Michael Veseth: What I'm Reading Now

Globaloney 2.0

2009-08-25T07:38:00.000-07:00

A number of people have written to ask why this blog hasn't been updated in a while. The answer is that, while I haven't stopped reading, I'm been more focused on writing.

Earlier this year my editor asked if I would be interested in revising my last book, Globaloney, to take into account the impact of the financial and economic crisis on globalization. Would I? Yes!
So I've been working hard on a major revision, which we are calling Globaloney 2.0: The Crash of 2008 and the Future of Globalization. Click on the link to learn more about the work.

Here is a thumbnail sketch of the book:

The idea that there is no alternative to the global market is dead for now as the world economic crisis has unmasked that “globaloney.” Globalization is in retreat, but history tells us that this is but a temporary reversal. Globalization will return, but in what form? More cycles of boom and bust? Or can globalization be rebuilt on a more feasible and sustainable platform? These are the compelling questions that Michael Veseth tackles in this thoroughly revised and updated edition of his award-winning book.

Veseth shows how pre-crash visions of globalization were based on three powerful myths: that global finance was a stable foundation for a global economy, that global markets homogenized and Americanized the world, and that globalization itself was irresistible—impossible to shape or oppose at any level from the grassroots on up. The world economic crisis has revealed globalization’s Achilles heel: the fundamental instability of global financial markets and the unsettled foundation of economic globalization generally. This realization is a necessary first step, but it alone is not enough. We must rethink the rest of globalization’s myths, Veseth persuasively argues, if we want to move beyond boom and bust to a sustainable global future.

Look for more book reviews posted here in the coming month.

Animal Spirits

2009-03-21T15:23:00.000-07:00

George A. Akerlof and Robert J Shiller, Animal Spirits: How Human Psychology Drives the Economy and Why it Matters to Global Capitalism. Princeton University Press, 2009.

Freakonomics redefined the popular economics book genre. This runaway best-seller created a niche for an economics book that could speak seriously to the masses (the serious mass, if that isn't some sort of oxymoron) and get them to rethink both economics (particularly microeconomics) and their view of the world. It was a great if uneven read, I said in my review, but kinda pointless. I thought the authors missed a good opportunity to criticize policymakers and pundits for their uncritical acceptance of conventional wisdom and the harm this has caused. Instead they just let the many and varied examples and case studies speak for themselves. Too bad.

Animal Spirits is a sort of macroeconomic Freakonomics but with one difference. It has a point. Many points, in fact. More about this later.

Ackerlof and Schiller are as distinguised as you can get in economics. Ackerloff won the 2001 Nobel Prize in Economics for his work on how economies actually work in the messy, inconvenient real world (think "The Market for Lemons"). Schiller is famous for Irrational Exuberance and his studies of unstable financial markets. Smart guys.

Animal Spirits is a book about how individual feelings and attitudes, which are not always strictly rational, matter in macroeconomics and how ignoring them has helped put us in the current financial and economic hole. Most people associate the term "animal spirits" with Keynes (animal spirits, he said, are what drive the stock markets) and sure enough Keynes and his ideas make frequent appearance here.

The organization of the book is clear enough. The authors begin with short chapters about five flavors of animal spirits -- confidence, fairness, dishonesty, money illusion and the particular power of stories to shape human attitudes and behavior) and then apply these concepts to eight questions, including why do economies fall into depression, how can the current financial crisis be solved and why are there booms and busts in real estate markets? As you can see, this is a book that asks a lot of big questions and promises a lot of big answers.

There are several problems, not least of which is that it is difficult to answer all these questions in a slim volume like this one and especially hard to make all of the answers depend critically and specifically on animal spirits (although this main point is well argued, especially concerning the importance of fairness in economic decisions). Animal Spirits makes lots of points along the way -- maybe too many of them? -- and in doing so seems to sometimes lose track of its audience.

