Has globalization gone too far?

California Management Review

Volumn , Issue 3, 1997, Pages 29-53

  Rodrik, Dani ^a  

^a NONE

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EID: 0031497703     PISSN: 00081256     EISSN: None     Source Type: Journal    
DOI: 10.2307/41165897     Document Type: Article

References (55)

1. See the perceptive column by Thomas L. Friedman, "Don't Leave Globalization's Losers Out of Mind," International Herald Tribune, July 18, 1996. Friedman stresses that the recent salience of such apparently diverse political movements as that of Patrick Buchanan in the United States, Communists in Russia, and the Islamists in Turkey may be due to a common root: a backlash against globalization. I thank Robert Wade for bringing Friedman's piece to my attention.
2. The cheerleaders on the side of globalization sometimes make for strange bed-fellows too. Consider, for example, the philosophy of an organization called the Global Awareness Society International: "Globalization has made possible what was once merely a vision: the people of our world united together under the roof of one Global Village." See, for example, Amitai Etzioni, The Spirit of Community: The Reinvention of American Society (New York, NY: Simon fr Schuster, 1994); Michael J. Sandel, Democracy's Discontent: America in Search of a Public Philosophy (Cambridge, MA: Harvard University Press, 1996).
3. The cheerleaders on the side of globalization sometimes make for strange bed-fellows too. Consider, for example, the philosophy of an organization called the Global Awareness Society International: "Globalization has made possible what was once merely a vision: the people of our world united together under the roof of one Global Village." See, for example, Amitai Etzioni, The Spirit of Community: The Reinvention of American Society (New York, NY: Simon fr Schuster, 1994); Michael J. Sandel, Democracy's Discontent: America in Search of a Public Philosophy (Cambridge, MA: Harvard University Press, 1996).
4. See also Ethan Kapstein, "Workers and the World Economy," Foreign Affairs, 75/3 (May/June1996); Raymond Vernon, "In the Hurricane's Eye: Multinational Enterprises in the Next Century," unpublished manuscript, Harvard University. Kapstein argues that a backlash from labor is likely unless policymakers take a more active role in managing their economies. Vernon argues that we might be at the threshold of a global reaction against the pervasive role of multinational enterprises.
5. See also Ethan Kapstein, "Workers and the World Economy," Foreign Affairs, 75/3 (May/June1996); Raymond Vernon, "In the Hurricane's Eye: Multinational Enterprises in the Next Century," unpublished manuscript, Harvard University. Kapstein argues that a backlash from labor is likely unless policymakers take a more active role in managing their economies. Vernon argues that we might be at the threshold of a global reaction against the pervasive role of multinational enterprises.
6. Jagdish Bhagwati and Paul Krugman are two economists who have been tireless in exposing common fallacies in discussions on international trade. See, in particular, Jagdish N. Bhagwati, Protectionism (Cambridge, MA: MIT Press, 1988);
7. Paul Krugman, Pop Internationalism (Cambridge, MA: MIT Press, 1996).
8. When I mention "economists" here, I am, of course, referring to mainstream economics, as represented by neoclassical economists (of which I count myself as one).
9. Cline provides an excellent review of the literature. William R. Cline, Trade and Wage Inequality (Washington, D.C.: Institute for International Economics, 1997). See also Susan Collins, ed., Imports, Exports, and the American Worker (Washington, D.C.: Brookings Institution, 1996).
10. Cline provides an excellent review of the literature. William R. Cline, Trade and Wage Inequality (Washington, D.C.: Institute for International Economics, 1997). See also Susan Collins, ed., Imports, Exports, and the American Worker (Washington, D.C.: Brookings Institution, 1996).
11. Outsourcing refers to companies' practice of subcontracting part of the production process - typically the most labor-intensive and least skill-intensive parts - to firms in other countries with lower costs.
12. Jeffrey Williamson, "Globalization and Inequality Then and Now: The Late 19th and Late 20th Centuries Compared," Working Paper No. 5491, National Bureau of Economic Research, 1996.
13. Ibid.
14. Ibid., p. 19.
15. Ibid., p. 1.
16. Ibid., p. 20.
17. Douglas A. Irwin, "The United States in a New Global Economy: A Century's Perspective," American Economic Review, Papers and Proceedings, 86/2 (May 1996): 42.
