Tuesday, April 12, 2005

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Globalization and human welfare

Martin Wolf has a concise summary of globalization's variable effects on the human condition for the past few decades in his Whitman Lecture to the Institute for International Economics last week:

If we turn to human welfare, what is our assessment?

• Globalization has brought large economic gains to many parts of the world, above all to Asia, which has successfully exploited the ladder of development created by labor-intensive manufactures.

• Globalization has brought about huge reductions in the number of people in extreme poverty. According to the latest World Bank data, the proportion of the east Asian population living on less than a dollar a day at purchasing power parity fell from 56 percent in 1981 to 16 percent in 2001. This is the biggest and fastest reduction in extreme poverty in world history.

• The relatively rapid growth of Asian developing countries has almost certainly reduced global inequality among households for the first time since the 1820s.

• Globalization has brought big gains to the developed countries as well. Recent work by the Institute for International Economics suggests that the gains to the United States alone amount to $1,000 billion—almost 10 percent of GDP. For the United Kingdom, the gains must be far greater.

• Globalization has not worked well for Africa or much of Latin America. For this there are three reasons: the resource curse, persistent protectionism in agriculture, and the weak supply conditions in these countries. In addition, for these countries, the entry of China into the world economy is a massive shock, both positive and, in some cases, negative.

About the only thing I would add is that with regard to economic development, one could say, "________ has not worked well for Africa and much of Latin America" and you'd likely be correct no matter what filled in the blank. And I don't mean that scornfully, but rather tragically.

posted by Dan on 04.12.05 at 01:04 AM


You can't lump Latin America with Africa. It's a middle-income continent with per-capita income around the world average. It had a period of high economic growth during the 50's and 60's. In fact during the 50-73 period Latin America grew faster than pretty much any other major region of the world according to Table 1 of the following article:

posted by: Strategist on 04.12.05 at 01:04 AM [permalink]

Can "human welfare" really be determined simply by economic measures? Wolf seems to take for granted (or simply not consider) what effect globalization has had on the spread of human rights, the self-determination of states, and other indices that are not strictly economic. But I guess he's bound to have the narrow focus that he does so long as he simply defines globalization as free market integration, without detailing the (often less than free) mechanisms by which that integration comes about.

I was startled by the claim about the "huge reductions in the number of people in extreme poverty." Can he possibly mean that there has been a reduction in absolute terms? (If he does, I've been very misinformed.) The middle sentence of that paragraph seems to suggest that the reduction has been in the "proportion" of people living in extreme poverty, which makes me wonder whether there is a sleight of hand here that fails to factor in population changes. Also, if he means to limit this claim to East Asia, he needs to say so: as it is, the East Asian figure is offered as evidence for a much more sweeping generalization.

I also rolled my eyes at his claim that anti-globalization protesters have no intellectual coherence, and that they share nothing but a common enemy. If the protest movement is diffuse, that's because globalization's effects, causes, and meanings are also much more diffuse than Wolf allows in his narrow definition of globalization as trade liberalization, market integration and faster transportation.

posted by: Caleb on 04.12.05 at 01:04 AM [permalink]

I agree with Caleb. Free trade has not been historically utilized in any economy, until this grand experiment. It will end when the multinationals have extracted any(and all)economic advantages it affords them at this time. Once it begins to weigh against their well being, they will attempt to end the free trade hosreshit. Sadly, China may not play along with their wishes. Didn't Mexico nationalize United State interests in Mexican holdings in the oil arena back in the 1970s? I expect China will make this same move once they gain the upper hand militarily.

posted by: Dan P on 04.12.05 at 01:04 AM [permalink]

Globalization has not worked well for the American Rustbelt either, which has been bypassed by the alleged "Bush Boom."

What does the federal government do when trade policies drive ten of thousands of Americans into bankruptcy and foreclosure? Nothing.

Yes, change is inevitable. How we manage change is the test, and we are failing miserably.... Tom

posted by: save_the_rustbelt on 04.12.05 at 01:04 AM [permalink]

Latin America may have some lessons to learn from China. Take care of social inequality first, then you can establish the social mobility that underlies dynamic capitalism...

Globalization is working. The poor people of this world are eating better, living longer, and learning to read. Meanwhile, living standards continue to rise in the US. Maybe they would have even without globalization, true, but that big fact is consistent with the free trade story and inconsistent with the anti-globalization story. Wolf's enthusiasm for globalization is wholly justified.