Who is this book for? Is it for professional economists who will be interested in rethinking longstanding intellectual debates within the profession? Is it for investors who need to understand how markets really work? Is it for ordinary citizens who just want a better idea of how we got into this mess and where we can go from here? The answer is that the authors seem to address many different potential audiences and therefore risk losing some or all of them. A pity.

If you can judge a book by its cover (I know, I know) then this book is for New Yorker readers -- serious readers who will recognize the distinctive Edward Koren cartoons that decorate the wrapper. I suppose that's as good a target audience as any.

Is this the macroeconomic Freakonomics? No, but it's a good book for befuddled economics-literate people like me. And maybe you, too.

Krugman on the Crash of 2008

2009-01-02T19:48:00.000-08:00

Paul Krugman, The Return of Depression Economics and the Crash of 2008. Norton, 1999, 2009.

This book is a very substantial revision of a 1999 volume called The Return of Depressions Economics. The title was meant to shock in 1999. Financial crises like Thailand's or deep persistent slumps like Japan's -- they couldn't happen here, could they? Krugman wanted to wake up policy makers to the fragility of the financial system and the idea that financial crisis could lead to depression-style economic crisis. No one will be shocked by the title today, ten years later.

I have used this book in my classes continuously since it was first published, although my spin on it has evolved as economic conditions have changed. Krugman's revision is pretty much in line with the way I taught this material last semester. I take this to mean that I have not entirely misread the world has we have moved towards this point, although I obviously do not claim Krugman's expertise. Or maybe we both misread it the same way. Time will tell.

Not everyone will be happy with the way the book is organized. Krugman saves his analysis of the current crisis until the final chapters and I think many readers will want to see this material earlier. But I am on Krugman's side. It seems to me that you really do need to understand the financial crises of the last twenty years in order to appreciate our current situation. Those who don't understand history are doomed to repeat it, they say. The crises in Japan, Mexico, Thailand, Hong Kong, Russia and Argentina give Krugman an opportunity to introduce key theories and concepts in a real world context that is highly relevant to the final analysis.

Not everyone will like the end of the book, either, where Krugman provides policy recommendation. Many readers will be looking for very detailed proposals from the most recent Nobel winner instead of broad outlines, but is that fair to ask? Events move too quickly now; the situation is so fluid. Krugman's three-part plan (large-scale capital infusions to stop the financial crisis, large-scale fiscal stimulus to end the economic slump, reformed financial regulation to extend bank-type controls to bank-like institutions) makes sense now and will probably be seen to make sense when we look back upon them in ten years.

One thing that I missed was a fuller discussion of capital controls. Krugman talked in more detail about controls on destabilizing hot money movements in the earlier volume and comes very close to endorsing them here, at least in emergency situations. But he doesn't really make the case. You can't please everyone, I guess.

There are many good moments in the book, including the analysis of the Greenspan years and the housing bubble and the discussion of hedge funds and the rise of unregulated non-bank banks. And there was one scary moment for me. Reading the first paragraph of the last chapter I immediately recognized the words. Where had I read them before? "The world economy is not in depression; it probably won't fall into depression ..." (my emphasis added).

Oh, yes. They are exactly the same words he in this same place in the book used ten years ago.

Empires of Trust

2009-01-02T08:49:00.000-08:00

Thomas F. Madden, Empires of Trust: How Rome Built -- and America is Building -- a New World. Dutton, 2008.

It has been all the rage to talk about the world -- and especially the United States -- in terms of empires in recent years. It began, I think, with the collapse of communism, leaving the U.S. as the sole superpower and it accelerated after 9-11 as U.S. policy became more intentionally international. My colleague Dave Balaam teaches a class on Empires -- one of probably hundreds offered on college campuses today. He doesn't have to look very far to find interesting books and articles for his students to read.

Part of the appeal of Empires today is the idea of rise and fall and these are times when it looks to many like the U.S. is heading for collapse; thinking about the U.S. this way fits easily into the arguments the pessimists want to make.

