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logo    No, Globalization Does Not Lift All Boats


Nancy Birdsall, the founding president of the Center for Global Development, has published an interesting, albeit somewhat confused, essay titled, "Why globalization doesn't lift all boats." Although she cites many factors which produce this result, two things in her essay caught my attention: the difference in income inequality in those Asian countries that seem to have benefited from globalization and those in Latin America which have not, and her generalizations about developed countries.

If I understand the difference she cites between the Asian and Latin American countries, it comes down to this. Although both sets of countries have vast numbers of poor, income inequality in the Asian countries is much less than in the Latin American countries where, in her words, "large landowners captured most of the benefits of agricultural growth. . . ." The implication of this is clear: Where income inequality between the rich and the poor is great, globalization fails to promote growth; whereas it does promote growth in countries were income inequality between rich and poor is small. What interests me is why this is so. It surely has something to do with the exploitive nature of free market Capitalism on the one hand, where, "Globalization is shorthand for global capitalism and the extension of global markets." and the influence the rich have over governments of all types.

It is, of course, a truism that, in developing countries, "public systems of all kinds tend to be less adequately funded and are often poorly managed. That means that public policy is less likely to correct for the inherent inability of markets alone to compensate for differences across households in endowments of all kinds." But in developing countries with a small gap in income inequality between the rich and poor, the rich cannot exert as much influence on governments as they can in countries in which the income inequality gap is great. In Latin America, for instance, rich landowners can and have neutralized governmental efforts to change their economies in ways that would promote growth and benefit the poor; whereas, in Asia, the absence of vastly rich cannot. In Asia the rich have far less to lose from economic change than the rich in Latin America.

Foreign investment (globalization) takes two forms: One form, the revised imperial model, takes place when foreigners invest in a nation in order to take advantage of the impoverished labor force, having it create products to be exported back to the investing nation. This model does little to develop the economies of the producing nations, and sometimes even harms them. A number of years ago, American clothing manufacturers outsourced their manufacturing to Bangladesh, claiming that they were improving the lives of their employees by paying higher wages than those prevailing. The result, however, was that the people of Bangladesh were worse off, because the prices of rents and commodities rose along with the wages which negated the advantage of those working for American firms and made those not working for American firms less well off. The other form of foreign investment, which invests to provide products and services to the people in the nation being invested in, is rarely made; yet it alone is the kind of foreign investment that would improve the economies of underdeveloped countries.

Aside from the immoral implications of imperial globalization, another implication is the dependencies created. The prosperity of the developing nations is highly dependent upon the state of the developed nations which provide the markets for the products the developing nations are induced to make. If the developed nations economies fail, so do those of the dependent, undeveloped nations, a consequence which may very well be looming on the horizon.

The other interesting thing about Ms Birdsall's essay is her failure to mention the consequences of her analysis on the American economy. She rightly points out that, "Income inequality in the United States is higher than in most countries of Western Europe. The perception of the United States as a highly mobile society compared to Western Europe is likely the result of its higher average income growth, which has lifted all boats." And it is well known that income inequality in the United States is becoming wider and wider. Furthermore, the wealthy in the United States have almost total control of what becomes governmental policy. Immigration reform is the current most prevalent example. In contrast to what a majority of the people want, the government seems intent on providing instead what the business community wants.

Ms Birdsall also points out that, "One key to East Asias success seemed to be its low initial levels of inequality, which were associated with the legacy of postwar redistribution of farm land in the northern economies and with subsequent high public investments in education." Contrast that with the current situation in the United States, where the costs of higher education have increased well beyond the means of most working families.

It is easy, as Ms Birdsall does, to point out the things that need to be done if globalization is to lift all boats, but it is another thing to get them done, especially in those countries, such as the United States, where the rich are in control. The United States government's inability to provide even the basic social safety net that the liberal European democracies have provided for decades is not a hopeful sign.

So the only conclusion I can draw from Ms Birdsall's essay is that, if she is right, and I have no reason to believe that she isn't, the United States will soon exhibit all of the characteristics of a third-world country. This conclusion is more important than any she draws, and in my opinion, she should have drawn it herself. (5/12/2007)