Know-Nothings and Know-It-Alls
What's wrong with the hype about globalization
by Jessica Collins and John Miller
Dollars and Sense magazine, September /October
Protesters against globalization have no idea what they are
talking about. At least that is the verdict of the mainstream
press. According to their coverage, the "protectionist"
labor unions and the "privileged, cause-happy" college
kids that took to the streets of Seattle and Washington, D.C.,
were content to accept as gospel "the vaguest snippets of
knowledge" about the economics of globalization, the World
Trade Organization, the International Monetary Fund, and the World
"[The protesters'] tales rarely get fact-checked,"
complains Paul Krugman, the M.I.T. economics professor and New
York Times columnist. "Nobody asks whether the moral of the
story is really as clear-cut as it seems." Quick to dismiss
the protesters' views as uninformed and illegitimate, Krugman
would have done better to fact-check the mainstream media, which
was itself guilty of recycling data uncritically and accepting
as gospel the conclusions of the institutional powers themselves.
Take "Parsing the Protests," an article written
by Thomas Friedman, the Times' star international reporter turned
columnist, in anticipation of the April 16 Washington, D.C., protest.
Friedman warned his readers that they would be hearing "much
blarney" from the protesters. Under "facts you won't
hear," Friedman provided his supposed antidote to the protesters'
nonsense: the results from a recent study conducted by the A.T.
Kearney Co., an economic consulting firm. The report proves, according
to Friedman, that "globalization" promotes faster economic
growth, higher standards of living, and greater political freedom.
While he does note the downside reported by Kearney- greater inequality,
corruption, and pollution - Friedman is quick to point out that,
increased inequality notwithstanding, the economic growth he associates
with "globalization" still results in decreased poverty.
Despite the appearance of evenhandedness and objectivity,
the report contains, to borrow Thomas Friedman's phrase, "much
blarney," including "snippets" that Friedman passes
around uncritically. A.T. Kearney Co. itself is a for-profit research
company with corporations for customers. It boasts a "distinguished
75-year history of helping business leaders gain and sustain competitive
advantage." But the Kearney Co.'s stake in promoting "globalization"
is a fact Friedman never shared with his readers.
INSIDE THE KEARNEY REPORT
To make the pro-globalization case, Kearney's Global Business
Policy Council ranked 34 developed and developing countries on
a scale from "globalizing slowly' to "globalizing rapidly"
based on their scores on ten different indices. The report uses
this "globalization ledger" to engage in some crucial
sleight of hand. It passes off "the greater integration of
the economies around the world," measured by their globalization
indices, as the equivalent of free trade. By misrepresenting isolation
from the world economy as the only alternative to free trade,
the study preordains its pro-globalization (really pro-free trade)
conclusions. Opponents of free trade have not endorsed isolation
from the world economy as a development strategy since the early
days of dependency theory some three decades ago.
The "globalization" debate is not about economic
isolation vs. integration into the world economy; but about what
policies allow a developing economy to most successfully engage
with the world economy. The Kearney Co., Friedman, and other "globalizers"
presume that engagement requires complete submission to the neoliberal
policy agenda promoted by international capital, economic powers
like the United States, and international agencies like the IMF.
Opponents of "globalization" argue instead that a different
form of engagement with the world economy - based on more democratic
control of the economy, more protections for workers and the environment,
and greater limits on the movement of capital - is likely to produce
a more widespread and equitable form of economic development.
The Kearney globalization ledger fails to distinguish between
these two different strategies for economic development in today's
international economy. In one way or another, seven of the ten
variables in its globalization index measure a country's degree
of engagement with the world economy, but say little about the
policies determining the manner of engagement.
TRADE, GROWTH, AND OPENNESS
One of Kearney's indices is a country's level of trade, the
combined value of its exports and imports as a percentage of gross
domestic product (GDP). This is an index used in many mainstream
studies of globalization. Finding a positive correlation between
the levels of trade and economic growth (measured as GDP growth
per capita), the report cites this data as support for free-trade
policies. All the data really mean, however, is that international
trade and economic growth tend to move in the same direction.
It says nothing about whether trade causes faster economic growth.
