The Irrational Fear of Globalization

Bruce C. Greenwalk and Judd Kahn, globalization n.: the irrational fear that someone in China will take your job. John Wiley & Sons, 2009.

Fables beat tables, Greenwald and Kahn believe, and they are not very happy about it.

Fables, metaphors and anecdotes (think Thomas Friedman) have proven more persuasive than facts and figures in shaping public attitudes and policies regarding globalization. The stated aim in this book is to push back, fighting stories with solid data. No one who reads this blog will be surprised that I am sympathetic to this general line of reasoning: my 2005 book Globaloney made much the same argument.

globalization is very much a critique of the anti-globalization literature in the style of recent volumes by Jagdish Bhagwati (In Defense of Globalization) and Martin Wolf (Why Globalization Works). globalization arrives a bit late to the party, to be honest, after most of the big issues have been pretty thoroughly chewed over (a fault it shares with Bad Samaratans reviewed below). A lot of the points that the authors reveal dramatically are no longer fresh. Globalization is not a new thing? Yes, I've read that before. The Local is generally more important than the Global? Uh huh.

Books like this sometimes feel as though they were written in response to Joseph Stiglitz's Globalization and its Discontents, which first appeared back in 2002 (Greenwalk has actually taught a class on globalization with Stiglitz at Columbia). Maybe it is just me -- I've read a lot of globalization books -- but it takes something really new and original to grab my attention.

globalization’s strength lies in its clear application of basic economic principles to reveal the hidden logic (and illogic) of claims about globalization’s causes and effects. It is the analysis that actually impressed me more than the data.

This book actually appears at an opportune moment. The current economic crisis is likely to cause globalization to recede -- businesses and governments will pull back from global strategies and embrace local and regional arrangements. This book, if read in the right way, shows why this makes sense now -- and in fact has made sense all along. The chapters on financial markets and institutions, while not written with today's financial crisis in mind, are still useful in making sense of the changed environment.

The book would be a more useful tool for students if it included a bibliography (why do serious books leave this out?) and if more detailed notes were provided. And it would make a greater contribution to the literature if it gave a better answer to the question, why do fables beat facts?

The Myth of Free Trade

Ha-Joon Chang, Bad Samaritans: The Myth of Free Trade adn the Secret History of Capitalism. Bloomsbury Press, 2008.

Ha-Joon Chang (Faculty of Economics, University of Cambridge) has written a witty and interesting reply to go-go globalization books. Anyone who believes the myth that today’s wealthy nations got that way through neoliberal free trade policies (and that this is the only road for developing countries today) will be entertained and informed by the “secret history” of protectionism.

The book is provoked by Thomas Friedman (The Lexus and the Olive Tree), informed by Friedrich List and driven by a deep understanding of the real history of economic development in Asia and elsewhere. I found the chapter on corruption especially good, although there is much to appreciate throughout.

The book is aimed at a general audience and the writing sometimes understandably lapses into the sort of rhetorical excess that Friedman et. al. are known for and therefore comes dangerous close to the sort of rhetoric I wrote about in Globaloney. Sometimes, alas, I think the author even crosses the line.

I wish that there had not been quite such a long gestation period between the debates that provoked the book and its eventual appearance. Finally, a bibliography would have made this volume more useful to potential student readers.

Interested readers should also check out Dani Rodrik One Economics, Many Recipes for a well-reasoned recent critique of free trade orthodoxy.

Economists Speak Out!

Joseph Stiglitz, Aaron Edlin and Brad Delong (editors), The Economists' Voice: Top Economists Take on Today's Issues. Columbia University Press, 2008.

The Economists’ Voice (http://www.bepress.com/ev/) is an innovative online journal (part of the Berkeley Electronic Press project) where prominent economists discuss and debate important public policy issues. The articles collected in this volume were originally published online and are still available there, an advantage especially to students who seem increasingly to rely upon online rather than hardcopy resources.

