Globalization and its virtues.

WARNING! Yet another academic paper!

 

Select one specific issue/argument offered by critics of globalization, and then respond to the criticism with information from Jagdish Bhagwati and/or other proponents of globalization. Make your own position on the issue clear, as you marshal evidence.

 

 

Globalization is probably the most hotly debated and controversial topic in modern history. It traces its roots back to trade by merchants in just about any civilization. However much goods and currency have changed hands with the increasing volume of trade since the booming era of capitalism and free market democracy; sharp criticisms, and violent protests at times, have also been aimed at agents of globalization in a proportionate amount too. In fact, one particular criticism of globalization states that generally, freer markets and trade-propelled economic growth have done nothing to alleviate, and might even have enhanced poverty in some parts of the world.

It would only be appropriate to begin the globalization debate in India. India in the 1950s was neither the "call center hub" of the world nor the Asian Silicon Valley that it is today. In stark contrast, India had an economic emphasis on autarky and capital-intensive projects (Bhagwati 55). In fact, India was not making much progress in economic terms, in spite of the euphoric post-independence mood. Bluntly speaking, India was free, but it was poor. In formulating a poverty reduction policy, the Indian Economic Commission (IEC) assigned a young economist from Oxford, Jagdish Bhagwati with the project of analyzing the Indian economy and offering a plan to move forward. What he found out was that "if there was no way to significantly affect the share of the (economic) pie going to the bottom 30 percent, the most important thing was to grow the pie." (Bhagwati 54) In fact, this idea could best be summarized by Michael Lechter's words in Other People's Money, "Remember, a small percentage of a large number can be much greater than a large percentage of a small number."(Lechter 67) In this case, it was increasing the economic pie and leveraging a small percentage of it to the poor as opposed to trying hard to trickle down the benefits of a small economic pie that we're looking at. India's previous emphasis on self-sufficiency and high-skilled work would not benefit the masses, and hence, poverty would still remain high. Bhagwati moved on to argue, both during his tenure with the IEC as well as in his book, that an outward-oriented economy was the most suitable model for India if she were serious about lifting the poor up.

At this point, the popular and populist propositions of the (then) current policies were harping on two points. "…first, growth was regarded as an end in itself and poverty removal was forgotten until a new, socially conscious generation of economists who worried about poverty arrived on the scene, and second, that the strategy of growth in order to reduce poverty was a laissez-faire, hands-off, passive strategy."(Bhagwati 54) The first point was taken up head-on by Bhagwati by bringing up the policy suggestion that India should manufacture and export labor-intensive goods so as to hire the poor in bulk and reduce poverty rapidly (Bhagwati 54, 55). Policy number two would be to export light manufactures in greater quantities as opposed to heavy industry which required highly-skilled workers. This was hypothesized as such so that there would be an increase in demand for unskilled workers in far greater quantities which would help the poor more directly. Coupled with these two policies, he foresaw a market geared towards freer trade that would promote growth that was "even more effective in reducing poverty through the salutary effects of the increased demand for unskilled labor." (Bhagwati 56, 57)

Fast forwarded three decades, Deng Xiaoping was the leader of the People's Republic of China in the 1980s. It was with his "actions speak louder than words" mentality that he opened China's doors towards foreign trade and started the long process of healing the Chinese economy that had been stifled since the Cultural Revolution. Mr. Deng ushered China towards an economy based on exporting light manufactures. United States companies and corporations flocked China with their factories as labor was abundant and wages were cheap. Bhagwati's policies were being implemented, albeit in China. And true to form, Bhagwati's prescription was correct. Today, "Made in China" is a household "brand" the world over. To stay in business, major corporations have to set up factories in China in order to maintain the competitive edge or even to survive. From China's perspective, poverty declined from an estimated 28 percent in 1978 to 8 percent in 2008. Its gross domestic product (GDP) has leapfrogged from approximately 188 billion dollars in 1980, then trailing Mexico and Spain's GDP, to a 2,645 billion dollars in 2006, trailing Germany, Japan and the United States only. In its entirety, the People's Republic of China has demonstrated that coupled with the right policies, free trade and growth can be an "active pull-up strategy" to accelerate the reduction of poverty (Bhagwati 54).

There is a constant plethora of accusation that globalization leaves a volatile and deeply unsettling effect, be it by allowing and even encouraging the sublime working environment of sweatshops or by suppressing the poor to work for low wages and long hours. In contrast, I strongly believe that the most pacifying aspect of globalization is the middle class that it creates. Simple economics is sufficient to prove that as more of the poor work long hours for low wages, as opposed to being unemployed – for absolutely no wages, they would accumulate a certain amount of wealth that would propel them upwards in the income bracket. As is the case with China, more and more people would be alleviated from poverty to a slightly better state – the middle class. However, as is the case with the middle class of many developing countries, the people who make up such a class may not be too well off either. By bare technical standards, it means that they are living on more than a dollar per day. This could very well mean that they are living on ten dollars per day, or that they are living on two dollars per day; not too much above the poverty line, but not quite poor enough either. Hence what is there to stop them from falling back into the division of the poor? Employment is one big factor in keeping their hopes to move up the social ladder alive, for employment bears wages and hard-earned wages yields dignity and self-respect. The employment, however mundane or routine it may seem to protestors in the developed world, serves as a beacon of hope. And such is the case of hope that "those at the bottom of the scale feel that they can also make it: inequality is accepted because it excites not envy but aspiration and hope. Capitalism's inequalities then become tolerable, … because they make the poor fancy that these prizes may come to them someday too."(Bhagwati 66)

