Globalization and the poor.

• Author: Vasquez, Ian

The economic crises in Asia, Russia, and Latin America in recent years serve as a reminder that nothing is inevitable about the process of globalization. In a number of countries, liberalism has suffered a setback, temporary or not. Even so, the liberal cause still appears to have the long-term advantage in the struggle for global capitalism as much of the world continues to advance in that direction. Still, proponents of globalization cannot afford to be smug. The world has returned to a global economy only recently, and we should not forget that that first era of global capitalism ended in the cataclysms of the twentieth century.

The present era of globalization thus poses challenges to liberals (in the classical sense). It requires us to counter the critics of globalization with a forceful advocacy of the moral case for capitalism. It also requires a clear articulation of the long list of market reforms still left on the agendas of every developing country. In too many countries that have begun opening their economies, flawed policies, the lack of reform, and other manifestations of the statist past have led to crisis and to disillusionment with the free market. Globalization has indeed brought many blessings, but, as my colleague Brink Lindsey says, "It is much earlier than the triumphalists think." Finally, liberals should be wary of constructivist approaches to promoting global capitalism, especially through multilateral government agencies. Because of unintended consequences and capture by protectionist forces, attempts to promote globalization from the top down can result too easily in a globalization backlash.

In this article, I attempt to follow through on this advice in a focused discussion of how globalization favors the poor. First, however, a brief comparison of the two eras of globalization may be useful.

The Recent Return to a Global Economy

The recent return to a global economy by most measures has made the world more integrated than in the past. Trade as a share of world economic output reached the pre-World War I level only in the 1970s, and it has now at least doubled (International Monetary Fund 1997, 112). Gross capital flows are far larger, international lending and investing more diversified, and global production more complex. The current era of global capitalism, moreover, encompasses far more countries and people than did the previous era.

Other measures suggest, however, that in some ways the world is less globalized than in the past. A look at net capital flows, for example, reveals greater financial integration during the Victorian era. The outflow of capital from Great Britain reached 9 percent of its gross domestic product (GDP) during that time, and figures for Germany, France, and the Netherlands were similar. No country today comes even close to those rates. In the 1990s, the average capital outflow for leading economies was slightly above 2 percent of GDP (International Monetary Fund 1997, 114). Wider differences in domestic saving and investment rates during Victorian times, moreover, imply that capital markets were integrated more closely then (C. Wolf 2001, 5). That difference may reflect to a large extent the gold standard's replacement by a system of central banks, flat currencies, and a variety of exchange rate regimes.

Another area in which the world is clearly less liberal than under the Pax Britannica is that of immigration, in that rich countries now impose extensive controls. As economist Deepak Lal convincingly argues, such restrictions on the movement of people exist today because citizenship concedes rights to the services of the welfare state (2000, 29). This observation suggests another major difference between the two eras of globalization: the growth of government in developed countries during the twentieth century has not been reversed by the current advance of capitalism. Governments of the Organization for Economic Cooperation and Development (OECD) countries are receiving more in taxes--both in absolute terms and as a share of the economy--than they were ten years ago ("Is Government Disappearing?" 2001, 14). In most of those countries, total government spending as a percentage of GDP also has increased or stayed approximately the same. Even developing countries that have introduced market reforms have managed to maintain or even increase the size of government. Total government spending as a percentage of output is 29 percent in Bolivia, 36 percent in Brazil, and more than 30 percent in Argentina. Those figures indicate governments that are four to six times larger than the governments of rich countries when the rich countries were at similar stages of development.

Globalization and the Poor

Clearly, globalization is not characterized by minimal, "night-watchman" states, nor has it led to laissez-faire. There is also little evidence of job loss or of a "race to the bottom" either in wages or in labor standards owing to increased trade openness. Those concerns, expressed for the most part in rich countries, have been discussed more effectively elsewhere (Burtless et al. 1998; Griswold 2001; Krugman 1996), and, at least in the United States, they have subsided with the prosperity of the 1990s.

Globalization holds the most promise for developing countries with respect to economic growth, poverty reduction, and the reversal of global inequality. Most important, globalization is helping parts of the developing world to replicate the experience that Western countries went through beginning around 1820, when they broke with the historical norm of low growth and initiated an era of dramatic advances in material well-being. Living standards tripled in Europe and quadrupled in the United States in the nineteenth century, and they improved at an even faster pace in the twentieth century. Economic growth thus...