Thomas F. Madden's book takes the idea of a U.S. empire seriously -- as a real condition rather than a loose metaphor -- and his book makes good reading whether you are into the empire idea or not. Empires rise and fall, Madden says -- that's what they do. But they aren't all the same. He cites three types of empires: empires of conquest (not given much treatment here), empires of commerce (like Britain in the 19th century) and empires of trust (Rome ... and the United States).

Empires of conquest and commerce are intentionally outward-looking. They seek resources and markets respectively. But empires of trust, in Madden's analysis, just want want to be left alone. They mainly venture abroad when foreign actions are necessary for domestic (should I say "homeland") security. Empires of trust have different motives and actions, Madden argues, and have the potential for long life. Rome's empire lasted for centuries before the inevitable collapse. There is no particuar reason to think that the U.S. era will be over soon if the U.S. holds true to the principles that cause foreign powers to trust its motives.

Madden's method here is to tell stories of Rome's experiences in some detail and then use them to reflect on key events in U.S. international policy. Some of the insights have astonishing, causing me to stop and rethink previous opinions. That's the purpose of the book, in my view. Not to convince you that the U.S. empire is a good thing (although it might be) or that it is fundamentally peace-seeking (because it isn't always), but rather to get you to think seriously about world affairs and not fall into shallow intellectual ruts, as it is so easy to do.

So I recommend this book very highly (and I thank my mentor Phil Phibbs for recommending it to me) as an aid to serious analysis. You need to read the whole book, however, to capture the full effect. This is not a burden, however, as Madden is a good story teller. I devoured the 300 pages on the plane to Tucson.

The Irrational Fear of Globalization

2008-11-29T13:14:00.000-08:00

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

2008-10-30T10:07:00.000-07:00

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!

2008-10-30T10:02:00.000-07:00

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!

2008-10-27T07:26:00.000-07:00

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

2008-07-26T13:31:00.000-07:00

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

2008-05-28T08:30:00.001-07:00

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

2008-05-26T14:34:00.000-07:00

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

2008-05-26T08:46:00.000-07:00

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

2008-01-14T08:17:00.001-08:00

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.

Redefining Global Strategy (or would you rather be a Jackalope?)

2007-12-23T13:03:00.000-08:00

Pankaj Ghemawat, Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter. Harvard Business School Press, 2007.

Thomas Friedman has famously argued that the world is flat -- that globalization has reduced many of the barriers to competition that once existed between and among countries. You've got to study hard -- invest in education, infrastructure and knowledge -- if you want to succeed in the flat world. Otherwise some smart guy from Bangalore is going to take your job! There's little to prevent this in the flat world of globalization today.

I suppose you can think of Pankaj Ghemawat as that smart guy from Bangalore, although he's really from the Harvard Business School and IESE Business School in Barcelona. He's studied globalization good and hard and ... guess what? ... it turns out the world isn't flat after all. Globalization isn't complete -- it is "semiglobalization" at best -- and businesses (and by extension, I suppose, nations, although he doesn't really talk about this) need to take into account the differences if they want to succeed.

The book is written in Business-schoolese, with diagrams, acronyms and lots of exclamation points (although, to be fair, it is far from the worst offender in this regard). Ghemawat uses the acronym CAGE to denote the differences among countries: Cultural, Administrative, Geographic and Economic. He does a nice job using this framework to show why India's trade with the United States has evolved along different lines from the China trade. India has Cultural advantages (more English speakers) and Geographic disadvantages (Indian ports are much farther away from the U.S. and are logistical nightmares compared to more efficient Chinese ports). This helps explain why China exports more products (where language is less important and ports are critical) while India exports more services, where language is key and electronic delivery sidesteps transportation bottlenecks. The full analysis is much more complex than this, of course, but you probably get the idea.

The CAGE differences also create regional CAGE similarities. One of the defining characteristics if semiglobalization is regionalization and it can take many forms. We are used to thinking of regionalization is Geographic terms, but there are also Cultural regions (the English speaking world, for example, or the Indian and Chinese diasporas) as well as Administrative regions (collections of countries with common legal systems and government structures due, for example, to common colonial influences) and of course common Economic regions (the
US-EU-Japan triad countries with their high incomes and large markets).

