>
>this is an apt description of the whole neoliberal vision of
>trickle-down. The neoliberal view says "if you want to make an
>omelette (the neoliberal market utopia), you've got to break eggs
>(peoples' lives, traditions, communities, etc.)" Hypothetical
>compensation will make up for the actual cost of forcing the world
>into the Procrustean bed of neoliberalism. But egg-breaking simply
>sets the stage for more egg-breaking (until people start fighting
>back in a big way, all over the world).
>
>two questions:
>
>1) Brad deL., why do you describe yourself as a neoliberal? What's
>good about it?
Well, what's the alternative?
Ahem...
From left and right alike we hear something called "globalization"
condemned. The forces driving the world economy toward increased
economic integration are sinister. On the left politicians like
Democratic congressman David Bonior begin speeches by noting three
things that come to the U.S. from Mexico--dirty trucks, drugs, and
hepatitis. On the right politicians like ex-Republican Pat Buchanan
blame a century-old conspiracy to deliver America into the hands of
the international bankers--and somehow to Buchanan the bankers are
always named Goldman, Sachs, or Rubin; never Morgan or Baker. In
books with titles like The Case Against Free Trade: GATT, NAFTA, and
the Globalization of Corporate Power, Ralph Nader and his coauthors
tell us that increased international trade and investment are
responsible for the ills of the American economy, from disappointing
blue-collar wage growth to pesticide-laden fruit.
These cries of alarm from left and right about the destructive
consequences of rapid international economic integration were a
constant part of the background. Then in 1997 and 1998 came the
calamitous flight of capital from the previously fast-growing
economies of East Asia. The East Asian crisis left almost every
observer believing that the global marketplace was badly out of
control. Something was amok, it seemed, when traders in lower
Manhattan could cause widespread bankruptcies and unemployment in
Bangkok.
The alarming crisis in Asia led to a swelling of the volume of a
broad anti-trade chorus. This chorus, in turn, inspired a
counter-chorus. Chin-stroking neoliberals apologized for the
"excesses" of the market. They agreed that market forces are
occasionally a little reckless in their roughhousing. But they
stressed--like any owner of a Rotweiller--that if you only realized
that you shouldn't make any sudden moves to disturb the animal, you
wouldn't get bitten again.
Now I am a card-carrying neoliberal: a believer that a bet on
increased international economic integration is our best hope for
rapidly moving to a truly human world, an advocate of NAFTA and GATT,
a former not-very-senior official in the Bentsen and Rubin Treasury
Departments, and a believer that those fighting to hold back world
economic integration are or are the dupes of foes of global
prosperity and liberty.
But I also think that this bet on increased international economic
integration is a bet. It is not a sure thing. And I think that it is
less important to assure people that it is a good bet (although I
think that it is) than to help people distinguish the light from the
rhetorical heat. After all, there will be other bets and other policy
choices to be made in the future. And to fail to understand what is
going on now will diminish our chances of collectively choosing
wisely tomorrow.
There are some excellent anti-globalization arguments. The granddaddy
of them all is Karl Polanyi's (1944) more than half a century-old The
Great Transformation, published more than half a century ago.
Polanyi--a journalist and refugee born in central Europe whose
teaching career included stints at Oxford, Bennington, and
Columbia--argued that the market economy erodes the web of
relationships that holds human society together. The market for labor
pressures people to move around the globe to where they can earn the
most--creating strangers in strange lands. The market for consumer
goods rewards people for being fortunate or for responding to the
incentives--making status a product of market forces rather than the
result of social norms or visions of distributive justice. Moreover,
Polanyi argued, the market's undermining of social order threatens to
destroy the very societal and institutional structures on which the
market economy rests.
Now you can disagree with Polanyi, or with his values, but even a
card-carrying neoliberal like me finds his arguments hard to dismiss
completely. Consider hate crimes committed against Turkish workers
and their families in Germany, or women working in New York's garment
industry who cannot both provide for their extended families in China
and raise their children--and so send their babies back to China to
live with their grandmothers. Consider the extent to which
special-interest politics means that it is not the government that
regulates the market but the market's oligarchs who regulate the
governments.
More recent works have provided intriguing updates to Polanyi's
argument. The Work of Nations by Robert B. Reich, who went onto
become Clinton's Secretary of Labor, focuses on the dangers posed by
globalization to America's sense of community and to the political
order established by Roosevelt's New Deal. According to Reich, in the
future America's blue-collar workers will be unable to share in the
relative prosperity made possible by American inventions and
America's resources: the need to keep the blue-collar assembly line
near the research and design labs is rapidly vanishing. And the only
way to reverse growing income inequality is to massively upgrade the
educational level and skills of America just as universal high school
in the early twentieth century gave America then the most literate
and skilled labor force in the world.
