ago.

The "globalization" debate is not about economic isolation vs. integration into the world economy; but about what policies allow a developing economy to most successfully engage with the world economy. The Kearney Co., Friedman, and other "globalizers" presume that engagement requires complete submission to the neoliberal policy agenda promoted by international capital, economic powers like the United States, and international agencies like the IMF. Opponents of "globalization" argue instead that a different form of engagement with the world economy—based on more democratic control of the economy, more protections for workers and the environment, and greater limits on the movement of capital—is likely to produce a more widespread and equitable form of economic development.

The Kearney globalization ledger fails to distinguish between these two different strategies for economic development in today's international economy. In one way or another, seven of the ten variables in its globalization index measure a country's degree of engagement with the world economy, but say little about the policies determining the manner of engagement.

Trade, Growth, and Openness

One of Kearney's indices is a country's level of trade, the combined value of its exports and imports as a percentage of gross domestic product (GDP). This is an index used in many mainstream studies of globalization. Finding a positive correlation between the levels of trade and economic growth (measured as GDP growth per capita), the report cites this data as support for free-trade policies. All the data really mean, however, is that international trade and economic growth tend to move in the same direction. It says nothing about whether trade causes faster economic growth. You might just as well conclude that economies enjoy high levels of trade because other economic policies promote rapid economic growth.

Even if international trade does promote economic growth, this does not mean that "free-trade" policies (lower tariffs and non-tariff barriers to trade) cause growth. Japan's export boom during the 1980s would have registered high marks on Kearney's trade index. But Japanese authorities oversaw their boom not with the free-trade policies endorsed by the Kearney study, but managed-trade policies, such as selective tariffs and export subsidies.

When economists address the current policy debate about globalization properly, the evidence fails to endorse the pro-globalization position touted in the Kearney study. In their exhaustive survey of the major studies on trade policy and economic growth, mainstream economists Francisco Rodríguez and Dani Rodrik find, "little evidence that open trade policies—in the sense of lower tariff and non-tariff barriers to trade—are significantly associated with economic growth." By weighing down their globalization index with trade performance variables that say little about trade policies, the Kearney study manages to obscure this anti-free trade finding.

The same criticisms apply to the Kearney report's claim that "globalization" alleviates absolute poverty (measured as the number of people living on less than US$1 per day). Apart from the problems presented by their use of the World Bank's measure of poverty, the correlation between the report's "globalization" index and reduced poverty tells us little more than that economic growth is associated with lower poverty rates. Over the last 50 years, the most dramatic reductions in poverty have actually occurred in East Asia, among countries such as South Korea, Taiwan, and China, all of which have implemented extensive trade restrictions and relied on government intervention into their economies.

Beyond all the problems with its method, the findings of the Kearney study are downright strange. Their globalization ledger is highly misleading. Look, for instance, at two Latin American countries. Chile, identified as an "aggressive globalizer," has surely embraced liberalization. But at the same time, Chilean authorities restrict the free movement of short-term international capital, requiring financial investors to make a one-year interest-free deposit, in their central banks, equaling 30% of their investments. Mexico, a "stalled globalizer," has during the last two decades adopted neoliberal policies. But when the Mexican economy sank into crisis, its trade performance deteriorated, causing several of its globalization indices to plummet. That hardly constitutes grounds for attributing Mexico's growth problems to a lack of openness.

The Kearney analysis of East Asia yields equally strange results. Part of the problem is that its globalization ledger ranks countries not by their absolute level of globalization but the change in their globalization index. For instance, China is classified as an "aggressive globalizer" because it has recently liberalized its trade policies. But Singapore, the most global economy on the Kearney list, is only a "strong globalizer." Despite its recent liberalization, China is no poster child for the neoliberal agenda. It does not have a convertible currency, it maintains state control of its banking system, and it allows little foreign ownership in equity markets.

Even Kearney's comparison of different countries' growth rates is problematic. The report looks at two different periods, 1978 to 1982 and 1993 to 1997, and finds that its "rapid globalizers" grew more quickly than the other countries, especially during the later period. Looking over the longer period from 1970 to 1998 eliminates much of the association between a high "globalization" score and rapid economic growth. For instance, five countries from the Kearney report made the IMF's list of fastest-growing developing economies over the last three decades (with per capita income growth over 3.75% a year). Just one, China, is classified a "rapid globalizer" (though inappropriately). The rest came from much further down on the Kearney globalization ledger. Thailand was but a "moderate globalizer"; South Korea, a "passive globalizer"; Indonesia and Malaysia, "stalled globalizers."

Accepting the Challenge

In its period of most rapid economic development, the half century following the Civil War, the United States imposed import tariffs averaging around 40%, a level higher than those in almost all of today's developing economies. During the 19th and 20th centuries, German and Japanese economic development depended on managed trade, not free trade. Even the World Bank, in its 1993 report The East Asian Miracle, acknowledged as much for the Japanese postwar boom. South Korea and Taiwan, whose key growth periods came during the 1960s and 1970s, faced a world economy with far less capital mobility and engaged that world with managed-trade policies—export subsidies, domestic-content requirements, import-export linkages, and restrictions of capital flows, including direct foreign investment.

In his New York Times article, Thomas Friedman challenges the critics of "globalization" to name "a single country that has upgraded its living or worker standards, without free trade and integration." As the above list suggests, every single one of today's developed countries did exactly that. You can file that under "facts you won't hear" from the mainstream media.

Jessica Collins is a former Dollars & Sense intern and a student at Boston University. John Miller, a Dollars & Sense collective member, teaches economics at Wheaton College.