How does a business deal with CAGE differences and similarities? With AAA strategies, of course! AAA stands for Adaptation, Aggregation and Arbitrage. Some companies learn to adapt to the differences in order to succeed. Adapting can be costly, but it is often cheaper than the mistakes you make when you don't apart. Others choose their markets carefully so that they fall into one of the CAGE regions. Then they can Aggregate based upon commonalities and profit from economies of scale. Finally, businesses can Arbitrage the differences among countries, especially in production though variations on outsourcing. Luxury goods companies, which are some of the most successful global businesses, often arbitrage cultural differences, for example.

The most successful businesses will find ways to profit from two of the three As, Ghemawat suggests but he cautions against trying to employ all three strategies, comparing the resulting business a Jackalope (see drawing at right). I wonder if there are enough internal trade-offs among strategies that they form a trilemma -- pick two and the third is impossible? Ghemawat doesn't suggest a trilemma, but he is sure skeptical about the potential of a AAA play.

This is a very interesting book that deserves the attention it has received recently -- and not just because it disagrees with Thomas Friedman. When I started reading it I was fascinated by the brief case studies that Ghemawat uses to illustrate his framework, but annoyed with the framework itself with its acronyms and B-school jargon. I liked the stories but I wasn't that keen on the lectures that they came wrapped in. But, to my surprise, the frameworks became more and more useful as the complexity of the problems increased. Now I cannot wait to try to apply Ghemawat's analysis to the global wine market and so to write a new story myself.

My advice: stick with this book and you will be rewarded. Otherwise you could end up with a strategy that is as well designed as a jackalope.

The Discovery of France

2007-11-26T13:51:00.000-08:00

Graham Robb, The Discovery of France: A Historical Geography, from the Revolution to the First World War. W.W. Norton, 2007.

This is probably the best non-fiction book I have read in 2007. It is an eye-opening (and imagination stimulating) account of the "discovery" of France by its own people in the 18th and 19th centuries. Discovery? Well, yes. Much of France was unknown, even to the French, until as late as the 20th Century. The famous Gorges du Verdon, the most monumental geological site in all Europe lay undiscovered (except by the locals, who always knew it was there) until a hundred years ago, despite being placed only a few miles from a provincial center.

The discovery of France begins by explaining why discovery was necessary. Communication was difficult and sometimes impossible because of the complex set of languages and local dialects that existed in France and persist today. There was no lingua franca in France until the state determined to make Parisian French the standard -- over all objections. Discovery was further frustrated by systems of roads and transportation that made travel to some places all but impossible.

Lack of human contact combined with impenetrable language barriers predictably created isolated cultures with intensely suspicious local residents, who, in the first chapter, are frightened enough by anything new to hack to death a government surveyor who has entered their small little world to make a map of it.

The story of why France was undiscovered and the role of the state, technology and economics in finding it is fascinating and is told here with real style. I found something to appreciate on almost every page. Having read this book, I think I have a better understanding of French colonial policies during the golden age of French globalization (I wrote about this in Chapter 8 of Globaloney). French colonial policy was to wipe out native language, culture, food, etc. and replace it with standard Parisian practice -- an external policy that clearly reflected internal fears and concerns.

Rodrik on One Economics, Many Recipes

2007-11-14T12:57:00.000-08:00

Dani Rodrik, One Economics, Many Recipes: Globalization, Institution, and Economic Growth. Princeton University Press, 2007.

You can think of this book as a highly rigorous reply to the Washington Consensus. The Washington Consensus, as it has become enshrined in the development literature, was a simple universal prescription for structural change and economic growth. One problem with the Washington Consensus was that it often didn't work, sometimes with tragic consequences.

