Challenges to Globalization: Analyzing the Economics

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Challenges to Globalization evaluates the arguments of pro-globalists and anti-globalists regarding issues such as globalization's relationship to democracy; its impact on the environment and on labor markets; the brain drain, sweat shop labor, wage levels, and changes in production processes; and the associated expansion of trade and its effects on prices. Baldwin, Winters, and the contributors to this volume look at multinational firms, foreign investment, and mergers and acquisitions and present surprising findings that often run counter to the claim that multinational firms primarily seek countries with low-wage labor. The book closes with papers on financial opening and on the relationship between international economic policies and national economic growth rates.
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Meet the Author

Robert E. Baldwin is professor emeritus of economics at the University of Wisconsin—Madison and a research associate of the NBER. L. Alan Winters is professor of economics at the University of Sussex, a research fellow for the Centre for Economic Policy Research (CEPR, London), and a senior visiting fellow for the Centre for Economic Performance at the London School of Economics.

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Challenges to Globalization
Analyzing the Economics
The University of Chicago Press
Copyright © 2004 National Bureau of Economic Research
All right reserved.

ISBN: 978-0-226-03616-8

Chapter One
Assessing Globalization's Critics: "Talkers Are No Good Doers?"

Kimberly Ann Elliott, Debayani Kar, and J. David Richardson

1.1 Introduction

In Shakespeare's King Richard III (act 1, scene 3, line 351), the Duke of Gloucester hires two men to do away with a rival and encourages them to do it quickly, so the victim will not have the chance to plead for mercy and perhaps "move [their] hearts to pity." The first murderer reassures the Duke, "Fear not, my lord, we will not stand to prate [prattle]; talkers are no good doers."

This paper is about the critics of the "doers" of globalization. A variety of concerns motivate these critics, but the common thread is the belief that the distribution of globalization's benefits is unbalanced and that this is the inevitable result of policies and processes that are undemocratic and, therefore, illegitimate. The critics want the doers to stop and talk. The doers dismiss the critics' concerns as unrelated to economic globalization or as misinformed and misguided; they want to keep doing as they have been doing. This paper describes who the critics are, where they came from, what they want, and how economists, policymakers, and others might understand them better.

Until recently, globalization's critics likely would have sympathized with the Duke's intended victim, feeling that they could not get a word in edgewise before the forces of globalization rolled over them. Many proponents of globalization did not want to talk or even listen. Activists responded by mounting large street protests at each major meeting of the key international organizations-the World Trade Organization (WTO) in Geneva (1998) and Seattle (1999); the International Monetary Fund (IMF) and World Bank in Prague and Washington, DC (2000); the Free Trade Area of the Americas (FTAA) in Quebec (2001); and the Group of Eight (G8) in Genoa (2001). Also because slogans (e.g., "Fifty Years is Enough," "Fix it or nix it," "Dump the debt," "People over profits," "Jobs with justice," or "Another world is possible") fit on posters better than elaborate plans to change the world, their demands often seemed more strident than they are.

Although the protesters in the streets represent a number of different movements, they share, in the words of one critic, "a belief that the disparate problems with which they are wrestling all derive from global deregulation, an agenda that is concentrating power and wealth into fewer and fewer hands" (Klein 2000, 19). Above all else, the disparate elements of this broad "Mobilization for Global Justice," as a major umbrella coalition is called, are held together by a concern that the process by which globalization's rules are being written and implemented is undermining democracy at both the national and international levels. Under this umbrella of shared concerns, the various groups tend to cluster around one of three issues as a focus of their particular globalization critique.

The environment

Human rights and worker rights

Inequality and poverty (particularly in developing countries)

Economists and policymakers might recognize some of these concerns as relating to environmental externalities, imperfectly competitive labor markets, or inadequate distributional mechanisms. But when the activists and protesters claimed credit for killing the Multilateral Agreement on Investment in 1998 and for blocking a consensus to launch new multilateral trade negotiations in Seattle in 1999, the initial response from many doers was a backlash against the anti-globalization backlash. In some quarters, there was a tendency to circle the wagons and to reject compromise as the first step down the slippery slope towards protectionism.

One step in moving beyond the dialogue of the deaf is to orient the critics' concerns in terms of potential market failures that economic analysis already recognizes. A second is to recognize that not all of the critics are anti-globalization, some are, but others are not. With the end of the Cold War, some see anti-globalization as a new front in the long-running battle between socialism and capitalism. But other critics, including many with a religious orientation, are strongly internationalist and want to see globalization proceed, albeit under different rules. We will refer to these latter critics as the "alternative globalization movement." We will reserve the "movement" for the full spectrum of activists opposed to current globalization trends.