The other significant problem solved by the creation and retention of a middle class is the breaking of a vicious cycle of a life of crime and drugs and delivering them into the virtuous cycle of moving upward in the social class ladder. As described by Bhagwati, when trade and growth bring employment to the doors of the poor, they might not be qualified to take it. This lack of qualifications could be as general as structural problems, which address the allure of drugs and the lack of a role model in single-parented or broken families (Bhagwati 57). What I'm suggesting here is that should the middle class have a brighter future and better employment opportunities to look forward to, they could potentially cast their hopes and dreams upon the future and temporarily forget about their current dilemma. For example, in The World is Flat, Thomas Friedman brings up the case of Indian students sipping sweet coffee after hours of evening math class, on a regular basis, just so they can continue to work on their homework problems late into the night (Friedman 213). I can personally relate to this point by Friedman as I, too hail from a developing Asian country with aspiring dreams similar to those of the Indian students who envision their bright future in the Indian Silicon Valley and their role models being the engineers or even call center agents. My grandmother, who was uneducated formally, told my mum that no matter how poor monetarily she was, she was not to allow me to be poor educationally. Such is the case of a middle class student in a country whose GDP ranks as the 39^th largest in the world. So too is the case of Indian students who have a fair shot at working for IBM, Motorola or even the call centers which have offices located in India, thanks to the laying of thousands of miles of fiber optics linking the United States and India which was enabled by the boom of globalization.

Of course, there will still be cynical voices that argue that India was able to grab the chance because they already had a fairly acceptable system of higher education, as is the case with the Indian Institute of Technologys(IITs), which are acclaimed to have tougher tests than the United States based Massachusetts Institute of Technology (MIT)! Here, Bhagwati elegantly captures reality in the frame of his words, "Education by itself, especially higher education, is unlike to help. Unemployed educated youth will likely burn tram cars rather than lead to greater growth." (Bhagwati 64) Educational opportunity in its entirety is not sufficient to solve the problems laid down by poverty, as education without prospects of employment means nothing for the educated and unemployed graduate. Jobs that could not otherwise have been created are created by companies that venture abroad to set up company in India, and this is made possible only by trade and growth, two integral parts of globalization.

My final argument here is against the claims that globalization, which brings with it new technology and more efficient ways, favors the rich and innovative. Such is the case with the green revolution, which describes the arrival and usage of new and vastly more productive varieties of wheat and rice in India. When the new seeds arrive the cynics claimed, the farmers who would benefit were those who had access to credit or had a cushion of wealth to fall back on should their innovative move bite back. In fact, they went even further by arguing that with greater production of wheat and rice by more sophisticated technology, demand for labor, along with wages would decline; and prices of food would also go down as supply exceeded demand. It was not to be. Agricultural prices did not fall because of increasing demand, which resulted from the investments that added new jobs and incomes. Besides, irrigation and new seeds led to multiple cropping, which increased the demand for more labor and as such, higher wages. The underlying issue on this was that the Indian government had implemented policies that put a floor to agricultural prices as a social safety net and also the establishment of a substantial scientific support system that contained the possibilities of the emergence of new pests and diseases harmful to farming and yields (Bhagwati 55,56). In all sense, if globalization were handled with foresight and fore planning, along with the implementation of substantive policies to cushion the fall should there be any hiccups in the process, poverty could be dealt with explicitly.

    Having seen overwhelming evidence that globalization does indeed reduce poverty by increasing jobs and subsequently increasing wages and the standard of living, in the context of good government policy, I am not of two minds as to where the world economy should be headed towards. In all fairness, globalization does have its discontents and legitimate space for improvement, but its virtues outweigh its shortcomings. As such, it would be interesting to compare the feasibility and the rolling out of globalization against its few shortcomings with Mr. Deng's famous quote, "Be it a white or black cat, the cat capable of catching mice is a good cat."

 

Bhagwati, Jagdish. In Defense of Globalization. Oxford University Press, 2004, 2007.

 

"Deng Xiaoping." Wikipedia. 25 February 2009.

< http://en.wikipedia.org/wiki/Deng_Xiaoping >

 

"Deng Xiaoping's White Cat Black Cat Quote: Ushering 30 Years of Accelerated Growth." Sina.com.cn.

< http://www.sina.com.cn/ >

 

Friedman, Thomas. The World is Flat. Penguin Books, 2005, 2006.

 

"GDP(1980) by Country." NationMaster.com

< http://www.nationmaster.com/graph/eco_gdp-economy-gdp&date=1980 >

 

Lechter, Michael A. OPM: Other People's Money – How to attract Other People's Money for your investments – the

ultimate leverage. Warner Books, CASHFLOW Technologies, Inc., and BI Capital Inc., 2005.

 

Pocket World in Figures: 2009 Edition. The Economist, and Profile Books Ltd, 2008.