Saskia Sassen's (1998) Globalization and Its Discontents speculates
on how the "new mobility of people and money" is about to lead to
increases in relative inequality within the narrow spaces of modern
post-industrial cities. You can applaud migration from the world
economy's periphery to the core. I certainly do, as do almost all
economists. Few economic processes do more to enrich the world than
to move unskilled workers from places were they earn $0.50 an hour to
places where they earn $5.00 an hour. And those who move benefit, as
their vote-with-their-feet shows. But market forces do not construct
the social capital to make high-inequality post-industrial cities
truly liveable.
In response to such critiques, the neoliberal political
establishment--the Brookings Institution, the Progressive Policy
Institute, and the Century Foundation--assures us that critics of
increasing international economic integration are suffering from an
irrational fear: Globaphobia is what they cal it. International
economic integration--driven by rapidly falling transport and
communications costs--is both inevitable and beneficial, argue
authors Robert Litan (of Brookings), Robert Z. Lawrence (now a member
of the Council of Economic Advisers), and Robert J. Shapiro (now
Undersecretary for Economic Affairs at the U.S. Departmetn of
Commerce). The only question is how quickly governments are going to
learn to adjust to that integration, and learn how to benefit from it.
The benefits of this "globalization," according to the neoliberal
argument, are threefold:
Both the nations comprising the world economy's industrial core and
those in the developing periphery benefit massively when the
capital-rich core (where interest rates are low) loans to the
capital-poor periphery (where interest rates are high).
Consumers benefit when lower transport costs and reduced tariffs make
goods produced far away more affordable. Producers of goods that are
exported gain as well because they sell into a wider market.
Producers of goods for home consumption do not gain, but there is
nothing like competition from abroad to keep them on their toes,
alert to ways in which they can improve efficiency and better satisfy
their customers.
The more internationalized the world economy, the more use producers
in each country can make of commodities and production processes
invented elsewhere. Faster diffusion of knowledge raises the level of
productivity and technology worldwide. Thus globalization leads to a
richer world, and to a more vibrant and tolerant world as well.
Governments should not fight globalization, neoliberals contend.
Instead they should embrace it.
To a poor country hoping to develop an industrialized economy,
neoliberals outline several incentives to embrace the global market:
In the past it might have made sense to impose tariffs to protect
so-called "infant industries" or cushion economic instability. But in
the information age, an integrated global marketplace will accelerate
the transfer of technology. And it is only by accelerating the
transfer of technology that poor countries have a chance of growing
rapidly.
The industrial core has lots of money to lend to the developing
periphery. Economies should embrace such inflows of capital, for they
provide an opportunity to cut a decade or more off of the
half-century process of industrialization.
Removing trade barriers reduces the scope of the government. That
reducation, in turn, reduces the inevitable corruption, stagnation,
and bureaucratic obstacles to growth that have beset developing
economies for two generations.
In a sense ithe neoliberal position is a counsel of despair. Once
upon a time development advisors, politicians, economists, and others
argued that social democracy was the proper road for developing
economies. A strong, active government to build infrastructure and
redistribute wealth to ensure that growth would benefit all--or so
the argument went. Couple that with high investment (perhaps behind a
wall of substantial tariffs) and the private sector would flourish.
But over the past two decades cynicism has set in. A consensus has
formed that outside already-developed nations (and indeed inside some
of them) an activist developmental state has entailed too many coups,
too much corruption, too many business leaders deciding that the road
to profits is not capital investment but marrying the C.F.O. to the
daughter of the vice-minister of finance.
Neoliberals hope that multinational corporations, financial analysts,
bond-fund managers, and bond raters will in the end be able to apply
some constructive pressure to improve the situation: better the
discipline of the world market than no discipline on
less-than-fully-democratic governments at all.
This neoliberal line may sound a little too pat. But it is virtually
the only game in town. Critics try to poke holes in it, but the
neoliberal stance has no serious challengers these days in
policy-making. The "dependency" arguments--that developing economies
should fear and tightly manage contact with the industrial core
because it would take more than 100% of the gains from trade--have
vanished. In 1960 left-wing intellectuals and politicians argued that
the close economic links between Batista's Cuba and the United States
was impoverishing Cuba. Today everyone--left, right, and
center--agrees that it is the lack of close economic links with the
U.S. that impoverishing Cuba.
Some others seek to point out the ways in which the idea of
globalization has been overhyped. Their research is a useful reality
check. Globalization has been overhyped. Globalization theories are
always in danger of falling victim to grandiosity. Yet there remains
a sense in which debunkers of globalization run the risk of missing
the forest for the trees. They focus on the minutiae of the present,
at the expense of the trends that would allow them to forecast the
future.