Dani Rodrik, Professor of International Political Economy at the Kennedy School of Government/Harvard, explains why. Economic growth is very important, he says. It is just about the most important thing you can imagine for a less developed country because most of the other goals that you might propose are difficult or impossible to achieve if growth is not present. There is a reason why development economics is biased towards growth.

But when we look at the data, we find that there is no one sure path to development. Rather there are many successful recipes for growth (and many unsuccessful ones, too). If the world is going to grow, including especially the less developed countries, the world is going to have to accept that that growth will be diverse, powered by different engines and following different rules of the game.

The rules of the game are economic institutions. Rodrik argues that as much as markets are needed for economic growth (that's part of the Washington Consensus), effective market-supporting institutions are also needed and these institutions need to be designed in ways that take into account economic, political and even natural resource differences among countries.

The diversity of successful development requires us to rethink the institutions of international economic governance, too. The WTO, for example, has become mainly a forum for economic liberalization discussions. But free trade isn't a goal, Rodrik argues, it is a means to a goal -- the goal of economic development. The WTO today actually undermines that goal by trying to shoe-horn different countries into a single model of economic institutions. A development-driven WTO, he says, would instead take on the more difficult job of mediating trade tensions that result from the institutional diversity that economic growth requires. Free trade would be slower to develop with such a WTO in place, Rodrik suggests, but economic development might progress more evenly and at a faster pace.

This is a thorough and thoughtful critique that enlightens by going beyond the usual generalizations about the Washington Consensus and development, replacing overstatement with tight analysis and thoughtful consideration of the data. And it is very readable, too.

I must admit that I was initially disappointed when I opened One Economics. The book is a collection of nine papers, some that have already been published and some that are still "forthcoming." I am not a big fan of collected papers volumes because they seldom hang together very well. I would almost always prefer a purpose-written book that makes good use of the format to present an extended but tightly organized argument rather than presenting bits and pieces written at different times for different audiences.

It seems to me that purpose-written books almost always have more impact than collected paper volumes. That's why Joe Stiglitz, Jeffrey Sachs and Naomi Klein write them. But they take more time to write, too, which is a factor. Rodrik does a pretty good job dealing with the inherent problems of this format, in my opinion, but I wish he'd find the time for a big book.

The Shock Doctrine

2007-09-29T16:34:00.001-07:00

Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism. Henry Holt, 2007.

In Chapter 2 of my book Globaloney: Unraveling the Myths of Globalization I provide a users' guide to the rhetoric of globalization and explain how to manufacture bogus arguments about globalization that readers will lap up like warm milk. Here's how it goes:

First, don't base your argument on facts, base it on images and metaphors. They are more readily manipulated that facts.

You need evidence, so use exceptional cases and pretend that they are typical cases. Arrange these exceptional cases like breadcrumbs that will lead the reader inevitably to an extravagant conclusion that neither metaphor nor selective evidence can possibly support.

And then say that you don't really mean to draw such an outrageous conclusion, even if your carefully chosen facts seem to lead there. You can deny with confidence because the damage is already done. Your reader is hooked.

In Globaloney I show how Adam Smith used this technique to make the case for global free trade based upon what he saw one day in a little Scottish pin factory. Smith was the master of this sort of rhetoric and Naomi Klein shows that it still works.

Metaphor: Economists give the name "shock therapy" to economic reforms that are implemented all at once rather than phased in a little at a time. The common argument for shock therapy is that vested interests can resist and distort gradual policies. It is necessary to break those interests to achieve real change, hence the all at once approach. Poland had shock therapy. The shock was a hard one, but economic and political reforms did take hold. Russia went the gradual route and you can see how successful they have been in breaking up the power of the oligarchs and political elites.

There is also a medical treatment called shock therapy (electro-shock therapy, actually), which, we are told, aims to wipe out a person's personality so that she becomes a clean slate and can be reprogrammed from scratch. The people in charge presumably have the power to decide what the new personality looks like and they reprogram to suit their interests. My descriptions of economic and psychiatric shock therapy are both oversimplified, but you get the point. And you can probably see where this is going.