The book contains 35 short essays in nine broad theme areas. Climate change is analyzed by a trio of Nobel Prize winners, Thomas Schelling, Kenneth Arrow and Joseph Stiglitz. Other themes (and selected authors) include the International Economy (Bradford DeLong), the economics of the Iraq war (Stiglitz), U.S. fiscal policy (Michael Boskin and Ronald McKinnon), social security (Paul Krugman, Edward Lazear and Barbara Bergman), and tax reform (Boskin, Martin Feldstein, Robert Frank). Social policy, the death penalty and real estate markets complete the eclectic mix of topics.

I recommend this book, but I books are inevitably dated, so I recommend readers check out the online journal with its full archive and continuing stream of thoughtful articles on important policy issues.

Economic Gangsters Uncovered!

Raymond Fisman and Edward Miguel, Economic Gangsters: Corruption, Violence and the Poverty of Nations . Princeton University Press, 2008.

This is a book that deserves a wide readership – I recommend it wholeheartedly.

Some readers will come for the clever title and the cover’s provocative silhouette of a machine-gun wielding gangster. More, I hope, will be drawn to the book by reviews like this one and the authors’ important message. Economic Gangsters is topical and lively, as its cover suggests, but it is also deadly serious and deeply engrossing.

Fisman (Columbia Business School) and Miguel (UC/Berkeley) study perhaps the most important question of our day – why some countries grow and prosper while others are trapped in a self-reinforcing cycles of violence, corruption and poverty. Economic incentives help create an these problems, the authors argue, and policies that alter economic incentives can help eliminate them.

The book features the sort of clear thinking, crisp economic analysis and creative empirical detective work that fans of Freakonomics will recognize and appreciate. Six major case studies and many smaller examples provide evidence to support the case. The authors conclude with a discussion of how cleverly designed program evaluation techniques can help uncover policies to escape the violence-corruption poverty trap.

I liked Freadonomics but I complained in my review that it didn't really have a point. Creative economic analysis is fun, but so what? What good is it? Economic Gangsters answers this critique. Economics is fun and useful. Dismal science? Hah!

One word review: Bravo!

Globalization and Chinese Food

Jennifer 8. Lee, The Fortune Cookie Chronicle: Adventures in the World of Chinese Food. Twelve publishers, 2008.

I am drawn to books that explore the big issues of globalization through study of the structures of everyday life, so how could I resist this book? Jennifer 8. Lee is a metro reporter for the New York Times with a degree in economics from Harvard and a pretty active imagination. Her Chinese immigrant parents gave her the middle name 8 (eight) because that number is associated with prosperity in China. Her book tells a number of stories that are as interesting and improbable as, well, as her own story seems to be and that are not always associated with prosperity. Globalization is like that and so, apparently, is the Chinese food business.

Some of the stories are just interesting on their own. Who invented the Chinese takeout menu? How did the fortune cookie, apparently invented by Japanese bakers in California, end up as the nearly universal Chinese restaurant treat (and the source of a suspicious lottery numbers)? What is the best Chinese restaurant in the world – an audacious question that could not be answered empirically in a thousand lifetimes? (But, interestingly, I have actually eaten at Lee’s chosen winner and I can’t really disagree with her verdict.)

Lee travels to China to try to find the origin of General Tso’s chicken, a concoction that no chef in China would willingly produce. And, in the Great Kosher Duck Scandal, she examines the intersection of two sub-cultures, Jews and Chinese. The history of Chop Suey, “the biggest culinary joke played by one culture by another,” provides an opportunity for Lee to examine the history of Chinese immigrants (and anti-Chinese attitudes) in America. Good stuff.

For me, however, the most memorable story is about the Chinese restaurant economy here in the U.S., a sophisticated communication and transportation network that connects Chinese restaurants and immigrant workers across the country and the active market that results in the restaurants themselves. Here is a whole world that most of us would never know about but for this interesting book.

Read this book and you'll never look at a Chinese restaurant, menu or dish the same way again.

Economics for a Crowded Planet

Jeffrey D. Sachs, Common Wealth: Economics for a Crowded Planet. Penguin Press, 2008.

Jeffrey Sachs' 2005 book, The End of Poverty: Economic Possibilities for our Time, was a bold attempt to convince the world that the Millennium Development Goals could be achieved in our lifetimes. Very ambitious, I wrote in my review. Well this book takes ambition to the next level.

