The Two Faces of Globalization: Against

The Two Faces of Globalization: Against

Globalization as We Know It q

BRANKO MILANOVIC * World Bank, Washington, DC, USA

Summary. — The paper shows that the current view of globalization as an automatic and benign force is flawed: it focuses on only one, positive, face of globalization while entirely neglecting the malignant one. The two key historical episodes that are adduced by the supporters of the ‘‘globalization as it is’’ (the Halcyon days of the 1870–1913, and the record of the last two decades of development) are shown to be misinterpreted. The ‘‘Halcyon days’’ were never Halcyon for those who were ‘‘globalized’’ through colonization since colonial constraints prevented them from industrializing. The record of the last two decades (1978–98) is shown to be almost uniformly worse than that of the previous two (1960–78). � 2003 Elsevier Science Ltd. All rights reserved.

Key words — world, globalization, growth, development theory, convergence

1. THE MAINSTREAM VIEW

The mainstream view of globalization, at least among the people who ‘‘matter’’ in the countries that ‘‘matter’’––the vast majority of economists, many political scientists, and po- litical commentators––is that globalization is a benign force leading us ultimately to the era of converging world incomes (as poor countries such as China open up to the world and see their incomes rise), converging institutions as democracy becomes a universal norm, and cul- tural richness as people of different background interact more frequently. The most famous, or notorious, reflection of that Pollyannaish view of the world was the early announcement by Fukuyama (1989) of the ‘‘end of history.’’ Al- though the ethnic warfare since then has not disproved Fukuyama�s (or rather Hegel�s) view, since none of the ethnic warriors had an alter- native civilizational blueprint––a point which is implied in Hegel�s hypothesis––the more recent debates about globalization as well as the role of Islam––a society with an alternative blue- print––do show that the end of history is not around the corner.

It is only a slight caricaturization of this na€ııve view to state that its proponents regard globalization as a deus ex machina for many of the problems, such as poverty, illiteracy or in- equality that beset the developing world. The

only thing that a country needs to do is to open up its borders, reduce tariff rates, attract for- eign capital, and in a few generations if not less, the poor will become rich, the illiterate will learn how to read and write, and inequality will vanish as the poor countries catch up with the rich. This is the view conveyed implicitly and subliminally by many serious papers and pub- lications as, for example, in the Dollar and Kraay (2000) often-repeated statement that ‘‘the poor and the rich gain one-for-one from openness,’’ 1 or in Sala-i-Martin�s (2002) deri- sive statements about inequality and globaliza- tion. While, of course, the authors are careful enough not to explicitly make such statements (e.g., Dollar & Kraay do acknowledge that gains ‘‘one-for-one’’ are expressed in percentage terms, so that a poor person whose income is one-hundredth of that of a rich person will also gain one-hundredth of the rich person�s gain), 2

World Development Vol. 31, No. 4, pp. 667–683, 2003 � 2003 Elsevier Science Ltd. All rights reserved

Printed in Great Britain 0305-750X/03/$ – see front matter

doi:10.1016/S0305-750X(03)00002-0 www.elsevier.com/locate/worlddev

qThe paper represents author�s own views only; the views should not be attributed to the World Bank or its

affiliated organization.

* I am thankful to Dennis Arens, Nancy Bidsall, David Dollar, Bill Easterly, James K. Galbraith, Carol Gra-

ham, Elizabeth King, Ravi Kanbur, Mansoob Murshed,

Martin Ravallion, Dani Rodrik, and Michael Ward for

very valuable comments on an earlier draft of the paper.

Final revision accepted: 24 November 2002.

667

they do leave their statement sufficiently am- biguous, thus allowing more explicit and wrong Pollyannaish views of globalization to find currency in the mainstream popular magazines and newspapers. There the heavy guns of the globalization debate are not embarrassed by the finer points of relative vs. absolute gains, or with percentages or logarithms: they simply state that globalization is good for everyone. For example, The Economist (2000, p. 82) in a review of the Dollar and Kraay article writes: ‘‘Growth really does help the poor: in fact, it raises their incomes by about as much as it raises incomes of everybody else.’’ This is deemed insufficient to carry the (misleading) message. In the next paragraph, they continue: ‘‘On average, incomes of the poor rise one-for- one with incomes overall.’’

Moreover, the past too is harnessed to sup- port this dominant view of globalization. The period 1870–1913, the heyday of imperialism and colonialism, is made to appear as the period of universal growth, and catch-up of poor coun- tries as, for example, in Lindert and Williamson (2001, p. 1) who somewhat incredibly write: ‘‘globalization probably mitigated the steep rise in income gaps between nations. The nations that gained the most from globalization are those poor ones that changed their policies to exploit it. . .’’

Thus, globalization is regarded as a benign and automatic force that, once certain precon- ditions are set in place (‘‘sound’’ macropolicies, protection of property rights etc.), will inexo- rably lead countries and individuals to a state of economic bliss. We show here that this view of globalization is based on one serious meth- odological error: a systematic ignorance of the double-sided nature of globalization, that is, systematic ignorance of its malignant side. We show, first, how this methodological error leads to the misreading of the 19th century economic history; second, we argue that the Pollyannaish view of globalization severely distorts the les- sons of the most recent period, 1980–2000, and third, we show how a more accurate and real- istic reading of globalization requires, in many respects, different policies from the ones sug- gested by the na€ııve (or self-interested?) global- ization cheerleaders.

2. THE TWO FACES OF GLOBALIZATION

In contrast to the view of globalization as a purely benign force which we have briefly sket-

ched above are two other views. One, the Left view, regards globalization as a malignant force that leads to child labor in the South and takes away middle-class jobs in the North. For the Left, to be anti-globalization is a very difficult task since the Left is, by definition, internation- alist. But what the Left resents is that today�s globalization is led by a triumphant, and often, unbridled capitalism. Unbridled capitalism does produce the effects of which the Left complains: destruction of environment, obliteration of in- digenous cultures (e.g., how many Mayas still speak Mayan?), and exploitation of the weak.

The conservative, and often xenophobic, Right also agrees that globalization is a ma- lignant force. That view is more prevalent in Europe, with its history of xenophobia, than in the United States. 3 In Europe, globalization engenders not only fear of losing jobs to the poor masses in the South, but of losing cultural homogeneity that many European countries have acquired through a long process of oblit- eration of local cultures (where are the French Bretons today?) and three centuries of capitalist development. Their homogeneity is threatened, moreover, by the people of different color, culture, and way of life. Silvio Berlusconi�s re- cent quip about Islam, Fallaci�s (2002) diatribes against Muslim immigrants, and Heider�s, Le Pen�s and Fortuyn�s political support is all part and parcel of the fear engendered by a more globalized society.