Since the names of the two therapies are the same, they must be the same. The logic of electro shock must have informed the practice of economic shock therapy? The strategy of shock therapy therefore is to erase a nation's personality and replace it with the neoliberal caricature that serves the interests of the evil doctors who run the world economic system. Since shock therapy is introduced during crises and disasters, it is necessary to take advantage of disasters, or perhaps even to manufacture them as an unethical psychiatrist might manufacture a nervous breakdown to create the opportunity to electro-shock treatment.

Now you need evidence, and Klein provides dramatic examples of shocks that range from Chile under Pinochet, Tiananmen Square, Hurricane Katrina, the tsunami in Southeast Asia, and now Iraq. Is it a accident that all these disasters were followed by the introduction of market fundamentalist reforms and an invasion by transnational corporations? Coincidence? You be the judge! Doesn't it seem like someone must have been pulling the strings? Someone with an interest in creating disasters in order to take advantage of them.

And of course Klein's readers draw the conspiracy theory conclusion because they are probably already leaning that way. Besides, that's where the breadcrumb trail leads. So Klein can disavow this conclusion in confidence that her point has been made. Nice!

I've been following the press reaction to The Shock Doctrine and it is pretty interesting. In an interview in the Financial Times Klein defends her use of the shock therapy metaphor not because it is particular accurate, but because it was fair game. The economists in favor of all-at-once reforms are the ones who invented shock therapy as a metaphor, she says, I just turned it against them.

Joseph Stiglitz wrote a tortured review in the Sunday New York Times Book Review. He doesn't seem to want to say anything really nasty about Klein's book, perhaps because they are both icons of the anti-globalization movement and are fated to share the stage of anti-G events. But he has trouble saying much that is good about it, either. Stiglitz is an academic (and Nobel laureate) not a journalist like Klein and he's aware that his comments will be held to a high standard, so he ends up justifying Klein's opposition to neoliberalism not based upon her own overstretched metaphors but because of important institutional economic factors that Stiglitz has written about in his books. She's right, he seems to say (or maybe partly right about some things), but for the reasons that I've written about elsewhere.

The core of Klein's argument is not bullshit. Change does tend to come as a response to crisis and, when crisis strikes, everyone tries to turn it to their own advantage by capturing the issue and bending or spinning it using metaphors and dramatic special cases. The key word here is everyone. It isn't just that businesses try to make a buck or that neoliberals with a political agenda try to transform chaos into order of their own design. Every interest does this, not just the ones that Klein chooses to highlight. You can see this in the reaction to 9/11. Writers and politicians of all stripes and all ideologies used that crisis as a tool to sell their products, services, policies, ideas and campaigns. And it is still going on. Naomi Klein, obviously, is doing it herself with this book.

The problem of issue capture in the aftermath of a crisis is a serious one because crises are always with us and they are more immediate and personal (and therefore more exploitable) in this age of information technology. So the opportunity for and payoff to issue capture have both increased. Is this book playing the game it seeks to expose by manufacturing a crisis crisis and then spinning it into an anti-globalization narrative? Hmmm. Well, I never said that. But just follow the breadcrumbs ...

Supercapitalism

2007-09-29T15:58:00.000-07:00

Supercapitalism by Robert B. Reich. Knopf, 2007.

When I was in elementary school I would sometimes "cheat" on books by reading the last chapter first so that I would know how everything turned out. I thought I was being smart by doing this, but I probably ruined the books and spoiled a lot of surprises. I've tried to resist the temptation to cheat since third grade and I've been successful, mostly.

But I couldn't stop myself from cheating on this new book by Robert Reich. I tried to read it the honest way, but I got all bogged down in Reich's pointed re-telling of 20th century American political and economic history. I guess I have just read too darn many books that selectively tell that story in order to lead the reader to a particular (and seeminly inevitable) conclusion. I even did this myself in Mountains of Debt. So I cheated and jumped to the final chapter, "A Citizens Guide to Supercapitalism" and I'm glad I did.