The goals of this new initiative are worthy of an author with the title Director of the Earth Institute (at Columbia University). Sachs challenges us collectively to embrace the goals of economic development (and poverty elimination), environmental sustainability (with adequate water provision for all) and population control. The idea is that these three sets of goals are interrelated and that you cannot really achieve any one of them unless you address all three.

The book is very interesting but I admit that I like the last chapter ("The Power of One") best because it is, well, inspiring. Sachs concludes the book by making the case for taking up the challenge of development, environment and population even though the problems seem impossibly large. He quotes one of my favorite scholars, Albert O. Hirschman to the effect that all new ideas, good and bad, are generally met with three criticisms: futility, perversity and jeopardy. The problem can't be solved (futility), if you try you might make it worse (perversity) and wasting your effort here diverts attention from other areas where progress might be made (jeopardy).

Sachs cites a number of examples of problems where substantial progress has in fact been made despite the inevitable reaction that Hirschman cited. For better or worse this last chapter really does give you a feeling that something can be done, even if we might disagree about what that something is. Probably should be required reading for Peace Corps Volunteers.

The Battle for the 21st Century

Robert J. Shapiro, Futurecast: How superpowers, populations and globalization will change the way you live and work. St. Matrin's Press, 2008.

Lester Thurow's best-selling book -- Head to Head: the coming economic battle among Japan, Europe and America -- hit the bookstores with a splash 15 years ago. Everyone wanted to know what would happen in the emerging post-Soviet world and the economist and MIT dean was ready to tell them.

Thurow forecast a world where a triad of nations would battle to write "the rules for the 21st Century." The winner would be Europe, Thurow concluded after ticking off all the usual suspects (Russia? No. China? No. America? No. Japan? Not a chance.)

Was Thurow correct? Well he was right about Japan, I guess, but was he right about the U.S. and China? Too soon to tell, I think, given that the 21st Century is still in its first decade and a lot has changed since the early 1990s. Perhaps it is time to revisit the question.

Robert J. Shapiro takes up this challenge in Futurecast. He builds his analysis around three strong forces that will shape domestic and international relations: demography (aging populations), globalization (rising competition, shifting production and consumption patterns, increasing interdependence) and the collapse of the old Soviet empire and the rise of a new geopolitical order. What countries can best adapt to this new environment, Shapiro asks? China and the U.S., he answers, but for different reasons. The critical relationship of the future is therefore the Sino-American one.

Europe and Japan will be increasingly marginalized from a geopolitical perspective in part because they will have trouble dealing with the dual challenges of demography and globalization. Other big potential players are also considered (India? Russia?) but they have problems of their own. Ireland and Korea present models of how countries can successfully develop as niche players in the global markets.

I liked Thurow's book in the 1990s because it raised a lot of interesting questions and taught me and my students a good deal about economic problems and social change around the world. I like this book for the same reason. I like it even more, in fact, because of the detailed analysis that I find here -- he goes well beyond the usual stylized facts.

That's not to say that Shapiro is necessarily right. Economic consultants are often cautioned not to make predictions that can be proven wrong before you can get to the airport. Shapiro has violated this rule by making big time forecasts in indelible ink. He might wish that he could revise what he writes here about inflation, growth and interest rates in light of the current oil crisis, food crisis and mortgage financial crisis.

Close reading, however, shows that he hedged his optimism about globalization pretty carefully and doesn't need to grab the next cab to the airport just yet. It will be interesting to see how a thoughtful and optimistic book like this is received in this presidential election year. (Note: Shapiro has been an economic advisor to Bill Clinton, Al Gore and John Kerry.)

A Splendid Exchange

William J. Bernstein, A Splendid Exchange: How Trade Shaped the World. Atlantic Monthly Press, 2008.

I thought Findlay and O'Rourke were ambitious for writing a history of international trade over the last 1000 years (see below), but William J. Bernstein goes them one better: a history of trade from Sumer (3000 BC) to Seattle (the 1999 WTO protests). The books couldn't be more different in style and yet they have many important similarities.

