Capital Ideas.

• Author: James, Harold
• Position: Books

Douglas Irwin, The Case for Free Trade (Princeton: Princeton University Press, 2002), 288 pp., $27.95.

Joseph E. Stiglitz, Globalization and Its Discontents (New York: W.W. Norton, 2002), 192 pp., $24.95.

George Soros, On Globalization (New York: Public Affairs, 2002), 160 pp., $20.

GLOBALIZATION has become a focus of widespread but on the whole quite inchoate discontent. As other writers in these pages have pointed out, it is not easy to characterize the opposition to the international mobility of factors of production in simple political or social terms. (1) Some of that opposition comes from a leftist alliance of ecologists, anti-capitalists and elite third worlders who worry that globalization is impoverishing workers in already poor countries. Some of it comes from labor unions in rich counties concerned that unfair competition is hurting their members. Still other opposition comes from what might traditionally be conceived as the Right, but again from very diverse sources: from racists who see immigration as a threat to an idealized view of a homogenous national community, and from small businessmen who see competitive pressures eroding their advantages. Some of these opponents dislike the idea of anything that moves across long distances; but most protesters claim to want a differ ent and better globalization.

On immigration and trade issues, the Right and the Left anti-globalizers present roughly similar agendas: workers' rights, the welfare state, and the insistence that the national community can only be defended by keeping out those who would introduce lower wage demands and other foreign elements into the national economy. Most of today's iconoclastic politicians in the industrial countries, sensing advantage in appealing to these various constituencies, have an anti-global touch, whether in Europe (Jorg Haider, Umberto Bossi), or in the United States (Patrick Buchanan, Ralph Nader). A recent high point of the influence of anti-globalism was when Jean-Marie Le Pen of the anti-immigrationist French National Front advanced to the second round of the French presidential election.

Most academic analysts of globalization and the backlash against it try to see the response in terms of interests badly hit by globalization. Douglas Irwin's Free Trade Under Fire is a first-rate book that deals in a systematic and logical way with the arguments and the myths about globalization and trade. One such argument revolves around the impact of liberalized trade on labor markets. Irwin shows that the overall effect of increased trade on employment is neutral; but it shifts workers into relatively well-rewarded jobs (producing for export markets), while industries that compete against imports tend to be low wage. Widening inequality is a consequence less of increased trade than of technology raising the demand for skilled workers. A final section examines how new issues--environmental protection and labor standards--entered the international discussion in the 1990s.

One source of constant frustration and surprise to economists is why arguments for free trade are not more widely accepted. The best rational explanation lies in terms of the logic of collective action, as explained some years ago by the late Mancur Olson. Those who gain from the protection of particular industries have a powerful incentive to organize for protection, even though the overall costs to the national economy will exceed the benefits; less-organized consumers, who may each lose only a small amount from the additional protection, lack sufficient incentive to counter-mobilize. Indeed, this case was made in Elmer Schattschneider's classic 1935 study of the most notorious of all U.S. tariffs, the Hawley-Smoot Act of 1930. (2) This study had a powerful effect; it helped to solidify the case that trade policy was better left to the Executive Branch (the 1934 Reciprocal Trade Agreements Act set up the fundamental mechanism empowering the Executive Branch to negotiate trade agreements; this has continued in the postwar GATT system).

It would be most agreeable if Irwin's argument had a similar effect to that of Schattschneider in building a consensus that trade issues are too important to be left to sectional interests and congressional politics. Agreeable, but unlikely. It takes a catastrophe--such as the trade contraction of the Great Depression--for political behavior to be reshaped in such a manner. But even in that case, the most likely initial outcome of the catastrophe would be more apocalyptic ideologies rather than more sober thought. Already today, after the unprecedentedly long expansion in the 1990s and then a very weak recession, there is plenty of apocalyptic analysis of economic issues.

Indeed, a great deal of the response to globalization is conducted along the lines of a morality drama. Globalization is held to be not just dangerous, but downright sinful. That is why, one suspects, it has become so appealing to recycle the title of Freud's great gloomy analysis of interwar Europe's cultural malaise (Das Unbebagen in der Kultur, usually translated as "Civilization and its Discontents"). Saskia Sassen a few years ago used the title Globalization and its Discontents, and Joseph Stiglitz now uses it too. (Perhaps there are so many books on globalization that authors are running out of good titles?) We can best understand the present feeling of moral unease if we apply a longer-term historical perspective.

As today, previous periods of greater market integration and increased long-distance trade created new opportunities and new riches. But many people felt that there was something inherently...