That final chapter really cuts to the case and the points that Reich makes there makes me as glad that he wrote this book as I was sorry about it when I was working my way through the history. Herewith a quick summary.

Capitalism and democracy don't necessarily come together as a package, but they do work effectively together because capitalism allocates power in one way, which can be subject to abuse, and effective democracy creates a countervailing power that can correct or offset capitalism's faults. Capitalism, for example, creates prosperity and inequality. Democracy can (and should according to Reich) act to reduce the inequality and rein in capitalism's abuses generally. You can't expect capitalists to act in the public interest, that's not their role. You need an effective political system to do that.

Capitalism and democracy (which Reich associates with an almost golden mid-century era) has been replaced by hyper-competitive supercapitalism. Corporations are now driven even more intensely to serve the interests of their customers, who want more for less, and their investors, who want more and more. Business can's afford to look after social interests because this increases costs and lowers profits and and neither customers nor investors will tolerate that. One false move and buyers and investors will move on to someone or something else -- and there's always something else in the huge global economy. Reich's corporations are not the masters of their universe but the victims of it.

At this point you expect Reich to condemn capitalism, or at least the capitalists, but he won't do it. He lays the blame at the feet of the politicians who are busy soliciting contributions from these very corporations. They capture the corporate donors or are captured by them. In any case, they don't any longer play the role of balancing the forces of supercapitalism because they are part of it. The real problem with supercapitalism, he argues, is not so much capitalism as democracy -- and his book is really a plea (and a plan) to try to restore democratic institutions so that they can play their critical balancing role in society.

I found much to agree with in Reich's analysis and I recommend this book -- or at least the last chapter!

Globalization and Football

2007-08-12T11:02:00.000-07:00

David Goldblatt, The Ball is Round: A Global History of Football. Penguin/Viking 2006.

I'm gearing up to teach a course on globalization and football (soccer), so I couldn't resist ordering this book from Amazon.co.uk (it will be published in the U.S. next year) based on a glowing review in Four Four Two, the British football magazine. Well, I guess I have to give it a glowing review, too. Better than Harry Potter, if you are interested in the political economy of sport!

It's a fat book, 911 pages of text plus notes, bibliography and index. You might wonder how anyone could have that much to say about a game, but then you would probably be missing the point. Goldblatt in an IPE scholar as well as a football fan (I'm using a book that he co-edited in one of my classes this fall) and so he cannot help thinking about how the play on the field reflects the economic, political and social conditions in society more generally. His history of football over the last 100 years is therefore interwoven with a a critical analysis of world history during that era so that the context and connections are clear. You cannot help but be impressed with Goldblatt's mastery of all of this history and his detailed knowledge of football. It is an incredible achievement. I will certainly use this book in my course.

This isn't to say that the book is perfect. I would say that the analysis of European and Latin American football and society is the book's strength. Africa is almost as good, I think, but less complete. The analysis of Asia seems superficial by comparison. And the United States? We are hardly there at all! But that's appropriate, given our place in the global football market.

The Beautiful Game

2007-07-09T14:20:00.000-07:00

Leon Grunberg and Sunil Kukreja (editors), Discourses on the Beautiful Game. Ashwin-Anoka Press (New Delhi/Kuala Lumpur), 2007.

Soccer is the beautiful game, of course, and it is more than a game. I wrote a chapter on the globalization of soccer for my 2005 book Globaloney and my friend and colleague Sunil Kukreja invited me to edit an excerpt of that chapter for a special issue of the International Review of Modern Sociology, which he and Leon Grunberg edited. That special issue has now appeared in book form.

Reading through the book, it is easy to understand why I say that soccer is more than a game. The nine articles (by an international group of scholars) deal with such topics as why American's do not embrace professional soccer the way the rest of the world does (that's my piece), why soccer is important to the identity of English soccer communities and how soccer figures into post-colonial relations in Algeria. Other articles deal with soccer economics and team management, the use of performance enhancing drugs in professional soccer and persistent issues of racism and hooliganism.