Can these two views, the dominant one, and the critical too, be correct? Yes, they can be- cause globalization being such a huge and multifaceted process presents different faces to different people. Depending on where we live, whether we are rich or poor, where we stand ideologically, we are bound to see the process differently. But this is nothing new. Globaliza- tion as it played out from the mid-19th century to 1914 was also a contradictory force, with both its benign and malignant features. Thus, we believe, today too, as in the past, global- ization has two faces: the benign one, based on voluntary exchanges and free circulation of people, capital, goods and ideas; and the other face, based on coercion and brute force.

3. BY RAILROADS AND GUNSHIPS

These two faces have been very clearly in evidence during the previous period of global- ization a century ago. On the one hand, there was a manifold increase in output and trade

WORLD DEVELOPMENT668

between Western European countries and their overseas offshoots (the United States, Canada, Australia, and New Zealand); there were mil- lions of Italian, Polish, or Irish migrants who traversed the Atlantic in search of a better life (and found it), bringing moreover a wage and income convergence between Europe and the United States by putting a downward pressure on wages in the United States, and allowing European wages to go up (O�Rourke & Wil- liamson, 1999). Telegraph cables and railroads were built to bring the world closer and to ac- celerate the transfer of goods. In Cuba, the main producer of sugar, railroads were built before any existed in Italy or Holland (Bairoch, 1997, vol. 2, p. 574). Foreign capital flowed from the capital-rich England and France to the lands capital-poor, yet rich in opportuni- ties, such as Argentina and Russia. In Keynes� (1998, 1918, pp. 11–12) famous phrase, wist- fully regretting the passing away of a world that was destroyed by the Great War, a Londoner

could secure. . . cheap and comfortable means of transport to any country or climate without passport or other formality, could dispatch his servant (sic!) to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or cus- toms. . .

While to the Keynes� Londoners, globaliza- tion indeed presented that clean, friendly face, was the same true for the others? Not really. Globalization was brought to the many at the ‘‘point of a gun,’’ and many were ‘‘globalized’’ literally kicking and screaming, from Commo- dore�s Perry ultimatum which opened Japan, to British and French gunboat diplomacy in Tunisia, Egypt and Zanzibar, to the Opium wars and gunboats that patrolled Chinese inter- nal waterways. Worst of all, for many millions who were sold in slavery, or who toiled 16 h a day on plantations from Malaya to Brazil that too was globalization. Globalization was not merely accompanied by the worst excesses of colonialism; colonialism was not an accident. On the contrary, globalization was colonialism because it is through being colonies that most of the non-European countries were brought to the global world. The Dutch East Indies com- pany that, according to conservative estimates by Maddison (2001, p. 87) pillaged during 1868–1930 between 7.4% and 10.3% of Indo- nesia�s national income per year, 4 and the genocide in Congo that might have killed up to

10 million people, are only the worst excesses (see Hochschild, 1998).

Economists who deal in models of individual rational behavior are not well equipped to treat conquests and plunder. Thus, they prefer to stick to the ‘‘nice’’ face of globalization, to describe how the global working of the ‘‘invis- ible hand’’ brought late 19th century techno- logical marvels. It is, for example, remarkable that in an influential article on the 19th century globalization by two distinguished economists, Jeffrey Williamson from Harvard and Peter Lindert from University of California (2001) never once were the words ‘‘colonialism,’’ ‘‘colony,’’ ‘‘slavery,’’ or ‘‘colonization’’ men- tioned. This omission is all the more interesting because 1870–1913 (or 1820 which they also choose as the beginning year) was not only the epoch par excellence of colonialism, but of slavery too. Just pro memoria, in the British colonies, slavery was banned in 1833; in the French colonies, after the 1848 revolution; in the Dutch colonies, it continued until 1863; in the (Southern) United States, it was abolished in 1865, while in Brazil, it went on until 1878. It is thus, to say the least, very odd to ignore the existence of slavery when talking about glo- balization in the 19th century.

From this ‘‘clean-shaven’’ world of voluntary exchanges, the unpleasant facts of slavery and conquest are simply banished. So, when we reflect on what globalization then brought to those who were enslaved, and to those who could ‘‘send their servant to the neighboring office of a bank’’ in London, are we surprised that people today might also have similarly divided views about globalization?

4. INCOME DIVERGENCE DURING THE 19TH CENTURY

The dominant, economists� view, of the 19th century globalization is indeed based on what Williamson calls ‘‘the Atlantic economy,’’ that is, the exchange of goods, migration, and cap- ital flows between Western Europe, and Northern America (where Argentina and Uru- guay too make a few cameo appearances). As already mentioned, economists are well-placed to deal with this benign face of globalization because their key methodological construct is a self-interested individual, and when there is no external coercion (slavery or gunboats), econ- omists can best study how individuals, follow- ing their own interests, bring out economic

TWO FACES OF GLOBALIZATION 669

changes that our textbooks tell us should hap- pen.

The problem with this approach is twofold. First, it applies only to a limited part of the world. Colonialism, pillage, and slavery were no less part of globalization than the voluntary movement of Irish peasants to the United States, or the voluntary transfer of British funds to Argentina. So, if we want to discuss the North Atlantic economy alone, the Wil- liamson–Lindert approach is fine: they can af- ford to ignore the rest of the world. But, if we want to use the parable of the North Atlantic economy to argue that this is what globaliza- tion is, then it is wrong because it is only one, and possibly a less important, facet of global- ization.

Second, and more importantly, we have to look more carefully at the claim that global- ization brings convergence of income among the participating countries with poor countries growing faster and presumably catching up with the rich. This is an important tenet in the my- thology of benign globalization because it is supposed to show the benefits of globalization reaped by the poor countries. (Notice that the proper unit of analysis here is country. We are not concernedwithwhether globalizationmakes the world more equal or not, in which case we would need to calculate inequality across world citizens, as for example done by Bourguignon and Morrisson (2000). Here, we are simply concerned with the so-called theory of conver- gence––namely that the poor countries, when they open up, grow faster than the rich.) Indeed Lindert and Williamson (2001) make that con- clusion by showing the wage convergence be- tween the densely-populated Western European economies and the sparsely populated (and re- source-rich) ‘‘New World.’’ As people migrate from Western Europe to the United States or Argentina, wages and income per capita con- verge. Apodictically, Lindert and Williamson write (2001, p. 13): ‘‘Real wages and living standards converged among the currently- industrialized countries between 1850 and World War I.’’ They do accept that even as migration and trade contributed to wage equalization among the participants, capital flows which fa- vored the richer countries (that is, flowed to- ward the rich rather than toward the poorer countries) were an ‘‘anti-convergence force’’ (p. 17). Yet, on balance, their conclusion is that ‘‘prewar [World War I] globalization looks like a force equalizing average incomes between

participating countries’’ (p. 18). But let us see if that was really so.