This paper will attempt to identify important groups involved in the alternative globalization movement. It will also attempt to sketch a picture of the key issues and concerns that motivate them in a way that is broadly representative and intelligible to economists. In so doing, we hope to capture the concerns of Southern as well as Northern groups and to analyze the issues that divide as well as bring them together. Finally, we will analyze key elements of the critiques of current globalization and representative alternative proposals, assessing both their merits and weaknesses.

The sections on the roots of the movement and who the critics are cast a rather wide net, but the presentation and analysis of what the critics want focuses on key groups that have offered alternatives, detailed recommendations, or specific critiques. We will address only in passing the true anti-globalizers, those who might be characterized as localists on the left and nationalists on the right.

1.2 The Roots of the Alternative Globalization Movement

Poverty, inequality, human rights, and protection of the environment are hardly new issues. Transnational advocacy on human rights by non-governmental organizations (NGOs) predates World War I, going back at least to the anti-slavery movement of the eighteenth and nineteenth centuries (Keck and Sikkink 1998; Lorenz 2001). The International Labor Organization (ILO), created to protect the peace by promoting social justice, was founded in 1919 and is the only surviving League of Nations institution. The Universal Declaration on Human Rights by the United Nations (UN) dates to 1948. Concern for the environment is a more recent issue for global activists, but it is one that has grown rapidly since the first UN conference on the environment in 1972. The NGO involvement in poverty and development issues has traditionally been more on the operational side, raising and distributing funds and planning projects, particularly emergency relief. Transnational-policy advocacy on behalf of poor people in poor countries emerged more recently as a result of the debt crisis and increased involvement in development policy on the part of the international financial institutions.

Thus, Mobilization for Global Justice and the similar groups that have been dogging international meetings and summits for the past five years represent a coming together of several advocacy strands that have been operating on largely separate tracks for a number of years. Demands by civil society to be included in international rule making on economic issues emerged as a response to the expanding scope of that rule making into in a broad range of regulatory areas. That is, groups focusing on environmental issues, human rights, and development issues began to come together in the 1990s because they perceived that pro-globalization priorities were impinging upon their own and, therefore, that they had a common interest in challenging both the substance and the process as the rules governing globalization were developed. In addition, the development of communications technology that could handle large amounts of information facilitated the task of transnational and cross-issue organizing. A brief summary of the evolution of each of the strands follows.

1.2.1 The Environment

Since the creation of the UN Environmental Program (UNEP) at the global Conference on the Human Environment in 1972, the UN has been a key institutional focus for transnational advocacy on environmental issues ranging from fisheries, forestry, and other resource management to combating the ozone hole and global warming. Almost from the beginning, NGOs were recognized as playing an important role in the process, in part because many of them bring technical expertise that would otherwise not be available (UNEP 2001). Just a year after UNEP was created, an NGO office was established to oversee civil society participation in its activities. Today, there are roughly 200 multilateral environmental agreements, with representatives of civil society often playing an important role in various aspects of negotiation and implementation.

An ambitious attempt to integrate environmental issues under the sustainable development rubric was made at the 1992 UN Conference on Environment and Development (UNCED) held in Rio de Janeiro, Brazil, with extensive involvement from NGOs. The UNEP estimates that representatives from 800 NGOs from 160 countries were present in Rio, reflecting as well their intense involvement in planning the conference (UNEP 2001). The UNCED resulted in an action plan for addressing a long list of environmental problems, dubbed "Agenda 21," as well as the founding of the Commission on Sustainable Development (CSD) to monitor implementation of the (largely voluntary) commitments. In order to facilitate their ongoing involvement, an NGO steering committee was created by the CSD and roughly 400 groups were accredited as of the end of 2001. A decade later, tens of thousands of public- and private-sector representatives are expected to gather in Johannesburg, South Africa, to review (limited) progress and to discuss the next phase of implementation, but planning has been marred by sharp disagreements over the responsibility of developed countries to increase resource transfers to poor countries for development and environmental protection, as well as the relative rights and responsibilities of multinational corporations in sustainable development.

1.2.2 Human Rights and Worker Rights

Like environmental groups, human rights groups have traditionally focused on governments and the UN regarding the promotion of universal norms and standards. In the 1970s and 1980s, however, transnational advocacy groups involved in the fight against apartheid in South Africa, frustrated by the unresponsiveness of governments, turned their attention directly to corporations. After years of futilely pushing governments and the UN to formally impose sanctions on the apartheid regime, activists turned to pressuring multinational corporations operating in South Africa as a second-best conduit for pressuring the government there. At a minimum, activists such as Leon Sullivan hoped that the code of corporate conduct bearing his name would improve the day-to-day lives of black workers under apartheid. Many of the groups that are active today in the anti-sweatshop movement-including the Interfaith Center for Corporate Responsibility, the Investor Responsibility Research Council, and Reverend Sullivan-have their roots in the anti-apartheid movement, as do many of the tactics used today, such as corporate codes of conduct, shareholder resolutions, boycotts, and other market-based campaigns to promote change.

