GLOBALISATION

The evidence of globalization can be seen everywhere: in the home, in the workplace, in the discount
stores, in the newspapers and business journals, in the flow of monthly government statistics, and in
academic literature. The backlash was on display in Seattle in November 1999, when thousands of
protesters took to the streets to demonstrate against the ministerial meeting of the World Trade
Organization (WTO).

A short definition of globalization is “the growing liberalization of international trade and investment,
and the resulting increase in the integration of national economies.” Economist David Henderson of the
Melbourne Business School expands the definition into five related but distinct parts:

* the increasing tendency for firms to think, plan, operate, and invest for the future with reference to
markets and opportunities across the world as a whole;

* the growing ease and cheapness of international communications, with the Internet the leading
aspect;

* the trend toward closer international economic integration, resulting in the diminished importance of
political boundaries. This trend is fueled partly by the first two trends, but even more powerfully by
official policies aimed at trade and investment liberalization;

* the apparently growing significance of issues and problems extending beyond national boundaries and
the resulting impetus to deal with them through some form of internationally concerted action; and

* the tendency toward uniformity (or “harmonization”), by which norms, standards, rules, and practices
are defined and enforced with respect to regions, or the world as a whole, rather than within the bounds
of nation-states.1

Globalization can be seen most clearly in the quickening pace and scope of international commerce.
Global exports as a share of global domestic product have increased from 14 percent in 1970 to 24
percent today,2 and the growth of trade has consistently outpaced growth in global output. In the
United States, the ratio of two-way trade and investment income flows as a share of GDP has roughly
tripled since the 1960s. Annual global flows of foreign direct investment surged to a record $ 400 billion
in 1997, with 37 percent directed to less developed countries (LDCs), up from 7 percent in 1990.3 In the
1970s, daily foreign exchange transactions averaged $ 10 billion to $ 20 billion; today, the average daily
activity has reached more than $ 1.5 trillion.4

The expansion of international trade and foreign investment has not been the result of some grand
design imposed on the global economy. It has been an ad hoc, decentralized, bottom-up process
resulting from two developments of the 1980s: the collapse of global communism and the demise of the
Third World’s romance with import substitution. The fall of the Berlin Wall and the final disintegration of
the Soviet empire two years later released 400 million people from the grip of centrally commanded and
essentially closed economic systems. Meanwhile, the debt crisis of 1982 and the resulting “Lost Decade”
of the 1980s imposed a painful hangover on many Third World nations that had tried and failed to reach
prosperity by shunning foreign capital and by protecting and subsidizing domestic “infant” industries.
Beginning with Chile in the mid-1970s and China later that decade, LDCs from Mexico and Argentina to
India more recently have been opening their markets and welcoming foreign investment. The
globalization of the last decade has not been the result of a blind faith in markets imposed from above
but of the utter exhaustion of any alternative vision.

In contrast to those failed policies, certain countries have managed to dramatically improve their living
standards by deregulating their domestic economies and opening up to global markets. The Four Tigers
of East Asia–Hong Kong, Singapore, Taiwan, and South Korea–are the most prominent examples. From
typical Third World poverty in the 1950s, each has achieved a standard of living today equivalent to that
of industrialized nations, with per-capita incomes in Hong Kong and Singapore rivaling those of the
wealthiest Western nations.

The relative success of openness as a policy, compared with protectionism, has spurred a global
movement toward unilateral trade liberalization. Since the mid-1980s, sixty LDCs have unilaterally
lowered their barriers to trade. LDCs have flocked to join the WTO. Today more than three-quarters of its
members are LDCs, with another twenty waiting in line to join.5 The move to trade liberalization has
been accompanied by investment liberalization, with more than 90 percent of national policy changes in
the last decade being in the direction of more openness toward foreign investment.6

THE BLESSINGS OF GLOBALIZATION

Beyond all the impressive numbers about the extent of globalization, what kind of impact is it having on
national economies? There are at least three fundamental blessings of globalization on nations that
embrace it: faster economic growth, reductions in poverty, and more fertile soil for democracy.

The greatest beneficiaries of globalization are the long-suffering consumers in those nations that had
been “protected” from global competition. Globalization expands the range of choice, improves product
quality, and exerts downward pressure on prices. It delivers an immediate gain to workers by raising the
real value of their wages. It transfers wealth from formerly protected producers to newly liberated
consumers, with the gains to consumers exceeding the loss to producers because the deadweight losses
to the economy are recaptured through efficiency gains.

