Globalization for Whom?

F O R U M GlobalizationGlobalization forfor Whom?Whom? Globalization has brought little than under communism. East Asian but good news to those with the products, economies such as South Korea, Thai- skills, and resources to market worldwide. land, and Malaysia, which had been But does it also work for the world’s poor? hailed previously as “miracles,” were dealt a That is the central question around which humiliating blow in the financial crisis of the debate over globalization—in essence, Time to change 1997. That this was also the decade in which free trade and free flows of capital—revolves. globalization came into full swing is more Antiglobalization protesters may have had the rules—and focus than a minor inconvenience for its advo- only limited success in blocking world trade cates. If globalization is such a boon for negotiations or disrupting the meetings of on poor workers poor countries, why so many setbacks? the International Monetary Fund (IMF), but Globalizers deploy two counter-argu- they have irrevocably altered the terms of ments against such complaints. One is that the debate. Poverty is now the defining issue by DANI RODRIK global poverty has actually decreased. The for both sides. The captains of the world reason is simple: while most countries have economy have conceded that progress in in- seen lower income growth, the world’s ternational trade and finance has to be measured against the yard- two largest countries, China and India, have had the opposite ex- sticks of poverty alleviation and sustainable development. perience. (Economic growth tends to be highly correlated with For most of the world’s developing countries, the 1990s were a poverty reduction.) China’s growth since the late 1970s—averag- decade of frustration and disappointment. The economies of sub- ing almost 8 percent per annum per capita—has been nothing Saharan Africa, with few exceptions, stubbornly refused to re- short of spectacular. India’s performance has not been as extra- spond to the medicine meted out by the World Bank and the ordinary, but the country’s growth rate has more than doubled IMF. Latin American countries were bu≠eted by a never-ending since the early 1980s—from 1.5 percent per capita to 3.7 percent. series of boom-and-bust cycles in capital markets and experi- These two countries house more than half of the world’s poor, enced growth rates significantly below their historical averages. and their experience is perhaps enough to dispel the collective Most of the former socialist economies ended the decade at lower doom elsewhere. levels of per-capita income than they started it—and even in the The second counter-argument is that it is precisely those coun- rare successes, such as Poland, poverty rates remained higher tries that have experienced the greatest integration with the Amid Argentina’s banking crisis, a demonstrator defaced a foreign bank branch in Buenos Aires in February. Photograph by Eduardo Di Baia/Associated Press. Illustration ©Orion Press/Corbis Harvard Magazine 29 Reprinted from Harvard Magazine. For copyright and reprint information, contact Harvard Magazine, Inc. at www.harvardmagazine.com world economy that have managed to grow fastest and reduce today, rather than the stunning success that it is, o∞cials of the poverty the most. A typical exercise in this vein consists of divid- WTO and the World Bank would have fewer di∞culties fitting it ing developing countries into two groups on the basis of the in- within their worldview than they do now. crease in their trade—“globalizers” versus “non-globalizers”— China’s experience may represent an extreme case, but it is by no and to show that the first group did much better than the second. means an exception. Earlier successes such as South Korea and Tai- Here too, China, India, and a few other high performers like Viet- wan tell a similar story. Economic development often requires un- nam and Uganda are the key exhibits for the pro-globalization ar- conventional strategies that fit awkwardly with the ideology of free gument. The intended message from such studies is that coun- trade and free capital flows. South Korea and Taiwan made exten- tries that have the best shot at lifting themselves out of poverty sive use of import quotas, local-content requirements, patent in- are those that open themselves up to the world economy. fringements, and export subsidies—all of which are currently pro- How we read globalization’s record in alleviating poverty hinges hibited by the WTO. Both countries heavily regulated capital flows critically, therefore, on what we make of the experience of a small well into the 1990s. India managed to increase its growth rate number of countries that have done well in the last decade or through the adoption of more pro-business policies, despite having two—China in particular. In 1960, the average Chinese expected one of the world’s most protectionist trade regimes. Its compara- to live only 36 years. By 1999, life expectancy had risen to 70 years, tively mild import liberalization in the 1990s came a decade after the not far below the level of the United States. Literacy has risen from onset of higher growth in the early 1980s. And India has yet to open less than 50 percent to more than 80 per- itself up to world financial markets— cent. Even though economic develop- which is why it emerged unscathed from ment has been uneven, with the coastal the Asian financial crisis of 1997. regions doing much better than the inte- China has achieved By contrast, many of the countries that rior, there has been a striking reduction have opened themselves up to trade and in poverty rates almost everywhere. integration with the capital flows with abandon have been re- What does this impressive experience warded with financial crises and disap- tell us about what globalization can do pointing performance. Latin America, the for poor countries? There is little doubt world economy despite region that adopted the globalization that exports and foreign investment agenda with the greatest enthusiasm in the have played an important role in China’s 1990s, has su≠ered rising inequality, enor- development. By selling its products on having ignored mous volatility, and economic growth rates world markets, China has been able to significantly below those of the post- purchase the capital equipment and in- every rule by which World War II decades. Argentina repre- puts needed for its modernization. And sents a particularly tragic case. It tried the surge in foreign investment has harder in the 1990s than virtually any coun- brought much-needed managerial and globalization is played. try to endear itself to international capital technical expertise. The regions of China markets, only to be the victim of an abrupt that have grown fastest are those that reversal in “market sentiment” by the end took the greatest advantage of foreign trade and investment. of the decade. The Argentine strategy may have had elements of a But look closer at the Chinese experience, and you discover gamble, but it was solidly grounded in the theories expounded by that it is hardly a poster child for globalization. China’s economic U.S.-based economists and multilateral agencies such as the World policies have violated virtually every rule by which the prosely- Bank and the IMF. When Argentina’s economy took o≠ in the early tizers of globalization would like the game to be played. China 1990s after decades of stagnation, the reaction from these quarters did not liberalize its trade regime to any significant extent, and it was not that this was puzzling— it was that reform pays o≠. joined the World Trade Organization (WTO) only last year; to this day, its economy remains among the most protected in the What these countries’ experience tells us, therefore, is world. Chinese currency markets were not unified until 1994. that while global markets are good for poor countries, the rules China resolutely refused to open its financial markets to foreign- according to which they are being asked to play the game are ers, again until very recently. Most striking of all, China achieved often not. Caught between WTO agreements, World Bank stric- its transformation without adopting private-property rights, let tures, IMF conditions, and the need to maintain the confidence of alone privatizing its state enterprises. China’s policymakers were financial markets, developing countries are increasingly deprived practical enough to understand the role that private incentives of the room they need to devise their own paths out of poverty. and markets could play in producing results. But they were also They are being asked to implement an agenda of institutional re- smart enough to realize that the solution to their problems lay in form that took today’s advanced countries generations to accom- institutional innovations suited to the local conditions—the plish. The United States, to take a particularly telling example, household responsibility system, township and village enter- was hardly a paragon of free-trade virtue while catching up with prises, special economic zones, partial liberalization in agricul- and surpassing Britain. In fact, U.S. import tari≠s during the lat- ture and industry—rather than in o≠-the-shelf blueprints and ter half of the nineteenth century were higher than in all but a Western rules of good behavior. few developing countries today. Today’s rules are not only im- The remarkable thing about China is that it has achieved inte- practical, they divert attention and resources from more urgent gration with the world economy despite having ignored these developmental priorities. Turning away from world markets is rules—and indeed because it did so.

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