We have three sources of data on incomes (GDP per capita) for the period stretching from the early 19th century to 1913. They are pro- duced by Maddison (1995, 2001); Bairoch (1997) and Prados de la Escosura (2000). The countries we want to include––and they are mostly the only ones for which the data are available––are those that were all part of the broader Atlantic economy, the key participants in globalization. These are the rich WENAO (Western Europe, North America, and Ocea- nia) countries. Their number varies between 18 and 20 in Bairoch�s series, 13 (but only in 1850) and 21 in Prados de la Escosura�s series, and 19 in Maddison�s data. 5 Consequently, the coun- try coverage is fairly standard and constant.

We look at whether there was convergence or not of mean incomes (GDPs per capita) by calculating Gini coefficient across GDPs per capita of these countries, with each country being given the same weight. 6 If there is con- vergence, the Gini coefficient should go down. Yet as Figure 1 shows, the story is not at all that simple.

According to Bairoch, during the peak pe- riod of globalization 1870–1913, incomes be- tween the rich countries continued to diverge: the Gini coefficient of their GDPs per capita increased by five Gini points, or by almost a third, rising from 15.8 in 1870 to 20.9 in 1913. According to Maddison, inequality is about the same at the beginning and at the end of the period. Both Bairoch and Maddison use GDPs per capita expressed in PPP (purchasing power parity) terms anchored, respectively, in US 1960 prices and 1990 international prices (Geary–Kramis dollars). Prados de la Escosura uses current PPP exchange rates––which means that his GDPs per capita are not comparable across time––to derive the rankings of about the same set of countries over 1850–1938. Only his data show an income convergence among the rich countries starting in 1860 and ending on the eve of the WW I. 7

Thus, the evidence of income convergence among the subset of rich globalization partici- pants which we were led to expect was the norm during the previous globalization episode turns out on a closer inspection to be far from watertight. We see that depending on the au- thor and on the PPP rates used, rich countries show either a divergence, or stability, or con- vergence of their incomes during 1870–1913. 8

WORLD DEVELOPMENT670

Having criticized the dominant approach for showing only a selective picture of globaliza- tion, we need to extend it in two additional directions. First, we extend the picture over time by considering the same WENAO coun- tries during the period prior to 1870, on a well-founded assumption that globalization had started by the turn of the 19th century. There we notice, according to Bairoch�s data, a strong divergence during 1800–70––a diver- gence which makes sense when one reflects that at the turn of the 19th century income differ- ences between European countries were mini- mal. The Gini, according to Bairoch, more than doubles from 6.2 in 1800 to 15.8 in 1870. Even Maddison�s data show a significant increase in inequality, with the Gini rising from 17.1 in 1820 to 20.5 in 1870 (that is, by 20%). Thus, among the rich countries, once we extend our gaze past the peak period of globalization, there was a clear process of income divergence.

Second, we need to extend the analysis in space, by including other countries. Here we are, of course, on shakier grounds because none of the authors presents consistent series for both the rich (WENAO) countries and some of the most important future Third World countries. Yet, if we reflect that in 1760, Indian per capita

income was between 10% and 30% less to the British per capita income (Bairoch, 1997, vol. 2, p. 845), while in 1800, Chinese per capita income was equal or higher than the British, 9 it be- comes clear that, on a global scale, there must have been divergence over 1800–1913, and that during the heyday of globalization in 1870–1913, divergence must have continued unabated.

Moreover, income declines among the non- European participants in the globalization process were an integral part of the process it- self: Indian deindustrialization is directly linked to the British colonial commercial policy; large transfers out of Indonesia and most of Africa were part and parcel of globalization. Most important, a typical ‘‘colonial contract’’ or (more properly called) a ‘‘colonial diktat’’ (see Bairoch, 1997, vol. 2, pp. 665–669) precluded autochthonous industrial development of the conquered parts of the world. According to Bairoch, the ‘‘colonial contract’’ was the main cause of nontransmission of industrial revolu- tion outside Europe since it implied that (a) colonies could import only products from the metropolis and tariff rates had to be low, nor- mally 0%, 10 (b) colonial exports could be made only to the metropolis from which they could re-exported (c) production of manufactured

0

5

10

15

20

25

1800 1820 1830 1850 1860 1870 1880 1890 1900 1913 1929 1938

Maddison

Bairoch

Prados

Figure 1. The Gini coefficient of GDPs per capita of rich countries, 1800–1938. Source: calculated from Bairoch (1997, vol. 2, pp. 252–253), Maddison (1995, p. 194 & 2001, Appendix A), and Prados de la Escosura (2000, p. 24).

TWO FACES OF GLOBALIZATION 671

goods that could compete with products of the metropolis was banned, and (d) transport between colony and metropolis was conducted only on metropolis� ships. Economic policy of the colonies (to the extent that there was any independent economic policy) was therefore entirely subjugated to the interests of the me- tropolis, the most important objective being to prevent industrial competition from the col- ony. 11

While we lack, as already mentioned, gener- ally accepted estimates of GDP per capita for the future Third World countries, we do have estimates of their levels of industrialization. Since these are closely linked with GDP per capita (and in the 19th century were even more so), 12 we can observe not only the relative decline of the Third World but its absolute impoverishment over the 19th century (see Table 1 reproduced from Bairoch, 1997, vol. 1, p. 404).

There we clearly see that other facet of glo- balization: there can be little doubt that glo- balization was responsible for the economic decline of the countries that at the turn of the 19th century were at about the same level of development as Western Europe, that is, India and China. For other conquered lands which were less advanced than Western Europe, 19th century globalization brought colonialism, which prevented their industrialization and thus development. Now, this is not to argue that the underdevelopment of the Third World was the cause of the First World�s development as some hold (Frank, 1998). It suffices to take a much more moderate and well-argued position as Bairoch�s and to see globalization and co- lonialism as a cause of Third World decline, but not as a cause of First World success––the latter one having been essentially endogenous to the West. 13

In conclusions, we find first, that during the 19th century, globalization was accompanied by a growing divergence in income between the countries of the world, and second, that even among the leaders in this process, the rich

countries, there is no conclusive evidence that income differences did not widen. So, basically, it is divergence all around that was brought by the previous bout of globalization.

