24 Hours (in the global economy)

Daniel Altman, Connected: 24 Hours in the Global Economy. Farrar, Straus & Giroux, 2007.

Most globalization books have some sort of gimmick (think The World is Flat) and this one's angle is to collect 14 news articles (or "snapshots" of the global economy) from June 15, 2005 and to use them as a springboard to discuss some of the larger issues of globalization. The author writes a column on globalization for the International Herald Tribune and he is pretty skillful at moving from micro (first person accounts) to macro (national and global analysis) and back. It's that Thomas Friedman thing.

The stories included here are pretty interesting. One story about Intel's activities in Vietnam, for example, works on two levels. First, as an example of how a particular MNC adapts to what are probably unique local political and economic conditions in Vietnam and, second, as the basis for a brief discussion of the pros and cons of MNC investment generally. I find these stories of "globalization on the ground" fascinating because the real world cases hardly ever conform to the standard models. A story of the acquisition of Maytag by the Chinese appliance maker Haier provides both a good case study of Chinese business strategy and the opportunity for some discussion of China's changing economy. An article about how Alberta, Canada is actively recruiting skilled migrants to fill openings in its oil industry leads to a discussion of immigration issues. You get the idea. It's the sort of thing that good teachers have been doing in class for decades: take a newspaper article about a specific case and then use it to jump to a discussion of larger trends and implications. It works in the classroom and it works here, too.

The stories (about the role of government in global business, intellectual property rights, corruption, the importance of financial systems and so on) are interspersed with "interludes" about key global markets: stocks, currencies and oil. These interludes are not as detailed and informative as I had hoped they would be, but they do supply some useful definitions and institutional background.

On the whole I would say that the strength of this book lies in the analysis of the specific stories; they make this a book worth reading. The linkages to bigger issues are less uniformly successful for an obvious reason: the issues are large and complex and there isn't room here for an appropriately detailed and nuanced discussion. Hopefully this book will interest general readers in the big questions of globalization, inform them of some of the contested issues, and stimulate further reading and research.

Civic Schizophrenia

Benjamin Barber, Consumed: How Markets Corrupt Children, Infantilize Adults, and Swallow Citizens Whole. Norton, 2007.

Everyone remembers Benjamin Barber's best-selling 1995 book, Jihad vs. McWorld, but no one seems to remember what it was about! Most people who have read it think they remember that it was about the revolt of the Islamic world (Jihad) against globalization (McWorld) and the battle between them. That's an easy conclusion to draw in the post-9/11 world, especially since the book's cover art shows what appears to be an Islamic woman drinking a Pepsi.

But that's not what Barber actually wrote about. Barber (who denies that the Jihad in the title is meant specifically to refer to Islam) actually argued that globalization is twisting the world in two directions at once: toward traditional societies and values (his intended reference for Jihad) and towards market societies and values (McWorld). This twisting is important, he argued, because it undermines democracy. The threat to democracy, not 9/11, is the point of the book. But it isn't the point that most people remember.

I fear the same thing might happen to this book. Once again, Barber is concerned about democratic citizenship, which is still under assault from all sides. In this book, however, it is McWorld and the markets that are singled out as the main threat. Consumed is an extended account of the ways that market values threaten democracy.

The book is an interesting mix of anecdote and theory. I kind of like the theory chapters because I do think that the ideas of Weber and Schumpeter and the others are very relevant (and Barber does an excellent job connecting these dots). But, as was the case in Jihad, I am not as impressed with the "pop culture" chapters, even though they are very well-researched. This is both because there is a limit to how much I can care about the juvenile behavior of sports stars and celebrities and also because the pop examples are so vibrant and memorable that I fear that they may overwhelm the book's serious political message.

Which is this: Markets need us to be irresponsible consumers, needy, grasping, never willing to wait -- and market forces have trained us to behave in this way (the "infantilization" process). But democratic citizenship requires just the opposite. Citizens need to be responsible, resourceful, thoughtful and patient. The qualities that makes us useful consumers (to the businesses that depend upon us) make us horrible democratic citizens. This is the civic schizophrenia that Barber confronts in the final section of the book. I'm not sure that Barber is right about civic schizophrenia, but I do think he raises an interesting question -- one that deserves to be discussed.

Economics: Dismal versus Soulful Science

Diane Coyle, The Soulful Science: What Economists Really Do and Why it Matters. Princeton, 2007.

Freakonomics made books about how economics is relevant to everyday life a hot commodity and, predictably, a number of similar books have appeared in its wake. They have lacked the impact of Freakonomics and I think I know why. Freakonomics was organized around some fascinating real world puzzles (a chapter on gangs, a chapter on cheating schoolteachers) that -- surprise! -- can be unlocked using the tools of economic analysis. The other books (here I am thinking especially of The Undercover Economist by Tim Harford) are ultimately organized around standard economic principles (a chapter on free trade, a chapter on externalities, etc.) and so may be better than Freakonomics at teaching economics principles, but lack the gee-whiz punch of Freakonomics. They appeal more to economist, who already know that economics is relevant, than to non-economist "civilians" (as Robert Solow used to call them) who must be seduced with a mystery.