18. Bernard R. Crick, In Defence of Politics (Chicago, IL: University of Chicago Press, 1962), p. 24.
19. Albert O. Hirschman, "Social Conflict as Pillar of Democratic Society," Political Theory, 22/2 (May 1994): 25.
20. Here the debate on globalization joins the debate on social capital. Robert Putnam, "The Strange Disappearance of Civic America," The American Prospect, 24 (Winter 1996): 34-48. Putnam documents a significant decline in civic participation in the United States, and attributes it, in large part, to television. There is now considerable empirical evidence that suggests social fragmentation is detrimental to economic performance. Alesina and Rodrik, among others, show that income inequality reduces subsequent economic growth, Knack and Keefer find levels of social trust to be positively correlated with investment, and Easterly and Levine find a strong negative correlation between an index of ethnolinguistic fragmentation and subsequent levels of economic growth. Alberto Alesina and Dani Rodrik, "Distributive Politics and Economic Growth," Quarterly Journal of Economics, 109/2 (May 1994): 465-490; Stephen Knack and Philip Keefer, "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," unpublished paper. American University, 1996; William Easterly and Ross Levine, "Africa's Growth Tragedy: Policies and Ethnic Divisions," unpublished paper, World Bank, Washington, D.C., 1996.
21. Here the debate on globalization joins the debate on social capital. Robert Putnam, "The Strange Disappearance of Civic America," The American Prospect, 24 (Winter 1996): 34-48. Putnam documents a significant decline in civic participation in the United States, and attributes it, in large part, to television. There is now considerable empirical evidence that suggests social fragmentation is detrimental to economic performance. Alesina and Rodrik, among others, show that income inequality reduces subsequent economic growth, Knack and Keefer find levels of social trust to be positively correlated with investment, and Easterly and Levine find a strong negative correlation between an index of ethnolinguistic fragmentation and subsequent levels of economic growth. Alberto Alesina and Dani Rodrik, "Distributive Politics and Economic Growth," Quarterly Journal of Economics, 109/2 (May 1994): 465-490; Stephen Knack and Philip Keefer, "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," unpublished paper. American University, 1996; William Easterly and Ross Levine, "Africa's Growth Tragedy: Policies and Ethnic Divisions," unpublished paper, World Bank, Washington, D.C., 1996.
22. Here the debate on globalization joins the debate on social capital. Robert Putnam, "The Strange Disappearance of Civic America," The American Prospect, 24 (Winter 1996): 34-48. Putnam documents a significant decline in civic participation in the United States, and attributes it, in large part, to television. There is now considerable empirical evidence that suggests social fragmentation is detrimental to economic performance. Alesina and Rodrik, among others, show that income inequality reduces subsequent economic growth, Knack and Keefer find levels of social trust to be positively correlated with investment, and Easterly and Levine find a strong negative correlation between an index of ethnolinguistic fragmentation and subsequent levels of economic growth. Alberto Alesina and Dani Rodrik, "Distributive Politics and Economic Growth," Quarterly Journal of Economics, 109/2 (May 1994): 465-490; Stephen Knack and Philip Keefer, "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," unpublished paper. American University, 1996; William Easterly and Ross Levine, "Africa's Growth Tragedy: Policies and Ethnic Divisions," unpublished paper, World Bank, Washington, D.C., 1996.
23. Here the debate on globalization joins the debate on social capital. Robert Putnam, "The Strange Disappearance of Civic America," The American Prospect, 24 (Winter 1996): 34-48. Putnam documents a significant decline in civic participation in the United States, and attributes it, in large part, to television. There is now considerable empirical evidence that suggests social fragmentation is detrimental to economic performance. Alesina and Rodrik, among others, show that income inequality reduces subsequent economic growth, Knack and Keefer find levels of social trust to be positively correlated with investment, and Easterly and Levine find a strong negative correlation between an index of ethnolinguistic fragmentation and subsequent levels of economic growth. Alberto Alesina and Dani Rodrik, "Distributive Politics and Economic Growth," Quarterly Journal of Economics, 109/2 (May 1994): 465-490; Stephen Knack and Philip Keefer, "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," unpublished paper. American University, 1996; William Easterly and Ross Levine, "Africa's Growth Tragedy: Policies and Ethnic Divisions," unpublished paper, World Bank, Washington, D.C., 1996.