There's plenty of credit to go around for these positive developments, and some of it goes to multinationals, which are forces for good. If they extract resources, they pay for them, and the hard currency the country who sell them get is worth more to them than the resources-- though sometimes resources backfire by rendering the government less accountable to the people and reducing the competitiveness of other sectors the economy by driving up the value of the currency. The wages paid by multinationals may seem low to us, but they are high by the standards of the countries where these firms operate, and they give people a chance at a better life. Multinationals distribute their profits to shareholders, who include churches, universities, foundations, and tens of millions of retirees. The money multinationals make is (generally) much less than the spillover benefits the rest of us enjoy from their operation.

Africa's problems are certainly not the result of economic globalization, though they are in part the result of the globalization of other things, like socialist ideology, AIDS, and medicines that save lives but fuel population growth that challenges the capacity of educational and job-creation systems. Africa has become poorer and more desperate since the end of colonialism, that is, of an earlier phase of globalization. Just as America would be worse off without (Italian) pizza, (African-rooted) rock-n-roll, and the (Russian) periodic table, so Africa is desperately in need of foreign cultural, entrepreneurial, financial, institutional and personnel inputs.

posted by: Lancelot Finn on 04.12.05 at 01:04 AM [permalink]


I was startled by the claim about the "huge reductions in the number of people in extreme poverty." Can he possibly mean that there has been a reduction in absolute terms? (If he does, I've been very misinformed.)

You've been very misinformed.

The proportion of people living in extreme poverty on less than $1 a day dropped by almost half between 1981 and 2001, from 40 percent to 21 percent of the global population. In absolute terms, this means that the number people living in poverty fell from 1.5 billion in 1981 to 1.1 billion in 2001.


posted by: MattJ on 04.12.05 at 01:04 AM [permalink]

If the "Rust Belt" deserved saving, then why have so many people abandoned it for better opportunities elsewhere? What about the horse farms and draft horses that were displaced by the auto industry in Detroit? Who is speaking for them?

Save the Livery Stables.

posted by: Don Mynack on 04.12.05 at 01:04 AM [permalink]

Well gee Don, is the country worth saving? I guess we could all move to India or China. However, I don't think americans would do very well in China.

posted by: dan p on 04.12.05 at 01:04 AM [permalink]

I'm confused by Lancelot's comments about Latin America needing to learn from China's example. Should warrior elites from one Latin country (Brazil? Mexico?) forcibly conquer the entire continent? Should they send out merchant colonists around the world, and/or cede small city-states to westerners for the establishment of market-oriented trade zones? Should they exterminate millions in decades-long civil warfare followed by revolutionary purges on a massive scale, only to reverse course late in the day and (relying heavily on those overseas colonists and foreign-led city states) throw the entire weight of the state into making their region the workshop of the world?

It seems a bit of a stretch to me, but I'd love to hear more.

posted by: Kelli on 04.12.05 at 01:04 AM [permalink]

"About the only thing I would add is that with regard to economic development, one could say, "anything pertaining to economics" has not worked well for "lefties" and you'd likely be correct no matter what filled in the blank. And I don't mean that scornfully, but rather tragically."

posted by: Tom Holsinger on 04.12.05 at 01:04 AM [permalink]

About the only thing I would add is that with regard to economic development, one could say, "anything pertaining to economics" has not worked well for "lefties" and you'd likely be correct no matter what filled in the blank. And I don't mean that scornfully, but rather tragically.

Tragically (for you), extreme right wing prescriptions have proved to be as wrong and deluded as extreme left wing prescriptions. Anyone remember the WSJ's romance with "Currency Boards" during the Asian Crisis -- all they enabled was for the leaders to ship their ill-gotten gains out of the country.

posted by: erg on 04.12.05 at 01:04 AM [permalink]

We'd like to congratulate Caleb for his perspective on the evils of development, free trade, and growth.

Warsnoggle's Buggywhips was threatened when some daft foreigner from Michigan threatened the Connecticut buggywhip industry. Luckily our (bribed) legislature understood the damage that excessive speed and individual mobility would do to society and how there were no real advantages to faster transport, despite what the evil multi-county interests would tell you.

Connecticut can provide all opportunity and materials that our residents need, with limited trade between counties. That is right, just, and nothing shall ever render it asunder.

posted by: pettifogwarnsnoggle on 04.12.05 at 01:04 AM [permalink]

Kelli, what are you implying when you mention 'merchant colonists'? Are we to draw conclusions about Chinese immigrant populations?

posted by: Klug on 04.12.05 at 01:04 AM [permalink]

I refer to the relatively large numbers of Chinese traders who, for at least the past several centuries, have settled across much of Asia without ever assimilating into the local population. To the extent that they were/are predominantly merchants or one sort or another, and to the extent that they live(d) in self-contained neighborhoods, intermarried, taught their children Chinese and kept up with familial ties to the Chinese mainland--yes, they qualify in my book as "merchant colonies."

posted by: Kelli on 04.12.05 at 01:04 AM [permalink]

Geez. Somehow my suggestion that Wolf's picture of globalization needs to be more subtle has been transmuted into a claim that all free markets are "evil" and buggies are better than jet planes. I never said globalization was the dark cloud of Mordor. But I am often dismayed by the surprising dogmatism of its defenders.