Under autarky, consumers are often cursed with poor service and overpriced and low-quality goods
because there is no real competition to spur domestic producers to meet the demands of their
consumers. This explains the poor quality of cars sold by protected domestic producers in such places as
India, where the standard Ambassador car is based on the Morris Oxford, a make of car that went out of
style in Britain four decades ago.

LDCs have the most to gain from engaging in the global economy. First, they gain access to much larger
markets, both for imports and exports. On the import side, consumers gain access to a dramatically
larger range of goods and services, raising their real standard of living. Domestic producers gain access to
a wider range and better quality of intermediate inputs at lower prices. On the export side, domestic
industries can enjoy a quantum leap in economies of scale by serving global markets rather than only a
confined and underdeveloped domestic market.

Second, LDCs that open themselves up to international trade and investment gain access to a much
higher level of technology. This confers on LDCs a “latecomer’s advantage”: rather than bearing the cost
of expensive, up-front research and development, poor countries can import the technology off the
shelf. They can incorporate new technology by importing capital equipment that embodies the latest
advances and computers with the latest software. Subsidiaries of multinational companies also bring
with them new production techniques and employee training that bolster the host nation’s stock of
human capital.

Third, engagement in the global economy provides capital to fuel future growth. Most LDCs are people-
rich and capital-poor. In a few countries in Asia, the level of domestic savings has been high enough to
finance domestic investment, but typically the domestic pool of savings in an LDC is inadequate. Global
capital markets can fill the gap, allowing poor nations to accelerate their pace of growth. In 1998, $ 166
billion in foreign direct investment flowed from the advanced economies to the less developed. A poor
country that closes its door or fails to maintain sound domestic policies will forfeit the immense benefits
this capital can bring.

Fourth, openness to the global economy can provide the infrastructure a developing economy needs for
growth. Foreign capital can finance more traditional types of infrastructure, such as port facilities, power
generation, and an internal transportation network, just as British capital helped to finance America’s
network of canals and railroads in the nineteenth century. But just as importantly, multinational
companies can provide an infrastructure of what could be called “enabling services,” such as
telecommunications, insurance, accounting, and banking. As China and India have realized, a protected
and inefficient service sector weighs down an entire economy, retarding the development of
manufacturing and other industries. LDCs need to shed the mistaken idea that opening their economies
up to international service competition is a “concession” to be made to gain access to farm and
manufacturing markets in the advanced economies. In reality, liberalizing their service sectors by
opening them to foreign competition is a favor LDCs can do for themselves.

Fifth, engagement in the global economy encourages governments to follow more sensible economic
policies. Sovereign nations remain free to follow whatever economic policies their governments choose,
but globalization has raised the cost that must be paid for bad policies. With capital more mobile than
ever, countries that insist on following antimarket policies will find themselves being dealt out of the
global competition for investment. As a consequence, nations have a greater incentive to choose policies
that encourage foreign investment and domestic, market-led growth. New York Times columnist Thomas
Freidman, in The Lexus and the Olive, his 1999 book on globalization, describes these progrowth policies
as “the Golden Straitjacket.” The increasingly manifest rewards of engagement encourage nations to
unilaterally restrict the scope of government action. As Friedman explains:

To fit into the Golden Straitjacket a country must either adopt, or be seen as moving toward, the
following golden rules: making the private sector the primary engine of its economic growth,
maintaining a low rate of inflation and price stability, shrinking the size of its state bureaucracy,
maintaining as close to a balanced budget as possible, if not a surplus; eliminating and lowering tariffs on
imported goods, removing restrictions on foreign investment, getting rid of quotas and domestic
monopolies, increasing exports, privatizing state-owned industries and utilities, deregulating capital
markets, making its currency convertible, opening its industries, stock, and bond markets to direct
foreign ownership and investment, deregulating its economy to promote as much domestic competition
as possible, eliminating government corruption, subsidies and kickbacks as much as possible, opening its
banking and telecommunications systems to private ownership and competition, and allowing its citizens
to choose from an array of competing pension options and foreign-run pension and mutual funds.7
While globalization may confront government officials with more difficult choices, the result for their
citizens is greater individual freedom. In this sense, globalization acts as a check on governmental power,
making it more difficult for governments to abuse the freedom and property of their citizens.