1.2.3 Development and Poverty

Groups concerned with human rights, particularly of indigenous peoples, and the environment in developing countries turned their attention to the international financial institutions in the 1980s, beginning with criticism of the World Bank for ignoring the environmental and human consequences of its large infrastructure projects and for failing to consult with local people affected by those projects. The IMF became a target somewhat later as policies developed to respond to the debt crisis, triggered by Mexico in 1982, failed either to resolve the debt problem quickly or to restore economic growth. In the 1990s, many of these concerns coalesced around the issue of debt relief and Jubilee 2000, which began in the United Kingdom, and became a global phenomenon, fronted by rock stars and consulted by world leaders (Birdsall, Williamson, and Deese 2002). Criticism of the IMF, in particular, escalated sharply in the late 1990s when many mainstream economists were questioning their response to the Asian financial crisis as well as the Fund's earlier push for increased capital-market liberalization in developing countries without prudential regulations in place.

1.2.4 The Trade System and Social Issues

The General Agreement on Tariffs and Trade (GATT) was created in 1948 as a mechanism for contracting parties to multilaterally negotiate reductions in trade barriers. It was regarded by affiliated governments and most observers as relatively effective in unwinding the high Depression-era tariffs that lingered after World War II, but as relatively weak in settling disputes over more difficult issues, such as agricultural protection and non-tariff barriers (Elliott and Hufbauer 2001). Thus, for most of its first forty years, it was largely ignored by advocacy groups. In this period, neither governments nor civil society groups particularly challenged the notion that the major constituencies that needed to be consulted about trade negotiations were business and organized labor. The dynamics of trade negotiations changed dramatically in the 1990s, however, particularly after conclusion of the Uruguay Round negotiations, which expanded the scope of trade rules in areas such as product health and safety, drugs and other patents, and instituted a more binding enforcement system under the WTO.

As the Uruguay Round progressed, it appeared to many critics that all of the major international economic organizations were moving in a similar, deregulatory direction, placing more and more constraints on the ability of governments to organize economic activity. In the early 1990s, GATT dispute-settlement panels twice ruled against a U.S. ban on imported tuna, the harvesting of which resulted in the killing of dolphins. The decisions shocked and angered environmental advocates who had lobbied for the Marine Mammal Protection Act to protect the environment and who had no protectionist intent. Around the same time, the United States and Mexico (joined later by Canada) decided to negotiate a "deep integration" trade agreement without accompanying rules on the environment or working conditions.

The decision to negotiate the North American Free Trade Area (NAFTA) seemed to the critics to bring the specter of a race to the bottom right to America's borders and it began to pull together the separate strands of environmental, human rights, and development advocacy into today's movement for alternative globalization (Aaronson 2001; Mayer 1998). Despite vigorous protests from NGOs and only after much debate, Congress approved the NAFTA agreement in November 1993. In deference to concerns of the critics, however, newly elected President Bill Clinton had directed his trade representative to negotiate side deals to accompany the agreement, which was completed by President George H. W. Bush just before the 1992 election. The labor agreement did little to appease labor opponents, but the side agreement on environmental issues was regarded by moderate environmental groups as a positive step forward, and several of them endorsed NAFTA. Within a few years, however, those groups became disillusioned with the implementation of the side agreement and increasingly concerned by corporate challenges to environmental regulations under NAFTA's investment provisions. When renewal of "fast-track" or "trade promotion authority" was debated again in the late 1990s, the environmental community was much more unified in its opposition.


Excerpted from Challenges to Globalization Copyright © 2004 by National Bureau of Economic Research. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Challenges to Globalization: An Overview 1
1 Assessing Globalization's Critics: "Talkers Are No Good Doers?" 17
2 Globalization and Democracy 63
3 Geography and Export Performance: External Market Access and Internal Supply Capacity 95
4 Globalization and International Commodity Trade with Specific Reference to the West African Cocoa Producers 131
5 Globalization and Dirty Industries: Do Pollution Havens Matter? 167
6 The Role of Globalization in the Within-Industry Shift Away from Unskilled Workers in France 209
7 The Brain Drain: Curse or Boon? A Survey of the Literature 235
8 The Effects of Multinational Production on Wages and Working Conditions in Developing Countries 279
9 Home- and Host-Country Effects of Foreign Direct Investment 333
10 Competition for Multinational Investment in Developing Countries: Human Capital, Infrastructure, and Market Size 383
11 The Cross-Border Mergers and Acquisitions Wave of the Late 1990s 411
12 Financial Opening: Evidence and Policy Options 473
13 Openness and Growth: What's the Empirical Relationship? 499
Contributors 527
Author Index 531
Subject Index 539
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