I appreciate MattJ's clarifying statistics. I guess I was confusing African rates of increase in poverty with global ones. I still don't know that a drop from 1.5 billion to 1.1 billion represents a "huge reduction" in the absolute number of extremely poor people. Plus, $1 a day ain't what it used to be, and what it used to be wasn't much to begin with.

If progress in relieving world poverty has been "uneven," as the same World Bank article suggests, then defenders of globalization need to grapple with that. If we're just having an argument about whether globalization is the dark cloud of Mordor, then saying that "nothing works in Africa, so no foul for globalization" might be a good point. But if we're actually trying to reduce poverty and improve human welfare everywhere, then that kind of fatalism is tragic, no matter how sadly we shake our heads and cluck our tongues as we utter the words.

I'm also skeptical about Wolf's short list of reasons why Africa has not been helped by globalization. ("Skeptical," people, not resolutely opposed.) The impression I've gotten (and again, may be misinformed) is that international lending tends to favor countries in which multinational corporations and investors from the most developed countries are most active. Which also means that China's "massive shock" entry into the world market is not just a happy coincidence: China continues to received massive grants from the World Bank that could be more fairly distributed in Africa and more impoverished countries. There's also the problem, of course, that Africa continues to be ravaged by civil wars, dictatorships, and pandemics that make it hard for aid to be as effective there ... but that just returns me to my original question about whether "human welfare" can really be measured by raw figures about extreme poverty, a question that no one has really addressed.

posted by: Caleb on 04.12.05 at 01:04 AM [permalink]

How would Wolf counter the Prebisch-Singer thesis?

posted by: wolfhaslosttheplot on 04.12.05 at 01:04 AM [permalink]

Hi Don:

We are not trying to save livery stables.

We just question letting American workers suffer while Washington and Wall Street are awash in luxury.

In we can rebuild the economy of Iraq, why not Ohio and Michigan?

And if you don't care about people, then from an practical economic standpoint people with low incomes are not vigorous consumers and are not contributing to 401 (k) accounts, so the great corporate powers are losing an opportunity.

posted by: save_the_rustbelt on 04.12.05 at 01:04 AM [permalink]


As a rustbelt emigre myself (well, left one rb state, spent years in the high-growth south, now live in another dysfunctional rb state) I sympathize with your cause. To a point. But the problem of dying rb economies has been "addressed" by state governments in the Northeast and Midwest for over two decades--disastrously. Most of these states are now in a full-blown death-spiral caused by overregulation, overtaxation and the stubborn refusal of remaining residents and the politicians who represent them to radically change course.

There are no magical (read: government sponsored) cures for what ails the rustbelt. My own prediction is that things will have to get even worse there before they can start getting better.

posted by: Kelli on 04.12.05 at 01:04 AM [permalink]

"I still don't know that a drop from 1.5 billion to 1.1 billion represents a "huge reduction" in the absolute number of extremely poor people."

400,000,000 people pulled back from the brink of starvation seems like a lot to me.

posted by: Mark Buehner on 04.12.05 at 01:04 AM [permalink]

I don't really disagree with Kelli, but to place all of this on poor state government is wrong (Bob Taft really is the worst Governor in the country by the way).

When Bill clinton sold NAFTA here (Rustbelt) he told us two things:

1. there will be job losses
2. there will probably be a labor shortage because we would be flooded with new high tech jobs


The jobs losses here are overwhelming due to the rapid movement of manufacturing jobs offshore, not dumb tax policy. The slow recovery is somewhat from dumb tax policy and overregulation.

On a practical level, wherever you are and what you make/sell/serve, your business prospects are diminished when a large chunk of the American population is still in a recession.

People in the Rustbelt are not taking as many vacations, flying as many flights, buying as many indistrial and consumer goods, investing as much on Wall Street, etc.

Besides, these are human beings, not pack animals.