What makes soccer so interesting, of course, is that it is a game that reveals so much about both the players and the spectators and the world they live in. That's why the study of soccer (as a lens through which to view bigger issues) has caught fire in academic circles. I'm even going to teach a course about it in a couple of years.

Two of my favorite books about soccer and society are Futebol: Soccer, the Brazilian Way by Alex Bellos and A Season with Verona: Travels Around Italy in Search of Illusion, National Character, and...Goals! by Tim Parks. Click on the links and scroll down to read the reviews.

GloBEERrization

2007-06-07T09:57:00.000-07:00

Christopher Mark O'Brien, Fermenting Revolution: How to Drink Beer and Save the World. New Society Publishers, 2006.

The author says that he likes to drink beer and he wants to save the world and so, naturally, the result is a book about how to drink beer and save the world. It's a clever idea, although I don't think the book itself is quite as clever as the idea of the book, if you know what I mean. Read this book and you will learn a lot about beer, its history and social significance. Maybe more than you want to know, unless you are really into beer, but interesting nonetheless.

I was drawn to the book by the obvious connection between beer and globalization. Beer is a pretty good example of how the paradox of globalization works. On one hand, industrial brewing is becoming more and more concentrated in the hands of a few global beer conglomerates, with predictable result: an ocean of Bud. At the same time, however, global networks have encouraged the growth of local microbreweries, islands of quality in that tasteless sea. I wish the author had developed this angle a bit more, but I understand that he was actually more interested in saving the world than writing about globalization.

So how do you save the world by drinking beer? There's actually a checklist of 24 things you can do provided at the end of the book. Drink local (of course), keep your refrigerator full (saves energy), recycle your empty bottles, and so on. Thanks to Johanna Wallner for suggesting this title to me.

The Sushi Economy

2007-06-04T09:36:00.000-07:00

Sasha Issenberg, The Sushi Economy: Globalization and the Making of a Modern Delicacy. Gotham Books, 2007.

The premise of this book is that sushi -- the famous Japanese seasoned rice and raw fish delicacy -- exists on two levels. It is, of course, a food that is very local, with a particular set of cultural practices and a specialized vocabulary. To step into a sushi bar is to step out of wherever you happen to be and into a small piece of a particular image of Japan.

Chances are, however, that the "local" culture that you experience is in fact the product of rather sophisticated global markets and processes, which is why sushi can now be found all over the world. The "slow food" that is prepared before your eyes exists because of a "fast world" of markets and technology.

Sasha Issenberg does a great job of telling the story of globalization through the specific case of sushi. We learn, though the sort of first person reporting familiar to readers of The New Yorker, how Atlantic bluefin tuna came to Japanese fish markets (Japanese airlines needed something to fill their cargo holds on the return trips to Japan), how the famous Tokyo fish markets work, and how Croatian immigrants to Australia learned to farm tuna to satisfy sushi diners in Japan and elsewhere.

Along the way we al,so learn a lot about how fish is caught or farmed, bought and sold, prepared and consumed. And, since this is the story of the sushi economy, not just sushi, we learn about the costs of catching fish and economics of running a sushi restaurant.

A fascinating book for readers who want to know how globalization works in a particular case. I would rank it with Pietra Rivoli's Travels of a T-Shirt and Marc Levinson's The Box as among my favorite books about globalization in action.

24 Hours (in the global economy)

2007-05-31T09:17:00.000-07:00

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

2007-05-30T13:44:00.000-07:00

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

2007-05-30T13:10:00.000-07:00

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

2007-05-30T12:35:00.001-07:00

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

2007-05-29T12:41:00.001-07:00

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

2007-05-29T12:00:00.001-07:00

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

2007-05-29T09:26:00.000-07:00

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

2007-05-25T13:17:00.000-07:00

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.