[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

Case in Point
A HISTORICAL PERSPECTIVE ON
GLOBALIZATION
There has been much discussion of globalization, the closer integration of the
economies around the world. The most dramatic aspect of globalization is the growth
of trade, of exports and imports. But there are other aspects. Workers migrate from
one country to another, multinational firms do business across borders, billions of
dollars of capital flow from one country to another, and ideas and knowledge are
ceaselessly communicated via the Internet.
It is sometimes forgotten, however, that the world went through a process
of globalization once before. In the decades before World War I, trade grew
enormously, eventually reaching a percentage comparable to that attained more
recently. World War I and the Great Depression led to retrenchment. As the
economies of the world plunged into a downturn at the end of the 1920s, they erected
trade barriers.
Today, many analysts worry about a possible backlash against globalization—
as evidenced by protest marches in Seattle, Washington, Prague, and Genoa. While
many of the marchers saw globalization as threatening their own jobs, others took
a broader moral stance: they viewed the way globalization had been proceeding as
fundamentally unfair, as rich countries ordered the poor to open their markets to
them while keeping their own markets protected. After the round of trade negotiations
completed in 1994 (called the Uruguay Round, after the place where it was initiated),
the poorest region in the world, sub-Saharan Africa, was actually worse off,
while the United States and Europe boasted enormous gains.
Economists argue that free trade enables each country to benefit by taking
advantage of its comparative advantage. Even the unilateral opening up of a market
makes the country as a whole better off. But some individuals may be worse off,
and typically they are not compensated. Finding ways to ensure that all can benefit
from lower trade barriers can convert a conflict into a win-win situation, but few
countries have successfully done so.
In poor developing countries, the problems are even more complicated. In these
countries, unemployment rates are high, entrepreneurship is limited, and capital is
scarce. Bringing down trade barriers can destroy jobs and enterprises quickly, but
the country may not be able to make the investments required for it to take advantage
of its comparative advantage. Jobs are destroyed faster than they are created,
throwing into question the argument that the country as a whole benefits. While
moving workers from low-productivity employment to employment of higher
productivity as measured by comparative advantage would increase national
income, moving workers from low-productivity employment to unemployment would
lower national income. To increase incomes, the opening up of trade must be accompanied
by other measures to help these poor countries take advantage of their
comparative advantage.
804 ∂ CHAPTER 36 DEVELOPMENT AND TRANSITION