Canada in the World: Canadian International Policy

Video Interview Jagdish N. Bhagwati Subscribe to eNewsletter and/or Email Alerts and Podcasts

Globalization and Developing Countries	1 min 58 sec	Windows Media | QuickTime
Benefits of Globalization	4 min 52 sec	Windows Media | QuickTime
Trade and International Development	1 min 54 sec	Windows Media | QuickTime
Protests against Globalization	2 min 50 sec	Windows Media | QuickTime
Future Prospects	4 min 25 sec	Windows Media | QuickTime

I am Jagdish Bhagwati, Professor of International Economics at Columbia University. I am also at the Council of Foreign Relations. I work in a variety of fields: international trade, development, foreign aid, how to cope with globalization, etc. They are all related in one way or another, because all of economics is.

When I was starting out 45 years ago, many developing countries thought that getting into the international economy -- integrating into it through trade and investment, etc.-- was actually harmful to them. They thought that the countries on the periphery could not co-exist with countries in the centre because they could not compete in international trade. They needed protection; it came to things like flows of human capital, or professional people. They thought that they would be losing people to the rich countries and they would suffer from what we call the brain drain problem: that if foreign multinationals came in, they would actually prevent the growth of "our own" national enterprises.

Every interaction with the world economy was considered to be malign. Some people even went so far as to say that the malignant impact was actually intended -- the rich countries, having lost their colonies, wanted to use all their international contacts to enmesh the poor countries into a neo-colonial embrace. That was the malign intent view.

Things have changed dramatically since then.


The Benefits of Globalization

The key benefit that I would immediately say is that globalization brings economic prosperity to nations, when they can participate in the world economy. Take Mexico: for years, decades actually, it was of the view that being next to the United States was an impossible downside. Porfirio Díaz, one of Mexico's presidents, had said way back: "Poor Mexico, so far from God and so near the United States." One day they decided they would do a lot better if they used the proximity of the United States to develop faster. This is why they went in on the North American Free Trade Agreement. Looking across the Rio Grande they said: how come North America is so prosperous and how come we are so far behind? All that divides us is the Rio Grande -- 2,000 miles of border. They said: it's obviously the American economic culture and the institutions which we are missing. So the Mexicans decided to go with us. It doesn't mean that they are abandoning their own culture, which actually goes much deeper than the American culture, leaving out the Native Americans. The American culture is just a little over 200 years old. You look at the Mayan ruins in the Yucatan and that is one of the greatest cultures of all time. So that continues, but on the economic side they said: look, we need institutions and ideas and ways of organizing ourselves which actually do this, and that means trade, being able to use foreign investments.

The same thing with India: until about the mid-1980s the country turned inward and thought of trade and investment as a threat rather than as an opportunity. They grew at a miserable rate of 3½ percent with a 2 percent growth rate of population, which meant a 1½ percent growth rate in per capita income. You could hardly impact on the huge poverty in the country. After that they began to open up and get into more international trade, clean up the system through what are condemned as "neo-liberal" reforms. Many times, saying someone is a neo-liberal is an insult. But if you want to do that, then I'll call you a neanderthal and we can proceed on that basis, but otherwise let's discuss the issues. These are the reforms which people have brought in on a variety of dimensions, not just international trade and investment. The Indian growth rate for 15 to 20 years has been 5½ percent.

The Chinese also turned around and started using international trade and inflows of investment in a big way. They changed their mind about the advantages offered by the world economy, and they'll grow by two-digit (meaning 10 percent or more) growth rates over a very long period. They have had a huge impact on poverty, which really worries many of the young, idealistic people on the streets.

I think this is evidence -- not just classroom argumentation, which can go in different directions. Actual evidence shows that if you want to advance the welfare of people, reduce starvation and so on, a necessary input has to be increased prosperity. Increased prosperity directly creates jobs. A country that is stagnant cannot be creating jobs. A country that is growing rapidly will be creating jobs. And too, it generates revenues for the government, which then can be spent on health, education, etc., for the poor people.

Of course it doesn't necessarily follow, because you may spend the revenues on buying more airplanes -- F18s or whatever -- and waste the money and actually harm your people. It may reinforce a dictatorship. But that is something that you have to work on in other dimensions, bring in other instruments to bear on that. But that is a different game.

International integration is basically a very important force in creating prosperity, which in turn can and does impact, in many cases, on the welfare and well-being of the people and citizens of these countries -- particularly the poor among them. Which in fact is the objective of all the anti-globalization people, but their thinking is really behind the curve.