Any casual survey of the world today will confirm that nations relatively open to trade tend to be more
prosperous than nations that are relatively closed. The wealthiest nations and regions of the world-
-western Europe, the United States, Canada, Japan, Hong Kong, Taiwan, South Korea, Singapore–are all
trade-orientated. Their producers, with a few notable exceptions, must compete against other
multinational producers in the global marketplace. In contrast, the poorest regions of the world–the
Indian subcontinent and sub-Saharan Africa–remain (despite recent, halting reforms) the least friendly to
foreign trade. And those countries that have moved decisively toward openness–Chile, China, and
Poland, among others–have reaped real (and, in the case of China, spectacular) gains in living standards.

Systematic studies confirm a strong link between openness and economic growth.8 A study of 117
countries by Jeffrey Sachs and Andrew Warner found that open economies grew much faster than closed
economies. Specifically, the authors found that the developing countries that maintained open
economies throughout the 1970s and ’80s grew at an average annual rate of 4.5 percent, compared with
an average growth rate of 0.7 percent for closed economies. As a result, the open developing economies
tended to converge toward the slower-growing rich economies, while relatively closed economies did
not converge.9

A more recent study, by Jeffrey Frankel and David Romer, produced similar results. The authors found
that trade exerts “a qualitatively large and robust E positive effect on income.” In their study of 150
countries, they concluded that increasing the ratio of trade to gross domestic product by 1 percentage
point raises income per person by between 0.5 and 2 percent.10 The Organization for Economic
Cooperation and Development (OECD) concluded that nations relatively open to trade grew on average
twice as fast as those relatively closed to trade.11

HOPE FOR THE WORLD’S POOREST

Globalization offers hope to the world’s poorest. Just as more open trade tends to promote economic
growth, growth in turn leads to poverty reduction. A World Bank study found that periods of sustained
economic growth are almost always accompanied by reductions in poverty. Specifically, the study found
that poverty fell in 77 of the 88 decade- long periods of growth covered by the survey.12

The greatest reductions in poverty in the last twenty years have occurred in nations that have moved
decisively toward openness and domestic liberalization. The most spectacular gains have been realized in
East Asia. Between 1993 and ’96, the number of people living in absolute poverty–what the World Bank
defines as less than $ 1 per day– declined in the region from 432 million to 267 million. In China alone,
the number of poor people so defined fell by 150 million between 1990 and ’97.13 The 1997–98
financial crisis that began in East Asia brought a temporary halt to this progress, but poverty rates in the
hardest-hit countries–Korea, Thailand, and Indonesia–have begun to decline back toward their precrisis
levels. Globally, the number of people living in absolute poverty has declined in the 1990s to an
estimated 1.2 billion in 1998.14

Globalization facilitates the spread of modern medicine, which has helped to extend life expectancy and
reduce infant mortality in rich and poor countries alike. On average, life expectancy in developing
countries rose from 55 years in 1970 to 65 years in 1997. This good news is tempered by the fact that life
expectancy has actually fallen in thirty-three LDCs since 1990, in large part because of AIDS epidemics,
and remains far behind the OECD average of 78 years. Infant mortality rates in Asia and sub-Saharan
Africa have fallen by about 10 percent since 1990.15

Opponents of globalization try to blame poverty in the world on the spread of trade and investment
liberalization. But those regions where poverty and inequality have been the most visible and
intransigent for decades–Latin America, sub-Saharan Africa, and the Indian subcontinent–for most of
that time self-consciously followed policies of economic centralization and isolation.

FERTILE SOIL FOR POLITICAL FREEDOM

By raising the general standard of living, free trade helps people achieve higher levels of education and
to gain access to alternative sources of information. It helps to create a larger and more independently
minded middle class that can form the backbone of more representative forms of government. The
wealth created from expanded trade can help to nurture and sustain civil institutions that can offer ideas
and influence outside government. Engagement in the global economy exposes citizens to new ideas and
new social and business arrangements. In his book Business as a Calling, Michael Novak explains the
linkage with what he calls “the wedge theory”:
Capitalist practices, runs the theory, bring contact with the ideas and practices of the free societies,
generate the economic growth that gives political confidence to a rising middle class, and raise up
successful business leaders who come to represent a political alternative to military or party leaders. In
short, capitalist firms wedge a democratic camel’s nose under the authoritarian tent.16

The wedge theory seems to be working in practice: As a general rule, the citizens of nations that are
more open economically tend to enjoy other liberties as well. The relationship can be confirmed by
comparing cross-country data measuring economic openness and political/civil liberties. For the political
and civil data, I have used recent ratings from Freedom House, which classifies the nations of the world
as free, partly free, or not free.17 Then I compared the Freedom House scores with international
economic freedom as measured in the study Economic Freedom of the World: 1998/1999 Interim
Report, written by James Gwartney and Robert Lawson. The authors rated nations according to their
level of taxation on trade, the size of the trade sector, exchange rate controls, and restraints on capital
mobility, with a rating of 10 representing maximum openness.18