Diane Coyle is a British journalist and economist and her book falls into this second category. It is organized around some standard questions in economics (why do some nations grow while others don't?) and provides a relatively brief analysis of how economists have answered the question both today and in the past. The chapters provide history and brief biographies of the major figures and personal stories about some of them. Good material to make a subject accessible to a general audience. But I wonder if a general audience is going to pick up a book like this? I think that economists are the more likely audience and for us, well, I think the book suffers from being too brief and superficial. This book is well-written and interesting, but not especially soulful and not nearly seductive enough to reach a broader audience. That Freakonomics target is a hard one to hit!

Immigrants: Your Country Needs Them

Philippe Legrain, Immigrants: Your Country Needs Them. Little Brown, 2006.

The new immigration bill is hot news here in the United States and it looks like, at long last, something may be done. The reform proposals are complicated and not entirely consistent, but they do seem designed to take a system that makes no sense at all and to try to get it to make at least a little bit of economic sense. This is the general direction of reform that Kenneth Dam proposed in The Rules of the Global Game: A New Look at U.S. International Economic Policy, University of Chicago Press, 2001 (see review in my "old reviews" list). That's a small step but an important one.

The fact that immigration reform may be a step in the right direction doesn't mean that it is unopposed: there are plenty of people out there who are afraid of migrants or who want to use the fear of migrants for their own political or economic purposes. So it is important that counterarguments are made. This brings us to Philippe Legrain's fine book on Immigrants, which alas is not yet available in the United States (but you can order it from Amazon UK like I did).

Writing in what I think of as the Economist style (clear, witty, pointed, first-hand and with respect for the reader's intelligence), Legrain systematically confronts most of the important arguments for strictly limiting immigration both in general and in the particular case of Latino immigration to the United States. He also addresses the arguments against Islamic migrants that seem to preoccupy some of my European friends these days.

Yes, I agree that this book is a bit longer on anecdotes than it is on tables of statistics, but Thomas Friedman taught us all that one well told story is more powerful than a hundred econometric studies. And this book aims to persuade as it informs. I would say it is pretty successful and a good place to look for arguments when you find yourself cornered by an anti-migrant crowd.

If you like this book, you might also enjoy Legrain's equally straightforward and interesting book on globalization: Open World: The Truth about Globalization (2002), which is available in the U.S.

Capitalism: Good, Bad and Ugly

William J. Baumol, Robert E. Litan and Carl J. Schramm, Good Capitalism, Bad Capitalism and the Economics of Growth and Prosperity. Yale University Press, 2007.

This is another book on the importance of economic institutions (see below for related books by Barry Eichengreen, Kenneth Dam and Frederic S. Mishkin). Baumol, Litan and Schramm (henceforth "the authors"), argue that that the institutional set up of capitalist societies matters a lot, especially when it comes to the ability to encourage and sustain activities that produce economic growth. They differentiate among four types of capitalist institutions, which I think of as falling into three categories: good bad and ugly.

The good types of capitalism are Big-Firm Capitalism (think Europe and Japan) and Entrepreneurial Capitalism (think USA). These systems are successful in encouraging growth driven by economies of scale using existing technology and technological change respectively. The United States has a combination of these two "good" capitalist systems, the authors argue, which is why it has experienced such fast growth. Small firms create new products and ideas, big firms develop them and reward the innovators. Strong economic growth results. Europe lacks the more dynamic entrepreneurial capitalism gene, which holds it back somewhat. It can exploit the new ideas of others, but doesn't have the right institutions to encourage small business risk taking. (See Eichengreen for more on this).

State-guided capitalism (think Latin America) is bad capitalism in this way of thinking, but it is not so bad as oligarchic capitalism (think Russia), which is so bad that it is ugly in my "Dirty Harry" categorization.

Significantly, the authors go far beyond simply taxonomy (classifying different economies into their four categories). They provide detailed analysis drawing upon recent research to discuss how Europe might introduce reforms that would encourage more risk taking and innovation, how the state-centered systems of many less developed countries might be reorganized, and -- most difficulty of all -- how political and economic oligarchies might be overcome. The final chapter looks at the "care and feeding" of entrepreneurial capitalism -- what the U.S. must do to prevent its economic advantage from slipping away.

When I started this book I thought that it was merely clever. Now that I am at the end I think it is brave. If economic growth is as important as the authors (and I) believe, then this sort of brave big idea thinking about the obstacles to growth is essential.