Trade and International Development

I think in agriculture the liberalization is important and we will get something. But I think it is mainly being driven by the interests of the middle-income developing countries, what I call the Cairns Group countries, which are Argentina, Brazil, Mexico, the Philippines, Thailand, New Zealand (well, New Zealand is one of the more advanced countries, and Australia too). But those are not the really poor countries of the world. The really poor countries are called least developed countries; there are about 50 of them right now which qualify, like Bangladesh and many countries in Africa. It's not so clear that they would benefit from liberalization because many of them import agricultural products and food. If prices rise there, if they remove European subsidies and American subsidies, it won't be very helpful for the people who will have to pay more.

So we need to do other sets of things, but this does not mean that we should not liberalize agriculture. It is important because the middle-income countries are also important; a lot of them still have pockets of poverty. And they might be able to give aid if they earned more money.

We need to liberalize agriculture, but remember it is not necessarily going to be helpful -- it might even harm many of the least developed countries. We need to think of other instrumentalities by which we assist them. If you take the entire round of negotiations there are many areas where they do tend to benefit, and on balance they will come out ahead. But within agriculture we do need to support them in different ways through other instruments.

Protests Against Globalization

I think most of these protests started out in the rich countries and were basically confined to the rich countries. It's a lot of young people who probably felt on the left or quasi-left and were basically reacting to the notion that capitalism really wasn't a good thing. They saw globalization as an extension of capitalism on the world scale, much like in Lenin, Bukharin, Immanuel Wallerstein and so on. They saw multinationals in particular as the B52s of the globalization process.

A lot of young people are very idealistic, naturally --and one hopes that they remain so for life -- but certainly in their youth they are very idealistic. They therefore felt that this was a system which really didn't deliver anything by way of humane values and so on; that it didn't deliver social justice either internally or between nations. So the effect was visceral, but it came from the notion that the world system was basically unjust.

In a way, the impulse was good because they felt concerned. And the reason that they felt concerned, as I say in my book In Defense of Globalization, is because of modern technology. David Hume, the philosopher, and Adam Smith had said that if millions of people died abroad, say in China or somewhere else, nobody would lose their sleep. But they would lose their sleep if their little finger was hurt. Well, today this is not so. Today you see the famine, pestilence and every anguish abroad comes to you on your television screen. Naturally when you are young you feel that this is part of your social responsibility. And then you turn to the existing system and think: how can the existing system tolerate all this? So the youth tend to condemn what they see around them -- which is in fact the global system.

I think that we need to channel those beautiful responses, which are worth applauding, and move them in directions which are creative, where you actually have a solution to these problems, rather than move in a counterproductive direction -- because in many cases globalization is a great source for good.

Future Prospects

Globalization is driven by two things. One is policy and the other is changes going on in terms of income. When you grow more, at any level of trade barrier, you will actually trade more. But trade also expands as a result of reducing trade barriers. Insofar as policy affects globalization through the removal of barriers, it is true that the reversal of the policy can also bring it down.

And we have had reverses. What is called the first age of globalization -- before the First World War -- was an age of increasing globalization. It was interrupted between the two world wars. The whole system went into a tailspin; protectionism broke out and so on. Since then we have been liberalizing back to a second age of globalization. So it is possible to be reversed.

There are many institutions in place right now. Like in 1929 when the great crash occurred, and in 1930 you had the Smoot-Hawley Tariff, whereby America started massive trade barriers which then spread around the system. Then there was the Asian financial crisis in the late 1990s. At that time we did not have protectionism breaking out, because we had learned something: that this was not the way to go and that you could not just raise barriers because you now had the GATT and the World Trade Organization. You want to make it an obligation not to raise trade barriers, except through specific steps. We have put obstacles in place of the free-for-all reversal of globalization on the trade front. And now that has really helped us. We have learned from the previous breakdown of globalization to create institutions where we talk and accept obligations not to rush into panicky action. All of that helps.

On the economic dimension, because of these new institutions which have developed, new forms of cooperation that have developed, new ideas which have come up and are pro-globalization, you are not going to surrender and panic. All of that makes it difficult for the system to be reversed on policy grounds. But on political grounds nobody has a crystal ball. The First World War broke out over an accident, an assassination. Anything could happen, and only people who want to lose their reputation would want to predict anything in this area. The future is unknowable.

So you could have something suddenly go wrong. Take the Middle East, for example. Supposing the Iraq war doesn't work out and degenerates into a civil war. And supposing Iran comes to the aid of the Shi'as; Syria and other Sunni powers intervene on the side of the Sunnis; and the Kurds then declare independence. Then the Turks come in because they don't want a Kurdistan. It could become a wider conflagration. Nobody knows what the disequilibrium process would be like.

I could build you terrible scenarios where we all go down the tubes, but I would not do it with great conviction -- I would do it simply because you asked me the question. But I would say that this is something that the politicians, the international relations experts, and foreign policy types have to be paying attention to. Most of the time, wars have broken out when in hindsight you could have prevented it.

Last Updated:2006-10-16

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