Comparing these two sets of data confirms that nations that respect human rights tend to be relatively
open to commerce with the rest of the world. Nations that are classified by Freedom House as being free
scored an average of 7.9 on the scale of economic openness. Those that are partly free scored a less
open 6.7, and those that are not free scored the lowest, 5.4 (see fig. 1). If we start at the other axis we
find that, of those countries in the top third of the Gwartney-Lawson scale of economic openness, 84
percent earned a political/civil ranking of “free.” Of those in the middle third according to economic
openness, 57 percent were free, but in the bottom third, only 22 percent were free. In other words,
citizens who enjoy the freedom to engage in international commerce are about four times more likely to
be free from political and civil oppression than those who do not enjoy such freedom.

Globalization and the growth it spurs have contributed to expanded political and civil freedom in a
number of countries. Taiwan and South Korea were essentially dictatorships two decades ago, but they
are now governed by elected legislatures and presidents. Political debate in those countries is robust,
and civil liberties are more secure than ever. A share of the credit for political reform must be given to
economic liberalization and the educated middle class it helped to create and nurture. In Latin America,
the movement toward economic liberalization has been intertwined with a flowering of representative
government. Chile, a leader in economic reform, now enjoys one of the region’s most stable
democracies. A decade of dramatic economic reform in Mexico has helped lay the foundation for a more
open political system, including Mexico’s first competitive presidential primary within the Institutional
Revolutionary Party.
Skeptics of the link between economic and political reform routinely point to India and Singapore to
refute the thesis. These countries are clearly outliers in the scatterplot: Singapore is one of the world’s
most open economies but its government remains authoritarian, while India remains relatively closed
economically yet is ruled by democracy. Exceptions, however, do not negate a clear trend. And even
these two notable exceptions seem to be migrating toward the trend line, with India opening up to trade
and foreign investment since its balance of payments crisis in 1991, and the Singapore government
gradually loosening its controls on civil society.

THE CHALLENGES OF GLOBALIZATION

The advance of globalization has not been a smooth or a pain-free process. The changes it has caused, or
is perceived to have caused, have spurred a political backlash–dramatically evident in the street protests
that plagued the WTO ministerial in Seattle. Two of the most common complaints against globalization
are that it has undermined labor and environmental standards, and that it has exacerbated the gap
between rich and poor, both among and within countries.

Critics of globalization warn of a destructive “race to the bottom,” as advanced nations are forced to
weaken labor and environmental standards to compete with less-regulated producers in developing
nations. This theory rests on the assumption that lower standards give LDCs a significant advantage in
attracting global capital and gaining export markets at the expense of more developed countries. The
OECD has found that, in practice, a lack of core labor standards plays no significant role in attracting
foreign investment or in enhancing export performance. The OECD did find strong evidence “that there
is a positive association over time between sustained trade reforms and improvements in core
standards.“19

In other words, trade liberalization encourages higher standards, not lower standards. If anything, the
real race may be toward the top. For reasons of internal efficiency as well as public perceptions,
multinational companies tend to impose higher standards on their overseas production plants than
those prevailing in local markets, thus raising average standards in the host country. Free trade and
domestic liberalization–and the faster growth they create–are the best ways to encourage higher
standards. As per capita incomes rise in less developed countries, so does the domestic political demand
for higher standards, and the ability of the productive sector to pay for them. Punishing LDCs with trade
sanctions would only cripple their long-term ability to raise domestic labor and environmental standards.

Some environmental activists complain that the global trading system, as embodied in the WTO, favors
free trade at the expense of environmental protection. But WTO rules place no restraints on the ability
of a member government to impose any environmental regulations determined to be necessary to
protect its own environment from domestically produced or imported products. Article XX of the General
Agreement on Tariffs and Trade 1994, the basic charter of the WTO, plainly states that members may
impose trade restrictions “necessary to protect human, animal, or plant health.” The Sanitary and
Phytosanitary Agreement of the Uruguay Round does require that such restrictions be based on sound
scientific evidence–a commonsense requirement necessary to discourage the use of health and safety
issues as a cover for protectionism.

