Trade paves the way for poor countries to get richer. Export industries often pay higher wages than jobs elsewhere in the economy. But that is only the beginning. New export jobs create more competition for workers, which raises wages everywhere else. Even rural incomes can go up; as workers leave rural areas for better opportunities, there are fewer mouths to be fed from what can be grown on the land they leave behind. Other important things are going on, too. Foreign companies introduce capital, technology, and new skills. Not only does that make export workers more productive; it spills over into other areas of the economy. Workers “learn by doing” and then take their knowledge with them.
In his excellent book The Elusive Quest for Growth, William Easterly tells the story of the advent of the Bangladeshi garment industry, an industry that was founded almost by accident. The Daewoo Corporation of South Korea was a major textile producer in the 1970s. America and Europe had slapped import quotas on South Korean textiles, so Daewoo, ever the profit-maximizing firm, skirted the trade restrictions by moving some operations to Bangladesh. In 1979, Daewoo signed a collaborative agreement to produce shirts with the Bangladeshi company Desh Garments. Most significant, Daewoo took 130 Desh workers to South Korea for training. In other words, Daewoo invested in the human capital of its Bangladeshi workers. The intriguing thing about human capital, as opposed to machines or financial capital, is that it can never be taken away. Once those Bangladeshi workers knew how to make shirts, they could never be forced to forget. And they didn’t.
Daewoo later severed the relationship with its Bangladeshi partner, but the seeds for a booming export industry were already planted. Of the 130 workers trained by Daewoo, 115 left during the 1980s to start their own garment-exporting firms. Mr. Easterly argues convincingly that the Daewoo investment was an essential building block for what became a $3 billion garment export industry. Lest anyone believe that trade barriers are built to help the poorest of the poor, or that Republicans are more averse to protecting special interests than Democrats, it should be noted that the Reagan administration slapped import quotas on Bangladeshi textiles in the 1980s. I would be hard pressed to explain the economic rationale for limiting the export opportunities of a country that has a per capita GDP of $1,500.
Most famously, cheap exports were the path to prosperity for the Asian “tigers”—Singapore, South Korea, Hong Kong, and Taiwan (and for Japan before that). India was strikingly insular during the four decades after achieving independence from Britain in 1947; it was one of the world’s great economic underachievers during that stretch. (Alas, Gandhi, like Lincoln, was a great leader and a bad economist; Gandhi proposed that the Indian flag have a spinning wheel on it to represent economic self-sufficiency.) India reversed course in the 1990s, deregulating its domestic economy and opening up to the world. The result is an ongoing economic success story. China, too, has used exports as a launching pad for growth. Indeed, if China’s thirty provinces were counted as individual countries, the twenty fastest-growing countries in the world between 1978 and 1995 would all have been Chinese. To put that development accomplishment in perspective, it took fifty-eight years for GDP per capita to double in Britain after the launch of the Industrial Revolution. In China, GDP per capita has been doubling every ten years. In the cases of India and China, we’re talking about hundreds of millions of people being lifted out of poverty and, increasingly, into the middle class. Nicholas Kristof and Sheryl WuDunn, Asian correspondents for the New York Times for over a decade, have written:
We and other journalists wrote about the problems of child labor and oppressive conditions in both China and South Korea. But, looking back, our worries were excessive. Those sweatshops tended to generate the wealth to solve the problems they created. If Americans had reacted to the horror stories in the 1980s by curbing imports of those sweatshop products, then neither southern China nor South Korea would have registered as much progress as they have today.13
China and Southeast Asia are not unique. The consultancy AT Kearney conducted a study of how globalization has affected thirty-four developed and developing countries. They found that the fastest-globalizing countries had rates of growth that were 30 to 50 percent higher over the past twenty years than countries less integrated into the world economy. Those countries also enjoyed greater political freedom and received higher scores on the UN Human Development Index. The authors reckon that some 1.4 billion people escaped absolute poverty as a result of the economic growth associated with globalization. There was bad news, too. Higher rates of globalization were associated with higher rates of income inequality, corruption, and environmental degradation. More on that later.
But there is an easier way to make the case for globalization. If not more trade and economic integration, then what instead? Those who oppose more global trade must answer one question, based on a point made by Harvard economist Jeffrey Sachs: Is there an example in modern history of a single country successfully developing without trading and integrating with the global economy?14
No, there is not.
Which is why Tom Friedman has suggested that the antiglobalization coalition ought to be known as “The Coalition to Keep the World’s Poor People Poor.”
Trade is based on voluntary exchange. Individuals do things that make themselves better off. That obvious point is often lost in the globalization debate. McDonald’s does not build a restaurant in Bangkok and then force people at gunpoint to eat there. People eat there because they want to. And if they don’t want to, they don’t have to. And if no one eats there, the restaurant will lose money and close. Does McDonald’s change local cultures? Yes. That was what caught my attention a decade ago when I wrote about Kentucky Fried Chicken arriving in Bali. I wrote, “Indonesians have their own version of fast food that is more practical than the Colonel’s cardboard boxes and Styrofoam plates. A meal bought at a food stall is wrapped in a banana leaf and newspaper. The large green leaf retains heat, is impermeable to grease, and can be folded into a neat package.”