24. Jorge Castañeda, "Mexico's Circle of Misery," Foreign Affairs, 75/4 (July/August 1996): 92-105.
25. Ibid., p. 95.
26. Ibid., p. 100.
27. Karl Polyani, The Great Transformation (Boston, MA: Beacon Press, 1944).
28. John G. Ruggie, "At Home Abroad, Abroad at Home: International Liberalization and Domestic Stability in the New World Economy," Millennium: Journal of International Studies, 24/3 (1995): 508.
29. As expressed by Avinash Dixit in his comments on an earlier draft, "Designing more efficient systems of social insurance, tailored to the particular shocks that matter to particular countries, which will allow them to secure more of the benefits of integration and suffer less of the social costs of it, is just the right kind of task for economists."
30. William Greider, One World, Ready or Not - The Manic Logic of Global Capitalism (New York, NY: Simon & Schuster, 1997).
31. Ibid., p. 205.
32. Ibid., p. 202.
33. Ibid., p. 155.
34. See Dixit and Londregan for a theoretical model that explicates this outcome. Avinash Dixit and John Londregan, "The Determinants of Success of Special Interests in Redistributive Politics," Journal of Politics (forthcoming).
35. Freeman finds that approximately 80 percent of the difference in hourly pay between the United States and Mexico is accounted for by differences in the skill mix of labor in the two countries and by differences in the purchasing power of wages. Richard Freeman, "A Global Labor Market? Differences in Wages among Countries in the 1980s," unpublished paper, 1994.
36. Cited by David W. Leebron, "Lying Down with Procrustes: An Analysis of Harmonization Claims," in Jagdish N. Bhagwati and Robert E. Hudec, Fair Trade and Harmonization: Prerequisites for Free Trade? Vol. 1: Economic Analysis (Cambridge, MA: MIT Press, 1996).
37. Of course, since trade barriers are still higher elsewhere than in the United States, multilateral liberalization would generate relatively greater trade opportunities for the United States. See Bergsten for an argument that emphasizes this "asymmetric" nature of the benefits. C. Fred Bergsten, "Globalizing Free Trade," Foreign Affairs, 75/3 (May/June 1996): 105-120.
38. In the United States, escape clause action requires demonstration of "serious injury" rather than "material injury," the latter being the lower threshold, which applies to antidumping. WTO rules also require that escape clause actions be non-discriminatory, unlike antidumping, which can apply to any particular exporting country. Of course, an antidumping action requires a demonstration that there is dumping, but in practice U.S. Commerce Department criteria for what constitutes "dumping" are not at all restrictive.
39. This was one of the options considered by Schott. Jeffrey J. Schott, The Global Trade Negotiations: What Can Be Achieved? Policy Analyses in International Economics, 29 (Washington, D.C.: Institute for International Economics, 1990).
40. Vito Tanzi and Ludger Schuknecht, "The Growth of Government and the Reform of the State in Industrial Countries," IMF Working Paper WP/95/130, Washington, D.C., International Monetary Fund, 1995, p. 17.
41. Ibid., p. 20.
42. Many economists would agree that the amount of resources needed to keep the most disadvantaged from falling through the cracks is actually not that big. Krugman cites a figure of 2 percent of GDP. In absolute terms, this is, of course, a lot of money, but it is less than half of what an average OECD country spends on servicing the public debt each year. Krugman, op. cit.
43. It may be that restricting imports will cause the exporting country to alter its practices, irrespective of whether that was the stated goal of the policy. But that does not make the distinction any less valid. The motives that drive trade policy in the advanced industrial countries are usually transparent. There is little doubt that the Foreign Corrupt Practices Act of 1977, for example, was motivated by domes-tic ethical considerations, while many U.S. and European complaints against Japan and some developing countries are clearly driven by a desire to make "them" more like "us." How foreign trade partners choose to react to policies of the first kind (the "legitimate" actions, that is) is their own business.