Let us now move to the interpretation of the more recent economic record made by the un- conditional partisans of ‘‘real’’ globalization. 14

5. MISINTERPRETING THE RECENT ECONOMIC RECORD

Consider Tables 2 and 3. Let us then suppose that we show them to a Martian visitor en- dowed with elementary arithmetic knowledge and tell him three things: first, that more growth (higher income) is better than lower growth (and lower income); second, that WE- NAO is the richest region and that we would ideally like to see differences between the rich and poor regions decrease; and third, that there are two periods of globalization. The first pe- riod (1960–78) comprises ‘‘import substitution’’ in Latin America and most of Asia, and Africa; Communism in Eastern Europe/FSU, China, Vietnam; and ‘‘welfare state’’ in the rich coun- tries. The second period is the era ‘‘structural adjustment’’ in Latin America and Africa, ‘‘transition to market economy’’ in Eastern Europe/FSU, and ‘‘retrenchment of welfare state’’ in the rich world. Then we ask him to choose which period he thinks was better.

His decision should not be too difficult. He would first observe that whether he looks at the world mean unweighted GDP per capita only (so that each country counts the same) or at the population-weighted world GDP per capita, growth rate was between two and three times greater in the first period. Then, he will notice that whatever region he selects, and whatever concept of growth he uses, growth rate is al- ways higher in the first period than in the sec- ond. That would provide him with some additional confidence that the first period was better.

Table 1. Level of industrialization (manufacturing output per capita), 1800–1913 (UK 1900¼ 100) 1800 1830 1860 1880 1900 1913

Total developed countries 8 11 16 24 35 55 Total Third World 6 6 4 3 2 2 Memo: United Kingdom 16 25 64 87 100 115 United States 9 14 21 38 69 126

Source: Bairoch (1997, vol. 1, p. 404).

WORLD DEVELOPMENT672

He might then remember our instruction that we would also like regional incomes to con- verge. Yet there too, he will notice that ac- cording to unweighted GDP per capita, in the first period, two out of four poorer regions grew faster than WENAO, while in the second, all of them grew slower than WENAO. If he wanted to confirm that finding by looking at what happened to an average citizen of each region, he would notice again that in the first period, average per capita incomes in Eastern Europe/FSU and in Asia grew faster, and in Latin America about the same, as in WENAO. But in the second period, average incomes in Africa, Latin America and Eastern Europe/ FSU were about stagnant or mildly declining (with per capita growth rates ranging from )1 to +0.8 p.a.), while WENAO grew by 1.6% p.a., and Asia, mostly thanks to China, by 3.6% p.a. Thus, he would conclude that, by the regional convergence criterion, the first period was bet- ter.

In addition, we might provide our Martian visitor with some further statistics. Consider Figure 2 which shows the average GDP per

capita growth rates of all countries in the world (save the rich WENAO) during 1960–78 and 1978–98. Out of 124 countries, 95 grew faster in the first period. Notice not only that most of the dots are to the right of the 45-degree line, but also that there is a large number of the dots in the Southeastern quadrant. These are coun- tries whose growth rates have switched from being positive––and often highly so––in the first period, to being negative in the second. 15

Then, our Martian visitor would come back to us, and na€ııvely announce that he has defi- nitely concluded that the first period was better since most countries grew faster then, and most of the poorer regions tended to catch up with the rich world. He would think that the test was rather easy and that he had done pretty well. 16

Unfortunately, our Martian is not a good economist. Our mainstream economist would have to convince him that the second period–– the period of structural adjustment and glo- balization––was actually better. It would be a hard sell, but it could be done. First, our economist would concede the fact that there was a divergence in countries� performance

Table 2. Unweighted regional GDP per capita levels and growth rates, 1960–98a

GDP per capita (in 1995 international prices) Growth rate of GDP per capita (%, p.a.)

Year 1960 Year 1978 Year 1998 1960–78 1978–98

Africa 1,514 2,147 2,432 2.0 0.6 Asia 1,971 5,944 7,050 6.3 0.9 Latin America 3,458 5,338 6,329 2.4 0.9 E. Europe/FSU 2,093 5,277 4,851 5.3 )0.4 WENAO 8,257 14,243 20,990 3.1 2.0 World 3,277 5,972 7,456 3.4 1.1

Source: Own calculations using the data from World Bank SIMA (Statistical Information Management and Ana-

lysis) database, countries� statistical yearbooks, Maddison (2001) and Penn World Tables. a Each country is one observation.

Table 3. Population-weighted regional GDP per capita levels and growth rates, 1960–98a

GDP per capita (in 1995 international prices) Growth rate of GDP per capita (%, p.a.)

Year 1960 Year 1978 Year 1998 1960–1978 1978–1998

Africa 1,539 2,007 2,033 1.5 0.1 Asia 963 1,945 3,967 4.0 3.6 Latin America 3,297 5,460 6,353 2.8 0.8 E. Europe/FSU 2,206 5,361 4,290 5.1 )1.1 WENAO 9,792 16,438 22,594 2.9 1.6 World 3,058 4,940 6,498 2.7 1.4

Source: Own calculations using the data from World Bank SIMA (Statistical Information Management and Ana-

lysis) database, countries� statistical yearbooks, Maddison (2001) and Penn World Tables. a Each country is one observation, but each observation is weighted by country�s population.

TWO FACES OF GLOBALIZATION 673

since the end of the 1970s and that poor countries have tended to grow slower (or even to decline) than the rich countries. As shown in Figure 3, the Gini coefficient of the GDPs per capita of all countries in the world, after being roughly stable during 1960–78, has inexorably risen since 1978, from a Gini of about 46 to a Gini of 54 today––a huge increase of almost 20%.

The economist will claim however, that the divergence in incomes is due to some ‘‘bad’’ countries which, unwilling to globalize, have chosen the wrong policies. So, he would like to expunge the world of these ‘‘bad’’ countries and to show that there was indeed a convergence in incomes among countries that adopted ‘‘good’’ policies and globalized.