By and large, the banana leaves of the world appear to be losing to cardboard. Not long ago I attended a business gathering with my wife in Puerta Vallarta, Mexico. Puerta Vallarta is a lovely city that spills down from the hills to the Pacific Ocean. The focal point of the city is a promenade that runs along the ocean. Near the middle of that promenade is a point that juts out into the ocean, and at the end of that point, on what I would reckon is one of the most valuable pieces of real estate in the city, is a Hooters restaurant. When our group spotted this infamous American export, one man grumbled, “That is just wrong.”
A Hooters in all the world’s great cities is probably not what Adam Smith had in mind. University of Chicago professor Marvin Zonis has noted, “Certain aspects of American popular culture—the depravity and the coarseness, the violence and the sexuality—are eminently worth resenting.”15 The threat of “cultural homogenization”—the worst of it coming from America—is a common knock against globalization. But it is an issue that leads us back to a crucial point from Chapter 1: Who decides? I was not happy to see a Hooters in Puerta Vallarta, but, as I pointed out many pages ago, I don’t run the world. More important, I don’t live or vote in Puerta Vallarta. Neither do the rock-throwing thugs in Seattle or Genoa or Pittsburgh (or wherever else they tend to show up).
Are there legitimate reasons to limit the proliferation of fast-food restaurants and the like? Yes, they present classic externalities. Fast-food restaurants cause traffic and litter; they are ugly and can contribute to sprawl. (Before my valuable work opposing a new train station on Fullerton Avenue, I was part of a group trying to prevent a McDonald’s from moving in across the street.) These are local decisions that ought to be made by the people affected—those who might eat in the safe, clean environment of a McDonald’s restaurant as well as those who may have fast-food wrappers blown in their gutters. Free trade is consistent with one of our most fundamental liberal values: the right to make our own private decisions.
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p; There is now a McDonald’s in Moscow and a Starbucks in the Forbidden City in Beijing. Stalin never would have allowed the former; Mao would not have allowed the latter. Which is a point worth pondering.
The cultural homogenization argument may not be true anyway. Culture is transmitted in all directions. I can now rent Iranian movies from Netflix. National Public Radio recently ran a segment on craftsmen and artists in remote regions of the world who are selling their work via the Internet. One can log on to Novica.com and find a virtual global marketplace for arts and crafts. Katherine Ryan, who works for Novica, explains, “There’s a community in Peru where most of the artists had gone to work in the coal mines. And now, because of the success of one artist in Novica, he has been able to hire many of his family members and neighbors back into the weaving business, and they’re no longer coal miners. They’re now doing what for many generations their family did, and that’s weave incredible tapestries.”16 John Micklethwait and Adrian Wooldridge, authors of the globalization tract A Future Perfect, point out that in the realm of business, a previously obscure Finnish company like Nokia has been able to thump American behemoths like Motorola.
We’re still just warming up when it comes to the side effects of globalization. A Hooters in Puerta Vallarta is a mild headache relative to the horrors of Asian sweatshops. Yet the same principles apply. Nike does not use forced labor in its Vietnamese factories. Why are workers willing to accept a dollar or two a day? Because it is better than any other option they have. According to the Institute for International Economics, the average wage paid by foreign companies in low-income countries is twice the average domestic manufacturing wage.
Nicholas Kristof and Sheryl WuDunn described a visit with Mongkol Latlakorn, a Thai laborer whose fifteen-year-old daughter was working in a Bangkok factory making clothes for export to America.
She is paid $2 a day for a nine-hour shift, six days a week. On several occasions, needles have gone through her hands, and managers have bandaged her up so that she could go back to work.
“How terrible,” we murmured sympathetically.
Mongkol looked up, puzzled. “It’s good pay,” he said. “I hope she can keep that job. There’s all this talk about factories closing now, and she said there are rumors that her factory might close. I hope that doesn’t happen. I don’t know what she would do then.”17
The implicit message of the antiglobalization protests is that we in the developed world somehow know what is best for people in poor countries—where they ought to work and even what kind of restaurants they ought to eat in. As The Economist has noted, “The skeptics distrust governments, politicians, international bureaucrats and markets alike. So they end up appointing themselves as judges, overruling not just governments and markets but also the voluntary preferences of the workers most directly concerned. That seems a great deal to take on.”18
The comparative advantage of workers in poor countries is cheap labor. That is all they have to offer. They are not more productive than American workers; they are not better educated; they do not have access to better technology. They are paid very little by Western standards because they accomplish very little by Western standards. If foreign companies are forced to raise wages significantly, then there is no longer any advantage to having plants in the developing world. Firms will replace workers with machines, or they will move someplace where higher productivity justifies higher wages. If sweatshops paid decent wages by Western standards, they would not exist. There is nothing pretty about people willing to work long hours in bad conditions for a few dollars a day, but let’s not confuse cause and effect. Sweatshops do not cause low wages in poor countries; rather, they pay low wages because those countries offer workers so few other alternatives. Protesters might as well hurl rocks and bottles at hospitals because so many sick people are suffering there.