Eichengreen on European Economy Growth

Barry Eichengreen, The European Economy Since 1945: Coordinated Capitalism and Beyond. Princeton University Press, 2007.

The economies of western Europe grew dramatically in the golden age that followed the second world war, closing the economic gap with the United States in a surprisingly short time. In recent years, however, Europe has stagnated relative to the U.S. European growth rates (with important exceptions like Ireland) have lagged behind U.S. levels.

There are many theories that attempt to explain the puzzle of postwar European economic growth. Barry Eichengreen's impressive new economic history of postwar Europe proposes that economic and social institutions were the critical factor and he makes a very persuasive case.

Eichengreen argues that postwar Europe "inherited" a set of institutions, including trade unions, industry associations, labor market practices and government regulatory structures, that facilitated rapid economic growth using existing technologies. Together, these institutions channeled vast quantities of capital and labor into industry (so-called "brute force" economic growth), producing potent economies of scale and rapidly rising living standards. You can think of this institutional setup as one that encouraged capital formation and industrial expansion while also assuring a relatively broad distribution of the resulting gains.

So long as economic growth was largely driven by economies of scale using existing technology, Eichengreen argues, the European economies surged ahead. But when the key factor shifted from more to better (from economies of scale to technological and managerial innovation), Europe began to fall behind. The social and economic institutions that provided security for an economy that was expanding was ill equipped to provide incentives for risk taking and innovation.

This explains Europe's current dilemma. They have "inherited" institutions that worked miracles a few decades ago, but that are unsuited to the current age, where economic growth is driven more that technological change than capital accumulation. Institutional rigidities (Mancur Olson's famous term) prevent Europe from experiencing more fully the benefits of this dynamic age. Will Europe be able to remake itself and its social and economic institutions? Eichengreen holds out some hope, but he seems pretty pessimistic to me. And no wonder: Olson said that it takes a crisis to destroy institutional rigidities once they have settled in and it is hard to see what crisis could persuade the comfortable French, for example, to give up their satisfying if suboptimal economic system.

The Law-Growth Nexus

Kenneth Dam, The Law-Growth Nexus: The Rule of Law and Economic Development. Brookings, 2006.

Kenneth Dam has always been interested in rules and institutions and how they condition outcomes. The Rules of the Game: Reform and Evolution in the International Monetary System (1982) examined the structure and performance of the Bretton Woods system of international finance. The Rules of the Global Game: A New Look at US International Policymaking, (2001) provided fresh insights into US foreign economic policies in many areas, how and why they have come to take their present form and what effects these choices produce.

The current book is a serious and comprehensive study of how and why legal institutions and the “rules of the game” they create can foster or inhibit economic growth. Dam provides a critical examination of the literature regarding the rule of law issue and applies this analysis to a number of key sectors, including especially land use and equity and credit market finance. In a final chapter, Dam addresses the issue of China: If strong legal institutions are necessary for economic growth, how can a country that has weak rule-of-law achieve such exceptional growth rates? Excellent bibliography.

I loved Hernando DeSoto's The Mystery of Capital, but was frustrated with its lack of analytical detail and policy specifics. This book provides what DeSoto's book lacked. A great addition to the development economics literature.

The Next Great Globalization

Frederic S. Mishkin, The Next Great Globalization: How Disadvantaged Nations can Harness their Financial System to Get Rich. Princeton University Press, 2006.

Columbia University Professor Frederic Mishkin is a renown expert on banking, finance and monetary policy. His textbook on money and banking is the standard reference in this field. I was more than a little surprised, therefore, to find that he has written a book about globalization. It is a very good book and a very useful contribution to this field.

The conventional wisdom about globalization is that free trade is clearly beneficial to the world and to less developed countries, too (Mishkin calls them "disadvantaged" nations). But free finance is another matter. Financial globalization, most people insist, has not delivered the goods. The benefits from access to global capital markets, the story goes, are offset by the risks associated with hot money flows and the financial and currency crises that they have helped create.

Mishkin's book argues that global finance can have great benefits, but only if we do it right. As an expert on banks and finance, he argues that there are a number of important principles that must be followed in opening a "disadvantaged" economy to global capital markets. He explains these principles and then shows there relevance in three case studies: Mexico, South Korea and Argentina.

One of Mishkin's big points is that rich country credit markets are fundamentally different from poor country credit markets (the countries wouldn't still be poor, I suppose, if their credit markets were better able to facilitate economic growth), so policies that make sense for rich countries systematically create problems in poor countries. This is the same point that Joe Stiglitz makes when talking about trade. Interestingly, Mishkin singles out Stiglitz's proposals for dealing with poor country financial crises as an example of what's wrong with current policies. Stiglitz's ideas would work in rich countries, Mishkin says in Chapter 10, but they are exactly the wrong policies for poor countries. He concludes the book with chatpers on what rich countries and the IMF can do to make financial globalization work.