First, however, a disclaimer. I am predisposed to like William Bernstein's books. His daughter was a student of mine a few years ago and I was introduced to his work through her. Bernstein holds a Ph.D. in Chemistry and an M.D. in neurology and he treats everything he studies as like brain surgery -- his research is thorough and critical and his insights are often stunning. These days he writes about finance and economic history. You can read about his work at his website, efficientfrontier.com.

Bernstein knows how to tell a story, which makes this book very readable, and he has chosen his stories very well to capture the many forces, political, economic, intellectual and technological, that drove trade forward, held it back throughout its violent history. Violent? Yes, one thing that Bernstein's book shares with Findlay and O'Rourke is the strong sense that trade relations were often associated with violence and deadly force. Wealth and power are potent motivations and many lives have been sacrificed to achieve them. This will come as news to students brought up on Thomas Friedman and his theory of trade as an element of the Golden Arches theory of conflict prevention.

I found almost every part of this book utterly fascinating. Students in my International Economics and IPE Theory classes should read this book if only for Chapter 13 "Collapse," which tells the story of trade in the 20th century through the theories of Wolfgang Stopler, Paul Samuelson and Ronald Rogowski.

The books ends appropriately with analysis of the current trade debate. Bernstein notes that trade is inevitably disruptive, with losers as well as winners, in rich countries as well as poor ones. Economists may take comfort in the fact trade is positive sum -- the winners gain more than the losers lose -- but that is cold comfort for those who bear the burden. Government policies that promote increased trade but decreased social spending are doubly dangerous, therefore, since the losers may lash out against trade if their social safety net fails. It is not necessarily an accident that many of the most open economies have the strongest nets to catch those who fall.

A good lesson to keep in mind as the 2008 presidential campaign moves to the next level.

Power and Plenty: A Long View of International Trade

Ronald Findlay & Kevin H. O'Rourke, Power and Plenty: Trade, War and the World Economy in the Second Millennium. Princeton University Press, 2007.

I like books that make me reconsider what I think I know. Since I spend a good deal of my time thinking and teaching about international trade and finance, books that make me stop and think about these topics are especially valuable. Douglas A. Irwin's fascinating study of the intellectual history of the theory of comparative advantage is an example of the kind of book I mean. (Irwin, Against the Tide: An Intellectual History of Free Trade, Princeton University Press, 1996). I used this book as a supplement to a course on trade theory that I taught in Bologna a few years ago and one of my best students nearly failed her oral exam because, having studied Irwin, she had a different view of comparative advantage than her faculty examiner (who, to be fair, was probably looking for simple answers so that he could pass everyone). Irwin had made her, like me, rethink what she knew about international trade theory.

Findlay and O'Rourke's Power and Plenty is challenging me to rethink international trade in a different way. The book is very ambitious: a global history of 1000 years of international trade, explicitly taking into account economics, politics and technological change. There are probably two ways to write a book like this: simplistically, using metaphors and big themes, or rigorously, with lots of detail and data. P&P is rigorous -- a book to study rather than browse. But even browsing can pay dividends.

Most studies of international trade are relatively narrow both in terms of the actors (one nation's trade policy or regional trade patterns) and time period (the 1990s, the postwar period, etc.). The thesis of this book is that there is something to be learned be looking at global trade patterns and by taking a long view of history. The risk, of course, is that you can get so involved with the details that you miss the importance of the big picture, but it is a risk worth taking and Findlay and O'Rourke are effective guides.

Here are two examples. I thought I knew quite a bit about the mercantilist period of trade history, but I find that taking the global view -- which means giving greater attention to the slave trade with Africa -- changes the picture in important ways. And taking the long view of trade history helps me understand what is happening today more fully. P&P characterizes trade during the Industrial Revolution as The Great Specialization, with manufacturing concentrated in the global North and trade patterns developing based upon a global division of labor. The current era of globalization is therefore a period of "unraveling" of the great specialization, with manufacturing being diffused globally bringing about dramatic changes both in Malaysia (a new center of manufacturing) and Michigan (an old center), for example.