Nor does it make sense that we can make sweatshop workers better off by refusing to buy the products that they make. Industrialization, however primitive, sets in motion a process that can make poor countries richer. Mr. Kristof and Ms. WuDunn arrived in Asia in the 1980s. “Like most Westerners, we arrived in the region outraged at sweatshops,” they recalled fourteen years later. “In time, though, we came to accept the view supported by most Asians: that the campaign against sweatshops risks harming the very people it is intended to help. For beneath their grime, sweatshops are a clear sign of the industrial revolution that is beginning to reshape Asia.” After describing the horrific conditions—workers denied bathroom breaks, exposed to dangerous chemicals, forced to work seven days a week—they conclude, “Asian workers would be aghast at the idea of American consumers boycotting certain toys or clothing in protest. The simplest way to help the poorest Asians would be to buy more from sweatshops, not less.”19
You’re not convinced? Paul Krugman offers a sad example of good intentions gone awry:
In 1993, child workers in Bangladesh were found to be producing clothing for Wal-Mart and Senator Tom Harkin proposed legislation banning imports from countries employing underage workers. The direct result was that Bangladeshi textile factories stopped employing children. But did the children go back to school? Did they return to happy homes? Not according to Oxfam, which found that the displaced child workers ended up in even worse jobs, or on the streets—and that a significant number were forced into prostitution.20
Oops.
Preferences change with income, particularly with regard to the environment. Poor people care about different things than rich people do. By global standards, poor does not mean settling for a Ford Fiesta when you really wanted the BMW. Poor is watching your children die of malaria because you could not afford a $5 mosquito net. In parts of the world, $5 is five days of income. By those same standards, anyone reading this book is rich. The fastest way to end any meaningful discussion of globalization is to wave the environment card. But let’s do a simple exercise to illustrate why it may be terribly wrong to impose our environmental preferences on the rest of the world. Here is the task: Ask four friends to name the world’s most pressing environmental problem.
It’s a fair bet that at least two of them will say global warming and none will mention clean water. Yet inadequate access to safe drinking water—a problem easily cured by rising living standards—kills two million people a year and makes another half billion seriously ill. Is global warming a serious problem? Yes. Would it be your primary concern if children in your town routinely died from diarrhea? No. The first fallacy related to trade and the environment is that poor countries should be held to the same environmental standards as the developed world. (The debate over workplace safety is nearly identical.) Producing things causes waste. I remember the first day of an environmental economics course when visiting professor Paul Portney, former head of Resources for the Future, pointed out that the very act of staying alive requires that we produce waste. The challenge is to weigh the benefits of what we produce against the costs of producing it, including pollution. Someone living comfortably in Manhattan may view those costs and benefits differently from someone living on the brink of starvation in rural Nepal. Thus, trade decisions that affect the environment in Nepal ought to be made in Nepal, recognizing that environmental problems that cross political boundaries will be settled the same way they always are, which is through multilateral agreements and organizations.
The notion that economic development is inherently bad for the environment may be wrong anyway. In the short run, just about any economic activity generates waste. If we produce more, we will pollute more. Yet it is also true that as we get richer, we pay more attention to the environment. Here is another quiz. In what year did air quality in London (the city for which we have the best long-term pollution data) reach its worst level ever? To make it easier, let’s narrow the choices: 1890; 1920; 1975; 2001. The answer is 1890. Indeed, the city’s current air quality is better than at any time since 1585. (There is nothing particularly “clean” about cooking over an open fire.) Environmenta
l quality is a luxury good in the technical sense of the word, which means that we place more value on it as we get richer. Therein lies one of the powerful benefits of globalization: Trade makes countries richer; richer countries care more about environmental quality and have more resources at their disposal to deal with pollution. Economists reckon that many kinds of pollution rise as a country gets richer (when every family buys a motorcycle) and then fall in the later stages of development (when we ban leaded gasoline and require more efficient engines).
Critics of trade have alleged that allowing individual countries to make their own environmental decisions will lead to a “race to the bottom” in which poor countries compete for business by despoiling their environments. It hasn’t happened. The World Bank recently concluded after six years of study, “Pollution havens—developing countries that provide a permanent home to dirty industries—have failed to materialize. Instead, poorer nations and communities are acting to reduce pollution because they have decided that the benefits of abatement outweigh the costs.”21
Climate change is a trickier case, in that carbon emissions are a zero-sum situation, at least in developing countries in the near term. Big, rapidly growing countries like China and India have a voracious appetite for energy; to meet that need, they turn mostly to carbon-based fuels. China is heavily dependent on coal, which is a particularly bad CO2 offender. Trade makes these countries richer. As they get richer, they will use more energy. As they use more energy, their CO2 emissions will rise. That’s a problem. So what is the best remedy?
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