Among the best debunkers of the globalizers' position is John
Helliwell, a professor of economics at the University of British
Columbia. In his book How Much Do National Borders Matter?, Helliwell
systematically examines trade linkages among Canadian provinces. He
finds that the linkages are many times more extensive than those
between the provinces and American states that are just as close as
the snowy owl flies: Toronto trades more than ten times as much with
Vancouver as with Seattle. The same holds true between the industrial
core and the developing periphery. National borders today are still
tall barriers to movements of goods, capital, and most of all labor.
Helliwell is right. Globalization has been oversold and its impact overstated.
But what makes his and similar arguments of potentially limited value
is that--while correct now--they may not be correct for long. An
expert on mail delivery in 1900 might well have stated that the new
technology of automobiles was of very limited value in delivering the
mail over muddy rural roads. Such an expert would have been correct.
But in terms of planning being correct about today is not necessarily
being relevant for the planning for tomorrow. The arguments that
globalization has been oversold looks good for the decade of the
1990s. It will probably not look good for the decade of the 2030s.
So if you find yourself unsatisfied by isolationist Cassandras and
neoliberal Polyannas, and if careful statistic-wielding debunkers
seem to speak to today and not to tomorrow, where should one turn? My
primary allegiance is to a fourth group--reformers, call them, who
see the economy as resting on sociological and political foundations
and capable of being shaped to bring the story of globalization to a
relatively happy ending. And among the reformers there are two
currents of thought that seem to me to be well worth heeding.
The best example of the first current is found by exiting my Berkeley
office, walking north ten feet, and knocking on the next office door.
Barry J. Eichengreen, my Berkeley colleague, has written two recent
books: Globalizing Capital and Toward a New International Financial
Architecture. The first explains how we have arrived at the
international monetary system that we have, with its floating
exchange rates and large international flows of capital. It explains
why we see rapid growth among those developing economies that
convince Wall Street that they should be growing rapidly, and brutal
financial crises when those claims are shown to be unfounded or even
called into question.
The second book contains "practical" proposals for reform: recognize
the compelling long-term benefits of open capital markets, worry less
about guarding against "moral hazard" (economists' term for the
skewing of expectations if a past bailout leads investors to expect
that future crises will alwasy be met by bailouts), and establish a
better safety net to catch nations falling into international
financail disarray. There are imperfect institutions that already
strive to provide that kind of security for world financial
structures--chief among them the IMF. But in Eichengreen's view it
has worried too much about opening capital markets and making sure
that governments that preside over financial crises are punished and
humiliated, and too little about making sure that national
governments have the right incentives in advance to diminish the
damage that a panic-stricken flight of international capital might do.
Eichengreen has more realistic expectations than do the globalizers,
recognizing that the global market economy is "the worst way of
allocating resources except for all other forms that have been
tried." There are many problems that decentralized markets cannot
solve, and that must be resolved by governments if they are to be
resolved at all. (A broader perspective, with more points of view but
tending toward the same lessons, can be found in Capital Flows and
Financial Crises, edited by Miles Kahler.)
The second vein of reform-minded thinking about globalization is best
exemplified by Dani Rodrik's Has Globalization Gone too Far? Rodrik,
an economist at Harvard's Kennedy School of Government, is tries to
create a middle ground between leading cheers for the onrush of
intenational economic integration and mindlessly condemning such
integration in a fit of reactionary nostalgia for a past that never
was.
Rodrik fears that developing economy governments taht do not
carefully manage international economic integration will wind up
without the ability to achieve anything like what was achieved in the
post-World War II industrial core: the good society (not the great
society) and the mixed economy.
The mixed economy taxes income from capital and transfers wealth from
market winners to market losers. Globalization, however, raises the
mobility of capital and makes it harder for governments to tax
profits. Globalization increases competition in the labor market.
Most economists (me included) have argued that this increase in labor
market conditions has had little impact on the wages of American
workers. But Rodrik points out that "...saying that the impact of
globalization on advanced-country labor markets is quantitatively
rather small... is no different [in standard analytical frameworks]
from saying that gains from trade have... been small." He asks
economists to put up or shut up: recognize either that the gains from
trade or small, that trade has potentially large effects on wages, or
that the standard analytical framework is wrong.
He also throws down the gauntlet. He claims that globalization cannot
be a replacement for (failed) social democracy in the developing
periphery. Instead, he believes that globalization must be assisted
by (successful) social democracy if it is to produce a world with a
human face.
I do not kinow if Rodrik is right in his analytical challenges to
other economists or to neoliberalism. But I know that his challenges
are very useful challenges, and that the debate he seeks to open
would be a very useful debate.
Brad DeLong