44. The quotes are from the OECD's Internet statement on the project (see www.oecd.org/daf/fa/taxcomp.htm; Financial Times, January 13, 1997, p. 16.
45. Financial Times, January 13, 1997, p. 16.
46. Lawrence, Bressand, and Ito argue for the creation of a series of "clubs" among partners willing to engage in deeper integration in areas not well covered in the WTO - such as competition policy or environment. This would be a departure from unconditional multilateralism and would risk institutionalizing discriminatory treatment of trade partners. I would prefer to see the WTO used for these new areas, with a more effective escape clause as a safety valve. Robert Z. Lawrence, Albert Bressand, and Takatoshi Ito, A Vision for the World Economy: Openness, Diversity, and Cohesion (Washington, D.C.: Brookings Institution, 1996).
47. It is recognized in the theory of repeated games that sustaining cooperation among players throughout a long (infinite) horizon when there are shocks to the system may require periods of "noncooperation." An appropriate multilateral trading regime will recognize this and incorporate "safety valves" into its rules -that is, exemptions from its requirements under specified contingencies. See Bagwell and Staiger for a formal model that justifies the escape clause in these terms. In the context of such models, my argument is that social conflicts result in a greater temptation to "defect" during bad times and hence require a more accessible escape clause to render long-term cooperation sustainable. Kyle Bagwell and Robert W. Staiger, "A Theory of Managed Trade," American Economic Review, 4 (1990): 779-795.
48. Bernard M. Hoekman and Michael M. Kostecki, "The Political Economy of the World Trading System," unpublished book manuscript, 1995, chapter 7.
49. A refurbished escape clause, under which all trade relief would be centered, was proposed in Hufbauer and Rosen. Gary C. Hufbauer and Howard F. Rosen, Trade Policy for Troubled Industries, Policy Analyses in International Economics, 15 (Washington, D.C.: Institute for International Economics, 1986). See also Perez-Lopez for a similar approach. Jorge F. Perez-Lopez, "Case for a GATT Code on Temporary Measures," The World Economy, 12/1 (March 1989): 53-67. My discussion of the expanded safeguards clause is based on earlier work reported in Dani Rodrik, "Developing Countries after the Uruguay Round," in UN Conference on Trade and Development, International and Monetary Issues for the 1990s, Vol. 6 (New York, NY: United Nations, 1995).
50. A refurbished escape clause, under which all trade relief would be centered, was proposed in Hufbauer and Rosen. Gary C. Hufbauer and Howard F. Rosen, Trade Policy for Troubled Industries, Policy Analyses in International Economics, 15 (Washington, D.C.: Institute for International Economics, 1986). See also Perez-Lopez for a similar approach. Jorge F. Perez-Lopez, "Case for a GATT Code on Temporary Measures," The World Economy, 12/1 (March 1989): 53-67. My discussion of the expanded safeguards clause is based on earlier work reported in Dani Rodrik, "Developing Countries after the Uruguay Round," in UN Conference on Trade and Development, International and Monetary Issues for the 1990s, Vol. 6 (New York, NY: United Nations, 1995).
51. A refurbished escape clause, under which all trade relief would be centered, was proposed in Hufbauer and Rosen. Gary C. Hufbauer and Howard F. Rosen, Trade Policy for Troubled Industries, Policy Analyses in International Economics, 15 (Washington, D.C.: Institute for International Economics, 1986). See also Perez-Lopez for a similar approach. Jorge F. Perez-Lopez, "Case for a GATT Code on Temporary Measures," The World Economy, 12/1 (March 1989): 53-67. My discussion of the expanded safeguards clause is based on earlier work reported in Dani Rodrik, "Developing Countries after the Uruguay Round," in UN Conference on Trade and Development, International and Monetary Issues for the 1990s, Vol. 6 (New York, NY: United Nations, 1995).
52. Serious injury is defined as "a significant overall impairment in the position of a domestic industry."
53. According to the agreement, "When factors other than increased imports are causing injury to the domestic industry at the same time, such injury shall not be attributed to increased imports."
54. The public debate that surrounds the U.S. president's annual decision on whether to extend China's most-favored nation trade status is a good example. In my view, this debate serves a useful function.
55. Hirschman, op. cit., p. 25.