If WTO members are found to be in violation of their commitments, they remain free as sovereign
nations to simply ignore any adverse WTO rulings against domestic regulations that impact trade. A
prominent example is the European Union’s ban on the sale of beef from cattle treated with growth
hormones. The EU has repeatedly lost in the WTO, but it has no plans to lift its ban, even though it has
produced no scientifically sound evidence that the banned beef poses any hazard to public health. The
United States retaliated against the EU in May 1999 by imposing sanctions on $ 117 million worth of
imports from Europe, but retaliation as a weapon of trade disputes existed long before the WTO.

Antitrade environmental activists complain that several decisions by the WTO have undercut U.S.
environmental regulations. In the so-called Shrimp-Turtle case, the WTO ruled against a U.S. ban on
shrimp from countries the United States judged were not adequately protecting sea turtles from being
caught and killed in shrimp nets. In an earlier, similar case, the WTO had ruled against a U.S. ban on tuna
from Mexico that the United States claims was caught through a process that endangers dolphins.
Environmental critics of the WTO point to these two cases as proof of their claim.

In both these cases, however, the United States remains free to simply ignore the WTO ruling and
continue enforcing the law as is. The affected nations could in theory retaliate with trade restrictions of
their own if the United States refuses to comply, but that option would always exist even if the WTO did
not. And in the case of the Shrimp- Turtle decision, it was not the law itself that ran afoul of WTO rules
but the discriminatory way the United States went about implementing it, for example giving Latin
American suppliers more time than Asian suppliers to comply with the law.

Expanding trade is not merely compatible with high standards of environmental quality but can lead
directly to their improvement. As a country sees its standard of living rise through economic
liberalization and trade expansion, its industry can more readily afford to control emissions and its
citizens have more to spend on the “luxury good” of improved environmental quality, above what they
need for subsistence. And as economic growth creates a growing, better- educated middle class, the
political demand for pollution abatement rises. Today the most restrictive environmental laws are
maintained in developed countries that are relatively open to trade.

This helps explain the so-called Environmental Kuznets Curve, where environmental quality in a
developing nation initially deteriorates as the economy begins to industrialize but then improves after its
citizens reach a certain standard of living. Research by Alan Krueger and Gene Grossman indicates that
the turning point occurs at about $ 5,000 per capita: “We find no evidence that environmental quality
deteriorates steadily with economic growth. Rather, for most indicators, economic growth brings an
initial phase of deterioration followed by a subsequent phase of improvement.” By $ 8,000 per-capita
income, the authors found, almost all the pollutant categories had begun to improve.20

The United States itself is a classic example of the benign effect of trade and growth on the environment.
It has simultaneously one of the most open economies and one of the cleanest environments in the
world. In the past decade, the United States has continued to open its economy further, signing the
North American Free Trade Agreement and shepherding the creation of the World Trade Organization.
Meanwhile, two-way trade and foreign investment continue to climb as a percentage of GDP. This
liberalization of international trade and investment has been accompanied by ever-rising environmental
standards. According to the President’s Council on Environmental Quality, mean ambient concentrations
of both sulfur dioxide and carbon monoxide in the atmosphere of the United States have dropped by
nearly 40 percent since 1988. During that same period, the annual number of “bad air days” in major
U.S. cities has dropped by two-thirds. The direct discharge of toxic water pollutants is down dramatically
as well. Since the early 1970s, during a time of growing globalization of the U.S. economy, real spending
by government and business on the environment and natural resource protection has doubled.21

Despite the rhetoric heard on the streets in Seattle, expanding global trade has not spurred a race to the
bottom on environmental regulation or quality. In fact, the evidence points in the opposite direction.

THE GAP BETWEEN RICH AND POOR

Another challenge of globalization is the perception that economic liberalization has exacerbated the gap
between rich and poor countries, and between the rich and poor within countries that have liberalized.
The perception that the gap has been growing, both among and within nations, is broadly true. The
connection with globalization is much less clear.
While some previously poor countries have managed to close the gap with the more advanced
economies, a disturbingly large number of countries have fallen further behind. According to the World
Bank, the ratio of income per capita in the richest countries compared with that in the poorest rose from
11 in 1870 to 38 in 1960 to 52 in 1985.22 Concern about the “marginalization” of poor countries in the
global economic system has rightly focused on sub-Saharan Africa. Since 1976, the region’s share in
world trade has fallen from 3 percent to slightly more than 1 percent in the 1990s.23 While the flow of
foreign direct investment to LDCs has risen dramatically in the 1990s, sub-Saharan Africa has been
almost entirely overlooked. But the phenomenon of marginalization has not been a random event.