This approach, the ‘‘weeding’’ of the ‘‘bad’’ from the ‘‘good’’ countries was adopted by Dollar and Kraay (1999) and by the recent World Bank report on globalization (World Bank, 2002). These studies select countries that are globalizers using the ratio of exports and imports over GDP (that is, trade openness) and then show how highly open countries� GDP per capita has either tended to catch up with rich countries� GDP per capita, or how their growth rates have gradually accelerated from decade to

decade as openness ostensibly progressed. We shall show in detail, largely following Rodrik (2000), what is wrong with this selection crite- rion. But before we move to that, consider the prelude. Since the catch-up is defined in terms of mean population––weighted income of the ‘‘globalizers,’’ and since China is among these, and since China has had such a remarkable growth record over the last two decades, the authors should not have even bothered to in- clude other countries. All that is needed to obtain the desired conclusions is that China�s growth accelerate (as shown in World Bank, 2002, Figure 1.12). 17

Because China is a favorite example of the ‘‘openness is good for you’’ school, it is worth considering in somewhat greater detail. Now, one may find it rather strange that the key proof of beneficence of global capitalism is provided by one of the few remaining Com- munist countries. Of course, the partisans of ‘‘real’’ globalization argue that China is a Communist country in name only, and that what matters is its integration with world economy and de facto introduction of markets. Yet, the fact that a Communist country�s re- cord is wheeled out to defend capitalism is not merely a boutade. Almost one-third of China�s

-6.00%

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6.00%

8.00%

10.00%

-4.00% -2.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00%

Growth rate 1960-1978

G ro

w th

ra te

19 78

-1 99

8

Figure 2. Average real GDP per capita growth rates in 1960–78 and 1978–98 (124 non-WENAO countries). Source: World Bank SIMA (Statistical Information Management and Analysis) database, countries� statistical yearbooks,

Maddison (2001) and Penn World Tables.

WORLD DEVELOPMENT674

industrial output is still produced by state- owned enterprises, and almost 20% of total GDP, a fraction higher than in any country in the world save for North Korea, Cuba, and a few former Soviet republics––a level of state involvement unlikely to be endorsed by main- stream economists. 18 Second, one of the pre- conditions for China�s growth was arguably the set of policies that is also anathema to today�s mainstream view: nationalization, widespread and free education at all levels, impediments to the free circulation of labor which kept lots of people from migrating into cities, land reform and abolishment of large landholdings––all hardly a favorite policy prescription for a de- veloping country. Finally, little noticed is a paradox pointed out by Weitzman and Xu (1997) that, by far, the most dynamic sector of the Chinese economy is that of Township and Village Enterprises (TVEs) whose property rights are the very example of nontransparency: a TVE is legally owned by a ‘‘community,’’ village or a township, is run by managers, or capitalists, and seeks private capital but pays no dividends. In effect, TVE is all that an effi- cient enterprise should not be. Yet it is this sector that shows the most significant progress. Thus, China, on these grounds alone, can

hardly be taken as an example of success of the current mainstream economic policy prescrip- tions.

The very process of ‘‘selecting’’ the good globalizers based on trade ratios is flawed, as argued by Rodrik (2000). He points to several technical and data-selection problems in the Dollar and Kraay analysis, of which two seem most important. First globalizers are selected based on a combination of an outcome indi- cator (trade over GDP) over which policy- makers have no control and another which they do control (level of tariff rates). 19 There is an additional problem with this selection criterion. As Birdsall and Hamoudi (2002) show, most of ‘‘nonglobalizers’’ were unwilling nonglobalizers in the sense that their trade/GDP ratios had declined because their exports were heavily dependent on natural resources and primary commodities whose terms of trade declined in the 1980s. Consequently, countries� export rev- enues dropped, and they in turn had to curtail imports, reducing trade/GDP ratios on both accounts. In addition, they ran into balance of payments problems that required contract- ionary policies, and it is therefore not surpris- ing that there was a positive correlation between openness and growth. Birdsall and

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Gini increase due to a greater number of observations/countries. Each country/year is one observation.

TWO FACES OF GLOBALIZATION 675

Hamoudi (2002, p. 5) write: ‘‘Dollar and Kraay have not isolated the benefits of �participating in the global trading system�, but rather the �curse� of primary commodity dependence.’’ Se- cond in both India and China, which, as men- tioned, are used as the prime examples of ‘‘good’’ globalizers, the main trade reforms took place after the onset of faster growth. The Chinese case is, as Rodrik (2000) writes, well known: high growth began in the early 1980s, while trade liberalization followed more than a de- cade later. Throughout the 1980s and until 1995, the average weighted tariff rate in China was about 40% (Figure 4)––a rate twice as high as the average for developing countries, and more than four times the average of industri- alized countries. 20 It was only in 1996 that the average tariff decreased to 26%, and has since decreased further to a level of about 16%.

Rodrik (2000) shows that the same pattern holds for India: while growth accelerated in the early 1980s, trade reform did not start until 1991–93. There, too, growth and expansion of trade took place under the protection of an even higher tariff wall than in China: in the 1980s, the weighted tariffs averaged 80–90%, and gradually came down, to the still very high level of about 40% (Figure 4). Dollar and Kraay (1999) have clearly fallen prey to one of (what Bairoch & Kozul-Wright, 1996 call) the enduring myths of economic theory, namely that ‘‘liberalization [is] an important driving force behind rising trade.’’ On the contrary, trade often increased the most during the mild protectionist phases, since the latter saw accel- eration in growth, and it is growth that gener- ally leads to trade––not vice versa (Bairoch, 1997, p. 310; Yotopolos, 1996).

How hazardous the Globalization, growth and poverty report�s (World Bank, 2002) con- clusions are can be observed from the two fig- ures below which chart China�s and India�s per capita growth rates and their average weighted tariff rates over 1980–99. Notice that in the India graph, it is very difficult to see any cor- relation between the two: the growth rate os- cillates around 4% p.a., no matter what happens to the tariff rate. The China graph is not much different, except that there, if any- thing, we notice a correlation between the slowdown in growth rate in the last five years and a reduction in tariff rates––a relationship that is exactly the opposite of the one the World Bank report claims to have found. We cannot put much store by this finding: it obvi- ously covers a very short period, and the rate of

growth responds to a myriad of factors other than tariff rates. But the figures illustrate the perils of a monocausal approach to the evi- dence.

The authors of World Bank (2002) are aware that their preferred causality, low tariff rate- s) high export and import growth) high GDP growth cannot be proven. 21 They are aware also that both China and India grew behind very high protective walls. How then do they deal with these issues? With respect to the first point, they do so in a rather peculiar manner, as throughout the report there are scattered statements denying that causality can be inferred from or proven by their numbers. But these statements are often ignored, and there are a number of precisely such––causal–– statements. 22 The second point is elegantly circumvented by showing the change in average tariff rates among the ‘‘globalizers’’ and ‘‘non- globalizers’’ (World Bank, 2002, p. 36). But since we saw that China and India had partic- ularly high tariff rates, it is not surprising that they reduced them more than say, Barbados or Belize which started the 1980s with tariff rates of 15%.

