All entries for Sunday 06 March 2005

March 06, 2005

Is the world a free market?

The Telegraph, 04.03.2005

By Jagdish Bhagwati,
Oxford, £ 11.89

The economist who wrote this book has been labelled by left sympathizers “the world’s foremost free trader”. While making clear his perspective on globalization, Jagdish Bhagwati deals a blow to the arguments of celebrated economists like Amartya Sen and Joseph Stiglitz, rendering much of them paralyzed. Perhaps it is Stiglitz’s Globalisation and its Discontents that inspired Bhagwati’s title. Bhagwati writes persuasively and has facts, common sense and historical evidence to back his points. Coupled with these are his wit and sarcasm which make his opponents’ arguments look insipid.

The core of Bhagwati’s argument revolves around the debate over the economic implication of globalization, especially in the developing world. Too much has already been written about how bad economic integration is, and how it has led to the ruin of poor countries, and how organizations like the WTO and IMF are purely satanic.

For Bhagwati, there is no question about the goodness of globalization. It has, he feels, a potential to do far more good than it has already done. He shows through empirical analysis and evidence that poor public policy outlook in regions such as east Asia and Latin America — and not free trade — is behind their financial meltdown. Bhagwati lists the fruits that open trade have borne countries across the world, poor or rich. Hence, globalization does not need a “human face”, it already has one. Bhagwati attributes the evils often associated with globalization to poor governance, hegemonic tendencies of developed countries, hypocritical double standards of international organizations and pure ignorance.

The book moves forward at a brisk pace, demolishing every pseudo-edifice of mercantilism on the way, making for great entertainment to the reader.

However, there could be reservations about two arguments. First, Bhagwati’s argument, the classical liberal one put forward by Adam Smith and David Ricardo, of “comparative advantage”, is not convincing enough. It is true that most countries will indeed find their niche in the world market to develop their unique selling points, but at least in two circumstances, this could not be the case. One, when the country concerned has no resources to export. And two, when a country’s companies are wiped out in their infancy by giant MNCs, becoming dependent on the latter for employment and on imports for consumption. To resolve this, surely we need to return to Smith and List’s notion of “infant industry protection”, which says that a potentially competitive industry needs breathing space to realize its full competitiveness before being exposed to the cutthroat competition of the international market. Bhagwati’s argument on this issue is not always clear.

His arguments on multiculturalism being facilitated through globalization are rather idealistic. Indeed, Oriental cultures have made a great impact on the Occident, but surely the West’s control of the channels through which these interactions can occur undermines the whole process. As a result, in countries like India, the youth have increasingly failed to distinguish the native from the Western as “different”, invariably regarding the latter as superior and the former as inferior.

Such reservations aside, the work is nothing short of a masterpiece.

March 2005

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