Poor nations that have fallen further behind the rich nations are almost uniformly those that have clung
to state-directed and inward- oriented economic policies. Sub-Saharan Africa has lagged behind the rest
of the world in economic growth in significant part because its markets remain among the most closed in
the world. Its governments have neglected domestic infrastructure such as roads and have distorted
their domestic economies with subsidies, high taxes, and regulations. Granted, many African nations
must also bear the burden of civil and tribal strife, poor soil, and inaccessible geography. But domestic
economic policy must be considered a key variable in explaining the region’s failure to develop. Those
African nations that have implemented more open, stable, and market-friendly policies in the last
decade–such as Uganda, Botswana, and Mauritius–have achieved growth rates exceeding those of the
advanced nations.

The most obvious variable that separates countries that are closing the gap from those falling further
behind is their own domestic policy choices. Simply put, nations that adopt the “Golden Straitjacket”
begin to catch up with the advanced economies, while those that reject it become increasingly
marginalized. In their Economic Freedom of the World: 1997 Annual Report, Gwartney and Lawson
found strong empirical evidence linking growth rates to economic freedom. The authors measured
seventeen categories of economic policy for each of 115 countries– covering monetary policy, property
rights, government spending and regulation, and restraints on foreign trade. They found a strong
correlation between economic freedom and both economic growth and per- capita GDP. The authors
found that each quintile of greater economic freedom corresponded with faster growth and higher per-
capita GDP. Nations in the top quintile in 1995 grew almost three times faster (2.9 percent annually) on
average than those in the middle quintile (1.1 percent). Those in the bottom quintile saw their
economies shrink an average of 1.9 percent.24

There is nothing inherent in the process of globalization that would cause the gulf between rich and poor
nations to expand. In fact, the access to capital, new technology, and larger markets that comes with
global integration should be expected to accelerate the convergence of less developed regions of the
world and to make global trade and wealth less concentrated across countries. This dynamic has been at
work inside the United States, which has itself been a continent-sized free- trade area for more than two
centuries. At the turn of the last century, in 1900, per-capita income varied widely across the four major
regions of the United States. While incomes in the Midwest were close to the national average, at 103
percent, incomes in the Northeast were 139 percent above the national average and those in the West
were 153 percent above. In contrast, income levels in the South were only 54 percent of the national
average. One century later–thanks in large measure to the free flow of goods, capital, and people within
U.S. borders–regional disparities have shrunk dramatically. Today, income levels in the Northeast are only
117 percent above the national average, incomes in the Midwest and West are within 2 percentage
points of the national average, and incomes in the South as a share of the national average have risen to
90 percent.25

Evidence of a similar trend exists among countries that have chosen to join the global economy. A 1998
study sponsored by the WTO found that global trade and investment flows have actually become less
concentrated in the last two decades when adjusted for the growth in world trade. Moreover, the
authors found that the concentration of trade and financial flows has fallen among countries that have
more rapidly liberalized, whereas it has increased among those that have integrated more slowly. “We
argue this shows that marginalization of individual countries from world markets can be mostly
explained by inward-looking domestic policies,” they concluded, “and therefore that marginalization is
not inherent to the globalization process.“26

Of course, the advanced economies have not always been helpful. Despite progress in the post-war era,
advanced-economy trade barriers remain stubbornly high against clothing, textiles, and agricultural
goods, the very products in which LDCs have a natural comparative advantage. A recent study by Thomas
Hertel of Purdue University and Will Martin of the World Bank found that the average tariff that rich
countries impose on manufacturing goods from poor countries is four times higher than the average
tariff rich countries impose on each other’s goods.27 One of the many disappointments left in the wake
of the failed WTO talks in Seattle has been the indefinite postponement of negotiations to lower barriers
to poor-country exports. It would be wrong, however, to blame advanced-country trade barriers for the
lack of economic progress in so many LDCs. After all, the Four Tigers of East Asia managed to hop on the
income-convergence conveyor belt in the face of advanced-country trade barriers that were even higher
than they are today.

For poorer nations, the global economy has become like one of those giant conveyor belts that speed
passengers through airport terminals. Globalization can accelerate a country’s development, but only if
its policymakers allow its citizens to hop onboard by opening the economy to international trade and
investment. This conveyor belt of growth provides new technology, investment capital, domestic
competition, expanding export markets, and powerful incentives for further domestic policy reform. The
result is faster growth and dramatic improvements in living standards within a generation or two–as we
have seen most strikingly in the Far East. The fact that some nations insist on walking their own, uphill,
isolated, and often dead-end path is not the fault of globalization but of their own policymakers.