Our conclusion regarding the most recent period of globalization is twofold. ––The last two decades, which witnessed ex- pansion of globalization, are, in terms of overall growth and income convergence be- tween poor and rich countries, vastly less suc- cessful than the preceding two decades. ––The attempt to explain divergence of in- comes by ‘‘eliminating’’ the countries with ‘‘bad’’ policies and focusing solely on those with ‘‘good’’ policies is flawed because the successful countries, and China in particular, did not follow the orthodox economic advice. One can be pretty confident that if China had exactly the same policies, but a miserable re- cord of economic growth, those who hail it now would flaunt it as an example of how harmful to growth are state ownership, unde- fined property rights in TVEs, and high tariff barriers.

6. THE TWO NARRATIVES AND THE NEED FOR ‘‘READJUSTMENT OF

ADJUSTMENT’’

We can illustrate the difference between the dominant focus on the benign aspect of glo- balization alone from a more even-handed presentation of globalization�s two sides: the

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benign and the malignant. Consider the fol- lowing two historical narratives of the same set of events.

The dominant narrative goes approximately as follows. Toward the end of the 18th century, there was Industrial Revolution that spread

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bars (levels shown on the left axis), growth rates (in fractiles) are lines (levels shown on the right axis).

TWO FACES OF GLOBALIZATION 677

from Europe slowly and unevenly, to the rest of the world. At the end of the Napoleonic wars, the world entered a period of almost uninter- rupted peace lasting 100 years. During that period global capitalism appeared: it spread to the rest of the globe, connecting Europe with the Americas, Asia, Africa. The leading coun- tries of the period grew the fastest, their in- comes converged as trade blossomed, people freely migrated to better places, and capital flowed wherever it wanted. Then, suddenly, the calamity of WW I struck, the world was in- flamed, Communism and Fascism emerged, nationalism and protectionism became ram- pant, trade declined, countries� incomes di- verged, until another, worse, calamity of the WW II struck. For a period after the war, global capitalism could not get a free rein be- cause large parts of the globe fell under the Communist sway. It is only in the 1980s, as China liberalized and the Soviet empire broke up and abandoned Communism, that global- ization, with its attendant growth for most, if not all, could resurge. ‘‘Happy days are here again,’’ but we must not forget that the ogres of nationalism and protectionism lurk behind the corner. So give freedom to capital, let profit be your guide, and growth is guaranteed to all.

This is, with some poetic embellishment, the most common view of events of the last two centuries, perhaps (one might surmise) because the people who subscribe to that narrative have tended to experience only the benign side of globalization. The objective of that narrative is not to stimulate discussion, but to stifle it, similarly to the dominant narratives used in the Communist countries where too the main pur- pose of the accepted view of history was to generate the acquiescence to the dogma. The point is well made by Said (2002):

In this day, and almost universally, phrases such as ‘‘the free market,’’ ‘‘privatization,’’ �less government� and others like them have become the orthodoxy of globalization, its counterfeit universals. They are sta- ples of the dominant discourse, designed to create consent and tacit approval. . . The main goal of this dominant discourse is to fashion the merciless logic of corporate profit-making and political power into a normal state of affairs.

It is relatively easy to explode this rosy story of the world, told by the first narrative. One needs only to ask three simple questions: (a) where are conquest, colonialism, and slavery in this narrative? (b) how does the narrative explain the outbreak of WW I? and (c) why did capitalism

suddenly become more tamed and civilized (‘‘social market economy’’) after the end ofWW II? To answer these questions, consider the fol- lowing narrative of the same events.

After the technological and social revolu- tions occurred in Europe, its Northwestern part became the most advanced region of the world. It set out, at first timidly and often out of ad- venturism, then more seriously to conquer the rest of the world. As Europe conquered other countries, the winners established rules that were economically advantageous to themselves, developed further the already-existing slave trade, and by flooding markets of their colonies (devoid of independent commercial and eco- nomic policy) with their own manufactures, contributed to colonies� deindustrialization. All the while, gross coercion, wars, and even genocides went on in the colonies––perhaps not much noticed in Europe. So, the days of universal peace were quite far from being truly so.

European powers bent on conquest were, at the same time, in a struggle with each other. Their imperialism begot the Great War––the very war whose impossibility, because of intri- cate economic ties between leading countries, was proclaimed in the famous Angell book published just years prior to the carnage. After a truce of 20 years, the Second WW erupted––a straight continuation of WW I. Fascism was defeated but Communism came out stronger and spread to cover one-third of world�s pop- ulation. Under Communist threat from the outside, and under pressure of growing social- democratic and Communist movements at home, the capitalist regimes, already enfeebled by the Great Depression, conceded to dramatic and far-reaching social reforms. The nature of wild capitalism of the 19th century changed dramatically with the introduction of unem- ployment benefits and pensions, paid vacations, 40-h working week, guaranteed and free edu- cation, health care for all, trade unions, and protection of workers� rights. In the Third World countries that became liberated, dreams of industrialization and catching-up could be realistically entertained as countries grew quickly and import-substitution became the dominant approach to development. But then under the shock of rising petroleum prices, high interest rates, and large debts, Third World growth sputtered. In the West, the ideological pendulum swung against the welfare state. The social-democratic movement weakened, the collapse of Communism eliminated the external

WORLD DEVELOPMENT678

threat, and made global capitalism again, as in the 1870s, entirely free to pursue unhindered its objectives of profit maximization––without much regard for social consequences.

To question the profit objective is not to denigrate its importance, much less to argue that it should not be an important, perhaps the most important, criterion. But it should not be the sole criterion. It needs to be tempered by other considerations, akin to the way that na- tional capitalisms after WW II were ‘‘civilized’’ by the role of the state and strong social-dem- ocratic parties. The erection of ‘‘financial via- bility’’ as the only acceptable norm will not lead to imperialist wars as it did in 1914, but will exacerbate the negative effects of global capi- talism which we already see, and which have grown in importance during the last decade or so––precisely the period during which the ear- lier constraints on the free play of capital were weakened or abandoned. 23 Let me mention a few of these effects: very high and/or increasing spatial and interpersonal inequality, blatant theft of public resources masquerading under the name of privatization and cheered on by most economists and international organiza- tions, growth of slums, deteriorating labor conditions, return of the long-forgotten dis- eases such as tuberculosis, declines in education enrollment rates, dramatically increased mor- tality in most of the former Soviet republics and Africa, deforestation, growth of worldwide networks of mafias and drug cartels, even modern-day slavery through development of piracy and abduction of women and children for prostitution. 24 Capitalism left to itself will always produce these effects. If people want to sell themselves, why should not they? If parents do not want to send children to school, why not allow them the choice? If university education is no longer free, perhaps a child from a poor family can borrow to pay for it? If people do not have money to pay for a cure or a drug, what else can be done to ensure cost recovery? 25

