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Sunday, September 17, 2006

Jagdish Bhagwati on Globalization

Jagdish Bhagwati answers questions on globalization:

Q & A with Jagdish Bhagwati, by Daniel Altman, IHT Managing Globalization blog: Today we’re very pleased to present ... an expert on globalization from Columbia University... Jagdish Bhagwati, who has advised the World Trade Organization and the United Nations on aspects of international economics...

Bob Kirenga Uganda: We in the developing world (especially sub-Saharan Africa), considered as the poorest of the poor, do not understand this concept of globalization. Do you have a universally accepted definition of that term, and how do you operationalize it in the so-called “global village,” which is still a mystery to some of us?

A. Globalization may be cultural in origin, arising from watching foreign films and sending students abroad, for instance. But much of the debate today is about economic globalization and its economic and social consequences. ... For clarity, we need to remember that economic globalization ... has at least five distinct aspects: trade, direct foreign investment (... sometimes simply called “multinationals”), short-term capital flows (which were at the heart of the Asian financial crisis in the 1990’s), international flows of humanity, and technology transfer (which includes the problem of patents and generics which has central importance for the poor countries). So, when you see polls that say a majority of our respondents think globalization is good or bad, just dismiss the results ... as nonsense: you have no idea which of these components of globalization the respondents have in mind.

For the poor countries, including yours, the major problem generally speaking has not been that globalization ... has been bad for you. It is rather that globalization has passed you by as far as DFI is concerned and ... has been constrained by domestic factors that include governance difficulties. Now that Africa is getting its political act together, ... I am confident that Africa will join the rest of us (I am from India) in being able to use globalization as part of a reform agenda that would advance prosperity, increase skill formation and be a force in reducing poverty and distress among the poor. ...

Jeong Yeon Ryu Republic of Korea: Do you think the World Trade Organization has finally hit the bottom in the process of liberalization, and that instead, countries will turn to a growing trend of contracting aggressive free trade areas? What are the actual effects of these free trade areas in relation to the Doha round?

A. The architects of GATT, looking at the degeneration of the world trading system in the 1930’s into protectionism and discriminatory trade in the form of bilateral preferences, had vowed: Never again. They had made non-discrimination, and its embodiment in the Most Favored Nation clause (which guarantees to every member the lowest tariff by any member), the central principle of GATT. But they had allowed for an exception in the case of free trade areas (FTAs) and customs unions in Article 24. I am sure they thought this Article would be used rarely. But today, there are over 300 such FTAs formed or announced, and they are multiplying by the week... [T]he whole world has practically collapsed into bilateralism...

These Preferential Trade Agreements (PTAs), among other problems, have created a chaotic system of preferences. ... This is bad in itself. But it also has led to the diversion of scarce administrative and negotiating talent from Doha to the bilaterals...

Silvia Luchetti Italy: I would like to know your opinion about what can generate the demand for global governance, and what do you think about the United Nations Global Compact?

A. First, the demand for governance must come from perceived needs and the translation of those perceptions into lobbying pressures that will often work through national governments. These lobbies can also work for a corrosion of good governance...

But the Global Compact is an example of lobbying for good governance. It is a form of corporate social responsibility (CSR), a movement I approve of... I think that CSR must deal with mandatory “don’ts” where there is near-universal agreement – e.g don’t drop mercury into your waters, don’t shoot union leaders or torture your workers – and voluntary “do’s” – e.g. act as good citizens where you are, but this may take a variety of forms and no one ... should tell a corporation how exactly it should act as a good citizen. One corporation may want to build a playground...; another may want to sponsor training programs for teenagers..., and some may want to provide better than the going wages. In fact, the last has become a rallying cry for many students; but this is often a reflection of their having been “captured” by rich-country unions who wish to restrain competition from the poor nations by raising the cost of production in these nations... [They] cynically mask ... their self-interested demands in the cloak of altruism and empathy for foreign workers...

Nausheen Anwar United States: An interesting aspect of being part of the global supply chain is the pressure exerted by foreign buyers on local suppliers in India and Pakistan to conform with international standards, e.g. labour codes of conduct; minimum wages; effluent treatment plants. ... On the one hand, the pressure on local firms ... to upgrade to international standards is positive, especially if foreign buyers are able to monitor labour conditions in factories, a responsibility that local governments tend not to fulfill in these countries. On the other hand, upgrading requires costly investments such as effluent treatment plants which all firms cannot easily afford. ... Do you think that firms can be perceived as the new ‘regulators’ of globalization, and how could this be fashioned into a positive development?

A. ...If we go down the route of having foreign distributors ... decide when they will allow goods from the developing countries to be distributed, that is essentially a restraint on trade. Often, they are under threat of blackmail by aggressive groups which threaten retribution if they do not oblige. I have two problems with this.

First, should we allow these firms to dictate to us what we ought to do? What we choose to do, except for universally agreed don’ts ..., has to be determined by us through our domestic processes. We are no longer colonies of the Western powers, many of whose own policies lack moral credibility for us.

Second, where is the asymmetry in these actions? We may feel very strongly that, by using immigrant unskilled labor, the rich countries like the United States are preserving the labor-intensive industries and farming for fruit and vegetables which should properly go instead to the poor countries. So, the poor countries ought to stop carrying the exports of fruit and vegetables from Florida and California, and of apparel from New York garment district, and so on. Try to do that and see what happens!

My view therefore is that, if you feel strongly about something, go for labeling (which itself can be expensive) rather than for de facto exclusion or boycotts. Typically, however, these NGOs, including campus groups, want monopoly for their own favored products. Instead of carrying the so-called “fair trade” coffee as an added item on the menu, they would like to throw all the other coffees off the shelf. Similarly, the anti-sweatshop students want contracts for sportswear to be given only to those they approve of... This is self-righteousness and arrogance; it is also a violation of our democratic rights and a blow against diversity and competition among different conceptions of virtue and of CSR. It must be objected to.

    Posted by on Sunday, September 17, 2006 at 04:48 AM in Economics, International Trade, Policy | Permalink  TrackBack (0)  Comments (8)


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