You might just as well conclude that economies enjoy high levels
of trade because other economic policies promote rapid economic
Even if international trade does promote economic growth,
this does not mean that "free-trade" policies (lower
tariffs and non-tariff barriers to trade) cause growth. Japan's
export boom during the 1980s would have registered high marks
on Kearney's trade index. But Japanese authorities oversaw their
boom not with the free-trade policies endorsed by the Kearney
study, but managed trade policies, such as selective tariffs and
When economists address the current policy debate about globalization
properly, the evidence fails to endorse the pro-globalization
position touted in the Kearney study. In their exhaustive survey
of the major studies on trade policy and economic growth, mainstream
economists Francisco Rodriguez and Dani Rodrik find, "little
evidence that open trade policies - in the sense of lower tariff
and non-tariff barriers to trade - are significantly associated
with economic growth." By weighing down their globalization
index with trade performance variables that say little about trade
policies, the Kearney study manages to obscure this anti-free
The same criticisms apply to the Kearney report's claim that
"globalization" alleviates absolute poverty (measured
as the number of people living on less than US $ 1 per day). Apart
from the problems presented by their use of the World Bank's measure
of poverty, the correlation between the report's "globalization"
index and reduced poverty tells us little more than that economic
growth is associated with lower poverty rates. Over the last 50
years, the most dramatic reductions in poverty have actually occurred
in East Asia, among countries such as South Korea, Taiwan, and
China, all of which have implemented extensive trade restrictions
and relied on government intervention into their economies.
Beyond all the problems with its method, the findings of the
Kearney study are downright strange. Their globalization ledger
is highly misleading. Look, for instance, at two Latin American
countries. Chile, identified as an aggressive globalizer,"
has surely embraced liberalization. But at the same time, Chilean
authorities restrict the free movement of short-term international
capital, requiring financial investors to make a one-year interest-free
deposit, in their central banks, equaling 30% of their investments.
Mexico, a "stalled globalizer," has during the last
two decades adopted neoliberal policies. But when the Mexican
economy sank into crisis, its trade performance deteriorated,
causing several of its globalization indices to plummet. That
hardly constitutes grounds for attributing Mexico's growth problems
to a lack of openness.
The Kearney analysis of _ East Asia yields equally strange
results. Part of the problem is that its globalization ledger
ranks countries not by their absolute level of globalization but
the change in their globalization index. For instance, China is
classified as an "aggressive globalizer" because it
has recently liberalized its trade policies. But Singapore, the
_ most global economy on the Kearney list, is only a "strong
globalizer." Despite its recent liberalization, China is
no poster child for the neoliberal agenda. It does not have a
convertible currency, it maintains state control of its banking
system, and it allows little foreign ownership in equity markets.
Even Kearney's comparison of different countries' growth rates
is problematic. The report looks at two different periods, 1978
to 1982 and 1993 to 1997, and finds that its "rapid globalizers"
grew more quickly than the other countries, especially during
the later period. Looking over the longer period from 1970 to
1998 eliminates much of the association between a high "globalization"
score and rapid economic growth. For instance, five countries
from the Kearney report made the IMF's list of fastest-growing
developing economies over the last three decades (with per capita
income growth over 3.75% a year). Just one, China, is classified
a "rapid globalizer" (though inappropriately). The rest
came from much further down on the Kearney globalization ledger.
Thailand was but a "moderate globalizer"; South Korea,
a "passive globalizer"; Indonesia and Malaysia, "stalled
ACCEPTING THE CHALLENGE
In its period of most rapid economic development, the half-century
following the Civil War, the United States imposed import tariffs
averaging around 40%, a level higher than those in almost all
of today's developing economies. During the 19th and 20th centuries,
German and Japanese economic development depended on managed trade,
not free trade. Even the World Bank, in its 1993 report The East
Asian Miracle, acknowledged as much for the Japanese postwar boom.
South Korea and Taiwan, whose key growth periods came during the
1960s and 1970s, faced a world economy with far less capital mobility
and engaged that world with managed trade policies - export subsidies,
domestic-content requirements, import-export linkages, and restrictions
of capital flows, including direct foreign investment.
In his New York Times article, Thomas Friedman challenges
the critics of "globalization" to name "a single
country that has upgraded its living or worker standards, without
free trade and integration." As the above list suggests,
every single one of today's developed countries did exactly that.
You can file that under "facts you won't hear" from
the mainstream media.
Jessica Collins is a former Dollars & Sense intern and
a student at Boston University. John Miller, a Dollars & Sense
collective member, teaches economics at Wheaton College.
and World Trade