The story of income inequality within nations is more complicated. The trend within the United States
and other developed nations has been toward a wider earnings gap between the lowest- and the
highest-paid workers. The gap has been driven primarily by a difference in worker skills rather than by
international trade. An information-based economy will naturally produce jobs that require more
specialized and technical skills than a less developed economy, which is more weighted toward
agriculture and industry. As a result, in the United States in the last twenty-five years, the gap in income
has been increasing between workers with college degrees and those with only high school diplomas.

International trade has probably contributed something to this trend in the United States, because trade
should in theory accelerate the transition toward industries that rely more intensively on high-skilled
labor. But the primary engine of change in the U.S. economy during that time has been technological
innovation.

The relatively larger importance of technological change compared with trade can be seen in recent
trends of job displacement. U.S. Labor Department surveys show that three-quarters of Americans
displaced from their jobs in 1995–97 were working in sectors of the economy that are relatively
insulated from trade.28 Even in the more trade-intensive manufacturing sector, technological change
rivals trade as the principal engine of labor-market change. International trade is often blamed for job
displacement in manufacturing when in fact the cause is rising productivity. This explains why the
number of workers employed in manufacturing in the United States has remained stable in the 1990s at
slightly more than eighteen million, at a time when manufacturing output has been rising an average of
3.8 percent a year in the decade (and 5.5 percent a year since 1994).

As with employment, technology is also the chief explanatory variable of changes in income inequality.
William Cline, in a study on the impact of trade on wages, concluded that international trade and
immigration “are unlikely to have been the dominant forces in rising wage inequality.“29 After surveying
the literature and employing his own Trade and Income Distribution Equilibrium model, Cline concludes
that skills-based technological change is by far the largest identifiable contributor to the growth in
income inequality. International trade and immigration together “contribute only about one-tenth of the
gross (total) unequalizing forces at work over this period.“30

If curbing inequality is the aim, trade policy is a poorly suited instrument for achieving it. The right
response to this growing demand for higher skills is not to stifle change through trade barriers but to
raise the general skill level of the workforce. Instead of a futile effort to “save” the jobs of yesterday, the
focus should be on preparing workers to meet the rising demands of the labor market for specialized
skills.

EXPANDING ECONOMIC LIBERTY

Globalization is really just shorthand for expanding economic liberty across international borders. The
debate it has spawned is the repackaging, on a global scale, of the long-running argument over whether
the way to prosperity is through free markets or centralized government planning, or some “third way”
between the two. If you believe free markets unleash forces that are destructive to human happiness
and must be controlled by active government intervention, you will tend to see globalization as a threat.
If you believe that free markets, operating within a rule of law, are essentially self- regulating and lead, in
the words of Adam Smith, “as if by an invisible hand” to a greater general prosperity, then you will tend
to see globalization as a blessing.

The argument that globalization is much more the latter than the former is supported not only by
economic theory but by decades of hard-earned experience. A growing majority of nations have made
their peace with globalization based not on whim or blind ideology but on the manifest failure of any
alternative. They have come to realize that the spread of free markets and the institutions that support
them offer the best hope that the fruits of prosperity can be shared by a wider circle of mankind.

Globalization has had a profound impact on heritage, presenting both benefits and drawbacks.

Blessings:

1. Cultural exchange: Globalization facilitates cross-cultural understanding, promoting heritage diversity.

2. Economic benefits: Heritage tourism generates revenue, creating jobs and stimulating local
economies.

3. Preservation efforts: International cooperation and funding support heritage conservation.

4. Accessibility: Digital platforms make heritage accessible worldwide, promoting awareness and
education.

5. Global recognition: UNESCO World Heritage designations boost visibility and protection.
Curses:

1. Cultural homogenization: Globalization threatens unique cultural identities, leading to loss of

traditional practices.

2. Commercialization: Over-tourism and exploitation compromise heritage integrity.

3. Cultural appropriation: Misuse and exploitation of cultural symbols, artifacts, and traditions.

4. Loss of authenticity: Globalization-driven development alters historic landscapes and architecture.

5. Uneven benefits: Local communities often don't benefit equally from heritage tourism revenue.

Mitigating the negative impacts:

1. Sustainable tourism practices

2. Community-led heritage management

3. Cultural sensitivity training

4. Regulation and policy frameworks

5. Digital preservation and documentation

Optimizing the benefits:

1. Collaborative international conservation efforts

2. Cultural exchange programs

3. Heritage education and awareness initiatives

4. Empowering local communities

5. Innovative, culturally-sensitive tourism models

In conclusion, globalization's impact on heritage is complex. While it presents opportunities for cultural
exchange and economic growth, it also poses significant risks to cultural diversity and authenticity. A
balanced approach, prioritizing community-led initiatives, sustainability, and cultural sensitivity, can help
maximize benefits while minimizing negative consequences.