While overt colonialism is a thing of the past, the rules are far from being even-handed as between the poor and the rich countries. They are slanted in favor of those who wield power. Khor (2001) gives some examples from the multilateral trading system: the well-known example of intellectual property rights, 26 dif- ferential treatment of subsidies (subsidies for R&D are exempt from counteraction while the subsidies used by developing countries, for in- dustrial upgrading, are not), standards that are

being set without effective participation by the less-developed countries (LDCs), and the high costs of raising and pursuing a trade dispute. We can compare the last point to the problem that Jewish survivors in Eastern Europe faced in trying to get the money impounded by the Swiss banks: how is a grand-mother surviving on $100 a month, and not speaking English or French, going to sue a Swiss bank?

Because we are now dealing with global capitalism, the role of ‘‘moderator’’ can no longer belong to the nation-state, but to inter- national (global) actors. It is where the inter- national financial institutions (IFI), such as the World Bank, enter. Continued misinterpreta- tion of the disastrous results brought to most of Africa, Latin America, and Eastern Europe by about two decades of unabashedly free market policies will not prompt a review of these pol- icies, and will, on the contrary, allow their continuation with probably equally bad re- sults. 27 It is therefore incumbent on us to ex- amine the actual results, and not the ideology of what these policies should have brought had they worked as originally intended. We must thus address some uncomfortable issues. Let me mention but three. (i) How to explain that after sustained in- volvement and many structural adjustment loans, and as many IMF�s Stand-bys, African GDP per capita has not budged from its level of 20 years ago? Moreover, in 24 African countries, GDP per capita is less than in 1975, and in 12 countries even below its 1960�s level. 28

(ii) How to explain the recurrence of Latin crises, in countries such as Argentina, that months prior to the outbreak of the crisis are being praised as model reformers. 29

(iii) How to explain that the best ‘‘pupils’’ among the transition countries (Moldova, Georgia, Kyrghyz Republic, Armenia) after setting out in 1991 with no debt at all, and following all the prescriptions of the IFIs, find themselves 10 years later with their GDPs halved and in need of debt-forgive- ness? Something is clearly wrong. 30 Maintaining

that globalization as we know it is the way to go and that, if the Washington consensus pol- icies have not borne fruit so far, they will surely do so in the future, is to replace empiricism with ideology. Unfortunately, it has been done before, but the consequences were not very good.

TWO FACES OF GLOBALIZATION 679

NOTES

1. In effect, the very first sentence of the abstract reads:

‘‘Income of the poor rises one-for-one with overall

growth.’’

2. In another of their papers, Dollar and Kraay

(2002) do make a point that for (a) countries cursed

by ‘‘poor geography’’ (e.g., Mali or Chad) or (b) those

with inefficient or exploitative institutions, trade liber-

alization alone cannot be expected to bear much

fruit.

3. As Anderson (2002) rightly points out, to the

European antonym: internationalism vs. nationalism,

the United States, somewhat uniquely, presented a

different one: internationalism vs. isolationism. Hence

specifically European xenophobia rooted in ethnicity

and ‘‘blood and soil’’ was never much of an ideology in

the United States.

4. Even in terms of the Dutch income at the time, the

amounts were staggering: the transfers amounted to

between 5.5% and 8.9% of Dutch GDP over the period

of 60 years. This dwarfs the Marshall plan whose net

transfers were about 4% of recipients� countries GDP over the period of about five years (Bairoch, 1997, vol. 3,

1. 120). Of course, it makes puny today�s official aid contributed by the rich countries which is about 0.3% of

their GDPs.

5. The countries are: Austria–Hungary, Belgium, Den-

mark, Finland, France, Germany, Greece, Ireland, Italy,

Netherlands, Norway, Portugal, Spain, Sweden, Swit-

zerland, United Kingdom in Western Europe; United

States and Canada in North America, and Australia and

New Zealand in Oceania. Note that Finland, Ireland

and Norway were not independent countries for most of

the period; Greece, up until 1830, while Germany and

Italy are presumably included in their post-Unification

shapes.

6. This is a variant of the so-called r convergence, but a preferred one, we hold, because Gini is a better and

more common measure of inequality than standard

deviation.

7. One explanation of the fact that inequality measured

by using current exchange rates (Prados) declines, while

inequality measured using PPP-constant exchange rates

increases (or stays the same) is that price structures

between the countries have become more similar (see

Dowrick & Akmal, 2001, p. 16).

8. By the way, even the alleged divergence (Lindert &

Williamson, 2001, pp. 18–20) during the interwar ‘‘glo-

balization backlash’’ is not evident: according to Bai-

roch, incomes converged during that period, according to

Prados de la Esconsura, they diverged.

9. Braudel (1984, p. 534), using Bairoch�s calculations, gives Chinese GDP per capita as $282 (at US 1960

prices). According to Bairoch (1997, vol. 2, pp. 252–

253), British GDP per capita in 1800 was $240.

Maddison (2001, p. 90) estimates British GDP per

capita in 1820 at $2,121 (in 1990 international dollars),

China�s GDP per capita at $600, and India�s at $533. If we then set United Kingdom¼ 1 in both Bairoch and Maddison, China is 1.17 in Bairoch and 0.29 in

Maddison; India is 0.7–0.9 in Bairoch, and 0.25 in

Maddison. Although the differences between the two

authors are often large for other countries as well (e.g.,

Maddison gives Australia�s GDP per capita in 1850 at $3,070; recalculated in the same prices, Bairoch�s estimate for the same year is $1,680), differences in the

estimates of the Chinese and Indian GDP per capita are

even larger.

10. Their maximum was often set at 5%, but at times

when such a maximum was imposed for fiscal reasons

(as in India in 1894), British industrial interests de-

manded that a similar local tax be imposed on Indian

products so ‘‘as not to discriminate British exports’’

(Bairoch, 1997, vol. 2, p. 860). After the first Opium war,

Britain imposed to China a maximum tariff range

between 5% and 9%. In a historical curiosum, note that

similar tariff preferences were imposed by Venice, and

later by Genoa, on the declining Eastern Roman Empire

from 12th century onward (see Runciman, 1932).

