I sometimes think Economics has more interesting questions than Physics, but less interesting answers than the latter. Perhaps that is so because an ideological position seems almost a pre-requisite before any work in the field is started. Below are a set of links on the issue of globalisation and its effects. Broadly speaking, its somewhat of the same old debate abou free market vs protectionism, but the agents are reversed, and it seems, so are some of the ideologues.
The old story was that, despite its intuitive appeal (and caution gained from the experiences of colonialism), protectionism was bad for developing nations and adopting a free market system was a quicker (and perhaps only) way to achieve economic progress. The Asian Tigers were a clear demonstration of this, it was argued. Closed and protected economies like India, which languished for decades, blossomed into dynamic capitalist success stories within years of “liberalising” their economies. China was a bit of an outlier, but could be explained away.
Then we hear from Ha-Joon Chang about the development history of today’s “first world” nations and the credibility of the critique of protectionism:
Kicking Away the Ladder:
How the Economic and Intellectual Histories of Capitalism Have Been Re-Written to Justify Neo-Liberal Capitalism
Ha-Joon Chang (Cambridge University, UK)
There is currently great pressure on developing countries to adopt a set of “good policies” and “good institutions” – such as liberalisation of trade and investment and strong patent law – to foster their economic development. When some developing countries show reluctance in adopting them, the proponents of this recipe often find it difficult to understand these countries’ stupidity in not accepting such a tried and tested recipe for development. After all, they argue, these are the policies and the institutions that the developed countries had used in the past in order to become rich. Their belief in their own recommendation is so absolute that in their view it has to be imposed on the developing countries through strong bilateral and multilateral external pressures, even when these countries don’t want them.
Naturally, there have been heated debates on whether these recommended policies and institutions are appropriate for developing countries. However, curiously, even many of those who are sceptical of the applicability of these policies and institutions to the developing countries take it for granted that these were the policies and the institutions that were used by the developed countries when they themselves were developing countries.
Contrary to the conventional wisdom, the historical fact is that the rich countries did not develop on the basis of the policies and the institutions that they now recommend to, and often force upon, the developing countries. Unfortunately, this fact is little known these days because the “official historians” of capitalism have been very successful in re-writing its history.
Almost all of today’s rich countries used tariff protection and subsidies to develop their industries. Interestingly, Britain and the USA, the two countries that are supposed to have reached the summit of the world economy through their free-market, free-trade policy, are actually the ones that had most aggressively used protection and subsidies.
[...]
Shortly after came the stories of the workings of the IMF and WB capped by a series of criticisms of erstwhile enthusiast Joseph Stiglitz.
Fast forward to today and we come to the role reversal, where countries like India and China are growing at near 10% rates while the US (and other parts of the West) is bogged down — of particular interest: jobs and outsourcing. And the result has been a strange morphing of positions among the intellectuals, theorists and assorted heavy-weights:
Guru of economics does an about-turn on free trade
At 89, after decades of speaking in favour of it, Paul Samuelson says it’s not such a good thing after all
Jay Bhattacharjee
A battle royale has just been initiated in the rarefied world of economic theory, although the rumblings have not yet reached these shores. The first salvo has been fired by no less a person than Paul Samuelson, and the targets he has chosen include some of his most prominent acolytes and disciples.
The MIT professor, winner of the Nobel Prize in 1970 and research mentor of countless economists, who later became major scholars in their own right, has re-assessed his entire stand on globalisation and the benefits that accrue from the process. In doing so, Samuelson has been scathing in his critique of some of his students, including Jagdish Bhagwati, once a member of his innermost circle.
[...]
The thrust of Samuelson’s analysis is that a country like China, basically a low-wage economy, will create a net negative impact on the American people, when it manages a substantial rise in productivity in an industry in which the United States was earlier a leader. Initially, American consumers may benefit from low-priced goods in their supermarket chains, but their gains may be more than neutralised by large losses sustained by American workers who lose their jobs.
[...]
Needless to say, this has not gone down well with Bhagwati (whom I like to think of as the intellectual version of Thomas Friedman ;-)). Not just a liberal like Samuelson, but also conservatives like Paul Craig Roberts have switched to a protectionist (of sorts) position, and Bhagwati takes on Roberts in the WSJ:
Top Economists Square Off In Debate Over Outsourcing[...]
[Bhagwati:]
Look at the facts for 1999-2002. The Bureau of Labor Statistics shows that, counting four IT-related sectors, the jobs expanded; slowly no doubt, but contract they did not. In 2002, the number of jobs in these sectors was over 17 million.
Contrast that with the estimate of gross numbers of outsourced jobs: They were around 100,000 per annum, and the upper estimates of job loss annually over the next 15 years has been put at 225,000, which is less than 1.5% of the stock of available jobs in 2002. I must add that the net estimates show that the U.S. has many more people employed in services that are exported than are “lost” in services that are imported.
And these jobs will surely expand because the main driver of growth in our economy is our prodigious technical change. Technical change nearly always substitutes for unskilled labor, but it creates new skilled jobs, both by creating new products and processes but also because the maintenance of technology also requires skilled labor.
[...]
[C]ountless … new jobs in unforeseen and unforeseeable occupations, requiring new skills, have emerged and will continue to emerge.
True, we will need to extend our adjustment assistance programs beyond manufacturing. We will also need imaginative programs to assist the older folks who cannot readily acquire new skills for the new jobs. We will finally need to delink medical benefits from employment: a change whose time has come, now that increased exposure to trade means that flexible responses to changing opportunities are possible.
But what we do know is that protection will only compound manifold the difficulties of adjustment for our skilled workers.
[...]
[O]ur social safety net is not as strong; and the family has been frayed, so neither the social nor the personal safety net is available to meet difficult problems of adjustment to import competition. So, when the fear of job losses is high, anxiety
is immense, as now.
[...]
Astonishingly, a liberal leadership of the Democratic Party that professes to better credentials on altruism in regard to developing countries is now committed to policies that are aimed at the developing countries which are using the trade opportunity to work themselves out of poverty, while a Republican president has taken the high road on both outsourcing and on foreign investment!
I think Bhagwati is right[er] (as are people like Krugman who have made similar points) about the last point he raises, and it is interesting to note that he is willing to talk about things like safety net or the difficulty of retraining.