Thursday, September 17, 2009

Why Globalisation Works

I much enjoyed Martin Wolf’s Why Globalization Works.

Wolf, chief economics correspondent of the Financial Times, is keen to enlighten and explain. One of the first points he emphasises is that land and territory still matters. Transport costs may have fallen, communication costs plummeted, but that does not make where you live, and what laws and institutions you live under, irrelevant. On the contrary:
By 1980, the most important determinant of one’s prosperity was not one’s class or profession, but where one lived (p.151).
Part of what he is up against is that the knowledge class has a strong tendency to deprecate commerce: a tendency that dates back to priesthoods ancient and medieval and thinkers such as Plato and Confucius. Hence the appeal of collectivism. Werner Sombart, who started as a Marxist and ended a Nazi, wrote in 1915 that war
is necessary in order to prevent the heroic outlook from falling prey to the forces of evil, to the narrow, abject spirit of commerce (p.125).
The words change, as does which particular form of moral grandeur is appealed to, but the underlying antipathy remains. Since globalisation is largely about trans-border markets, it attracts anti-market sentiment.

Being very much a sceptical Enlightenment sort of fellow (as economists overwhelmingly are), Wolf thinks history has much to teach us. He reminds us of the period 1919-1941 and what a disaster a US unengaged with the world was (p.128).

Wolf has little time for the silly term ‘neo-liberal’ (which is abuse parading as analysis) and points out how many non-liberals have engaged in liberalising measures (p.133). Then there are the striking results, such that possession of large amounts of oil is a disaster for development (p.149). Institutions and policies are far more important than natural resources for social outcomes. Or that the top 100 transnational corporations generate 4.3% of Global GDP, up from 3.5% in 1990 (p.223) while the top 50 corporations employ 0.2% of the world's labour force and 1.6% of OECD countries' labour force (p.225).

Wolf is a very clear writer. His book is full of of course that follows things, such as productivity rising faster in manufacturing than services, with demand for manufacturing rising slower than for services, has the natural consequence of falling employment in manufacturing. As he says,
manufacturing is the new agriculture (p.179).
Wolf examines critically various complaints about globalisation under a series of great chapter headings (Incensed about Inequality, Traumatised by Trade, Cowed by Corporations, Sad about the State, Fearful of Finance) demonstrating the lapses in logic and (even more) failures of observation which motivate most of these criticisms. A quote from A Report of the International Forum on Globalisation I found particularly striking:
If people grow their own food, produce their own necessities and control the conditions of their lives, the issue of price becomes irrelevant (p.173).
The notion that people living a subsistence existence – thus with radically attenuated choices about use of time and material conditions with life expectancies to match – are "more in control" is bizarre. This represents such a radical contempt for market relations and human achievement that I am left wondering about a mentality so blind it seems incapable of even elementary observation. There was a period in European history when economic relations were of the type described – the period of the "manorial" economy. It was not a golden age of human happiness and control over one’s own life. This is status-through-critique taken to its reductio ad absurdem.

One of Wolf’s key points is that it is precisely those places which have been least touched by globalisation which tend to be worse off, though the key factor is the quality of the state one lives in. Wolf concludes with a plea:
The view that states and markets are in opposition to one another is the obverse of the truth. The world needs more globalisation, not less. But we will only have more and better globalisation if we have better states (p.320).

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