Why Globalization Works.

• Author: de Quiros, Lorenzo Bernaldo
• Position: Book Review

Why Globalization Works Martin Wolf New Haven, Conn.: Yale University Press, 2004, 398 pp.

Martin Wolf chief economics commentator at the Financial Times, is a brilliant journalist and an able economist. Why Globalization Works is an excellent example of the author's capacity for examination and analysis. The book is based on a series of articles on globalization that originally appeared in the FT, and on his Hayek Memorial Lecture to the Institute of Economic Affairs in London.

Wolf presents a detailed reply to the main arguments proffered by the forces opposed to globalization, and demonstrates conclusively its advantages--historically, and both in theory and in practice--over all alternative systems. He presents a splendid survey of the literature about this topic. He holds not only that globalization works, but 'also that it is needed if we are to aspire to extend prosperity and freedom to the whole planet. His presentation is sophisticated, complete, and comes out roundly in favor of globalization. It is the best analysis of the subject yet: a passionate voyage across one of the most vital aspects of cultural, social, political, and economic life at the start of the 21st century.

Wolf is convinced that the market is undeniably the most powerful vehicle ever to exist for raising living standards. From this premise, he analyzes the debacle of the collectivist experiments of the 20th century--nationalism, communism, fascism--and their profound negative effect on the wealth and freedom of nations. In the same way, he testifies to the demise of light collectivism, which was based on the preachings of Keynes and was practiced in many states from the end of the Second World War until the crises of the mid-1970s. The collapse of central planning was not brought about by the work of a group of fanatical liberal thinkers; it was a logical result of the inherent contradictions of the collectivist model, particularly its inability to build viable economic systems and raise per capita incomes, and its failure to promote democracy. Wolf's critique is rooted in the thinking of Hayek and Mises, with an emphasis on the insurmountable restrictions on the flow of information that are inherent to all statist models for running complex societies.

Within this framework, Why Globalization Works is also a cold, rational, and convincing defense of classical liberal values. The relationship between the market economy and individual rights constitutes the base of all liberal democratic systems; its underpinnings are both ethical and practical. The survival of such a complex and fragile system of social organization demands a strong state (an idea drawing on scholars from Adam Smith to Douglass North), but one which limits its functions to three areas: first, the provision of public goods (those that markets cannot provide); second, the internalization of externalities, which can also be thought of as providing remedies for market failure; and third, to help people who, for a number of reasons, do worse from the market or are more vulnerable to what happens within it than society finds tolerable. Apart from the classic function of the state--the protection of property rights--Wolf argues that the second and the third have a "facilitating" role in the Mill sense of the word; in other words, they must be the subject of constant review, and must be updated, eliminated, or reduced if the market develops its own solutions. (There is, of course, the question of whether the provision of" certain services by the state determines whether or not alternative sources of private provision arise, but that is a separate matter.)

Wolf gives ample evidence to back up his arguments, and his analysis of the last century and a half is illuminating. He provides an overwhelming theoretical and practical case to show that movement toward a freer, more open, and integrated world economy from the middle of the 19th century to the First World War fostered an unprecedented period of peace and economic growth. This was the "Golden Age of security and freedom" so lauded by Stefan Zweig. It is true that this first wave of globalization was restricted essentially to those states that now make up the OECD, and therefore had less impact than the current wave. But in several aspects it was more intense. Specifically, it resulted in massive migratory flows. Between 1850 and 1914, 60 million people left Europe for America, Oceania, and the south and east of Africa. Twelve million Chinese and six million...