Globalization and the Poor
Vasquez, Ian, Independent Review
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? …