——————————————————————————–

Notes 1.David Henderson, “The Changing International Economic Order: Rival Visions for the Coming
Millennium,” Melbourne Business School, 9 Sept. 1999.

2.Figures quoted by Alan Greenspan, chairman, Federal Reserve Board of Governors, “Technology and
Trade,” Speech before the Dallas Ambassadors forum, 16 Apr. 1999, http://www.federalreserve.gov/boar
ddocs/speeches/1999/19990416.htm

3.United Nations, World Investment Report: 1998 (hereafter WIR:1998), 9.

4.United Nations, Human Development Report: 1999, 25.

5.Organization for Economic Cooperation and Development, Policy Coherence Matters, (Paris: OECD,
1999), 45.

6.United Nations, WIR:1998, 57.

7.Thomas Friedman, The Lexus and the Olive Tree (New York: Farrar, Straus and Giroux, 1999), 86–87.

8.One problem with these cross-country studies of growth and trade is that trade liberalization is seldom
an isolated event. LDCs liberalize in the context of broader economic reforms, which often include selling
state-owned industries; reducing government taxation, spending, and borrowing; and deregulating
domestic prices and production. This poses the challenge of determining the source of faster growth.
Another methodological challenge is in measuring openness. There is no standard statistical measure of
a nation’s openness. What is clear is a general correlation between openness, under various definitions,
and economic performance.

9.Jeffrey Sachs and Andrew Warner, “Economic Reform and the Process of Global Integration, Brookings
Papers on Economic Activity 1 (1995).

10.Jeffrey Frankel and David Romer, “Does Trade Cause Growth?” American Economic Review, June
1999, 379–99.

11.Organization for Economic Cooperation and Development, Open Markets Matter: The Benefits of
Trade and Investment Liberalization, 1998, 10.

12.K. Deininger and L. Squire, “A New Data Set Measuring Income Inequality,” World Bank Economic
Review 10:3, 565–91.

13.World Bank, Social Indicators, www.worldbank.org/poverty/data/trends/. Hereafter referred to as

Social Indicators.

14.Social Indicators.

15.Social Indicators.

16.Michael Novak, Business as a Calling (New York: Free Press, 1996), 161.

17.Freedom House, Freedom in the World 1998–99, www.freedomhouse.org/survey99/tables/indeptab

.html
18.James Gwartney and Robert Lawson, Economic Freedom of the World: 1998/1999 Interim Report
(Vancouver, B.C.: Fraser Institute, 1998), 76–78.

19.OECD, Trade, Employment and Labor Standards: A Study of Core Workers’ Rights and International
Trade (Paris: OECD, 1996), 12–13.

20.Gene Grossman and Alan Krueger, “Economic Growth and the Environment,” National Bureau of
Economic Research Working Paper No. W4634, Feb. 1994.

21.Council on Environmental Quality, Environmental Quality: 1997 Report (Washington), 86–89.

22.Social Indicators.

23.OECD, Policy, 60.

24.James Gwartney, Robert Lawson, and Walter Block, Economic Freedom of the World: 1975–95
(Vancouver, B.C.: Fraser Institute, 1996), xxii.

25.Joint Economic Committee of Congress, “The U.S. Economy at the Beginning and End of the
Twentieth Century,” Dec. 1999, 8.

26.Patrick Low, Marcelo Olarreaga, and Javier Suarez, “Does Globalization Cause a Higher Concentration
of International Trade and Investment Flows?” World Trade Organization, Staff Working Paper ERAD– 98–
08, Aug. 1988, 22.

27.“White Man’s Shame,” Economist, 25 Sept. 1999, 89.

28.Daniel Griswold, “Trade, Jobs, and Manufacturing: Why (Almost All) U.S. Workers Should Welcome
Imports,” Cato Trade Briefing Paper No. 6, 30 Sept. 1999, 11.
29.William Cline, “Trade and Income Distribution: The Debate and New Evidence,” Institution for
International Economics (Washington), International Economic Policy Brief No. 99–7, 3.

30.Cline, “Trade,” 5.