Will the new American motto be:

"Be honest, work hard, get screwed by your own government"

posted by: save_the_rustbelt on 04.12.05 at 01:04 AM [permalink]

As to Africa, the one light that has dimmed is the Ivory Coast. It has dimmed from my reading over two issues. One was the huge pouring of resources into a Cathedral, I believe, is bigger than any in Europe. Two, this lead to an economic crisis that sparked the issue of nationalism a la Kosovo, Serbia and Bosnia. A country with a dominant national group no longer held together by its "strongman(?)" at at a time of economic crisis. This was because many of the people working in the Cacoa plantations were illegal immigrants from other nations who shared similar ethnic background with minority populations in the Ivory Coast and many of them practised Islam as well.

If this is a correct synopsis of the situation, is the question of African developement dependent on the breakup of all African national states into national states that consist of ethnic group like in Somalia or Eritrea in order to have economic developement?

posted by: Robert M on 04.12.05 at 01:04 AM [permalink]

400,000,000 people pulled back from the brink of starvation seems like a lot to me.

It does to me too. But the fact that those 400,000,000 people are now living on more than a dollar a day doesn't mean they aren't still on the brink of starvation.

I apologize if my comment was a little too snarky. I'm not trying to discredit all of globalization's gains as inconsequential. I just think the question of gains is more complicated than Wolf's reckoning of "human welfare" allows.

What I'm also uncomfortable with is this line of reasoning (and perhaps I'm attributing it unfairly to Wolf): trade liberalization and market integration has lifted 400,000,000 out of extreme poverty in East Asia; ergo, trade liberalization improves human welfare and needs to be applied even more liberally everywhere; and if we find a place where it doesn't work, well, that must just be because those countries aren't competitive or still too protectionist.

That last point strikes me as especially tendentious. Globalization hasn't worked in Africa because of "persistent protectionism in agriculture"? That's a tautology, not an argument: it's like saying trade liberalization hasn't been able to work its magic in Africa because there hasn't been trade liberalization.

I realize I'm flying by the seat of my pants here, because I'm out of my league on these subjects. I appreciate the discussion.

posted by: Caleb on 04.12.05 at 01:04 AM [permalink]

No, you bring up fair points, but I dont think its unfair to seperate regions like that either. Africa is clearly a special case in practically every way imaginable. War, famine, AIDS holocausts, genocide, and kleptocracies of stupendous magnitude have afflicted this region nowhere else compares to. Its pretty clear that free trade creates wealth, period, but when you get into how that wealth benefits the average person you are talking about a completely different socialogical issue. Russia has gained tremendous wealth, but a break down in law and order has kept that from translating to the people as well as corrupting their democracy. China is in a similar state. So free trade is a tool, but that tool must be combined with self-determination and justice to provide maximum benefit to the people.

posted by: Mark Buehner on 04.12.05 at 01:04 AM [permalink]

So free trade is a tool, but that tool must be combined with self-determination and justice to provide maximum benefit to the people.

I agree completely. But that's why I was frustrated with the Wolf piece. When I gave it a quick reading yesterday, I didn't see the balanced approach to thinking about free trade as a tool that you outline here. Instead, I saw a dismissal of globalization's critics (many of whom are simply asking, in various ways, "Where's the justice and self-determination?") as a bunch of nattering nabobs of negativity.

posted by: Caleb on 04.12.05 at 01:04 AM [permalink]

Regarding the tough time that Latin America and Africa have had in the past few decades: According to my research with psychologist Joel Schneider of Illinois State University, persistent differences in national average IQ might have something to do with it.

In one paper, summarized here, www.siue.edu/~garjone/naive2.pdf, I show that if a country moves from the bottom decile of the IQ distribution to the top decile, that alone would raise living standards by between 75% and 350%.

The raw IQ data (and some more number-crunching) are available here: http://www.siue.edu/~garjone/JonesSchneApr.pdf

The policy implications? We should do more to raise the brain development of people in the world's poorest countries. Nutrition, health care, and decent education all have a role to play. It's human capital that matters, and it's a form of human capital that psychologists are pretty good at estimating: IQ.

posted by: Garett on 04.12.05 at 01:04 AM [permalink]


The uneveness of globalization results is rather well correlated with the level of socialism/communism in a countries government.

Socialist deliver poor performance. Communists negative performance.

posted by: M. Simon on 04.12.05 at 01:04 AM [permalink]


The #1 problem of the rustbelt is its complacency - a desire to maintain the status quo.

I'm involved in venture capital in the area. The problem is that the Midwest understands land. i.e. a huge failure to invest in startups. Why? Unlike land, if things go badly there is no residual value.

It has no clue re: human capital.

It is also very risk adverse.

No risk, no reward.

posted by: M. Simon on 04.12.05 at 01:04 AM [permalink]

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