11. Parts of the ‘‘colonial contract’’ (e.g., ban on

production of competing manufactured products) ap-

plied to the European offshoots as well. This was, in

effect, one of the main motivations behind the drive for

American independence. North American producers

were not allowed to process pig iron, and had to sell it

to Great Britain only where of course it would be

processed and reexported (Bairoch, 1997, vol. 2, p. 667,

& vol. 1, p. 462).

12. The correlation between level of industrialization

and GDP per capita in both 1900 and 1913 is about 0.7

(calculated from Bairoch, 1997).

13. Furthermore, if we extend the origin of globaliza-

tion back in time, say dating it from the European

WORLD DEVELOPMENT680

conquest of the Americas, then the same conclusion is

only reinforced. The Spanish conquest produced a

dramatic decline in population and average incomes in

the South and Central America (note that prior to the

conquest, Central America�s urbanization rates were probably greater than Europe�s, Bairoch, 1997, vol. 2, p. 546), while growth of slave trade did the same for

Africa.

As Bairoch (1989, p. 238) writes: ‘‘. . .I hasten to insist

on the fact that if colonization did not play an important

role in explaining �why we [the West] became rich,� it played a crucial role in explaining �why they [the Third World] remained poor� and even why, at a certain stage of history, �they became poorer.�’’

14. For those who have not had the chance to follow

Communist jargon, the ‘‘real’’ is a pun on the ‘‘real

socialism,’’ the appelation invented by the Soviets in the

1970s, and similarly meant to convey the feeling that

their Communism, like today�s globalization, was the only right one––because ‘‘real.’’

15. All the current countries are projected backward

using their past republican/provincial growth rates. This

therefore represents probably the most detailed country

growth database (see Milanovic, 2002). The main build-

ing blocks for the database were World Bank SIMA,

countries� statistical yearbooks, Penn World Tables, and Maddison (2001). All GDPs per capita are expressed in

1995 international dollars.

16. The first, to my knowledge, to have noticed and

discussed, with a great wealth of detail and economet-

rics, the discrepancy between the ‘‘improved’’ policies in

LDCs during the last two decades, and more than

disappointing results (worse than in the previous two

decades) is Easterly (2001a,b).

17. This is incidently the wrong way to formulate the

convergence question. Convergence is always defined in

terms of countries. If we were interested in whether the

world were becoming a more equal place, the proper

way would be to study distribution of income among all

citizens of the world. The criterion used in World Bank

(2002) is neither, and is moreover the only one capable

of producing the desired results.

18. These numbers refer to 1998 and include only

the value added of industrial and construction sector

State-owned enterprises (SOEs). They do not include

mixed-ownership sector or TVEs. Calculated from the

Statistical Yearbook of China (1999), pp. 55, 432, 473.

19. As Rodrik (2000, p. 1) writes: ‘‘Saying that

�participation in world trade is good for a country� is as meaningful as saying that �upgrading of technological capabilities is good for growth� (and equally helpful to policy makers).’’

20. Based on World Bank calculations by Francis Ng

(downloadable from <www.worldbank.org/research/

trade>).

21. The choice of this particular causality is all the

more intriguing since there is no reason whatsoever why

high exports (themselves a components of GDP) or

imports should be bad for growth. I do not know if

anyone has ever made such a claim. At issue is precisely

the low tariffs)high growth causality, which would be very hard to prove.

22. I do not know how to interpret otherwise state-

ments such as: ‘‘As they reformed and integrated with

the world market, the �more globalized� countries started to grow rapidly, accelerating steadily from 2.9% in the

1970s to 5% throughout the 1990’’ (World Bank, 2002,

1. 36), or the statement approvingly taken from Lindert

and Williamson (2001), ‘‘We infer that this is because

freer trade stimulates growth in Third world economies

today, regardless of its effects before 1940’’ (World

Bank, 2002, p. 37). Or as Dollar and Kraay (2001) write:

‘‘We provide evidence that, contrary to popular beliefs,

increased trade has strongly encouraged growth and

poverty reduction and has contributed to narrowing the

gaps between rich and poor worldwide.’’

23. Gunter Grass (2002) puts it as follows: ‘‘In the

fifties, sixties, and even in the seventies, a relatively

successful attempt to civilize capitalism was made across

Europe. If one assumes that socialism and capitalism are

both indegenous, wayward children of the Enlightment,

they can be regarded as having imposed certain checks

on each other. Even capitalism was obliged to accept

certain responsibilities. In Germany this was called the

social market economy. . . The consensus broke down in

the early eighties. And since the collapse of the Com-

munist hierarchies, capitalism––recast as neoliberal-

ism––has felt it could run riot, as if out of control.

There is no longer a counterweight to it. Today even the

few remaining responsible capitalists are raising a

warning finger. . . and see neoliberalism repeating the

mistakes of communism––issuing articles of faith that

deny that there is any alternative to the free market and

claiming infallibility.’’

24. Kanbur (2001) writes of the spread of ‘‘obnoxious

goods.’’

TWO FACES OF GLOBALIZATION 681

http://www.worldbank.org/research/trade

http://www.worldbank.org/research/trade

25. The day after I distributed the first version of

this paper, a newspaper article in the Washington Post

tried to answer the question why, more than a decade

after the end of Communism in the Soviet Union,

and two decades after the rejection of Maoist legacy

in China, a Maoist movement in Nepal (a multi-party

democracy) is making progress and can claim sup-

port among most of Nepal�s peasantry. The expla- nation (Odenheimer, 2002) is worth quoting in

extenso

‘‘The World Bank and the International Monetary

Fund often made economic conditions worse for poor

Nepalese. Heeding advice from the Bank and the IMF,

the Nepali government cut state subsidies, including

those that helped farmers buy fertilizer and seeds. The

country�s education and health systems were privatized to the point that most Nepalese, even if they work 14-h

days, cannot afford to send their children to school or

take them to the doctor when they are sick. Meanwhile,

the World Bank supported huge hydroelectric and other

massive infrastructure projects that brought windfalls to

international companies and corrupt Nepali officials,

while utility costs for the average Nepali continued to

rise. In the face of this poverty and corruption, the

Maoists have been playing the role of Robin Hood.

Tenant farmers told me that they had been freed from

the grip of their landlords after a few well-placed Maoist

threats. Maoists have swooped down on agriculture

banks and recaptured the land deeds that had been put

up for collateral by poor farmers who had taken devel-

opment loans that they couldn�t repay. The Maoists set up people�s courts where disputes were tried without fees or bribes. Women used the people�s courts to success- fully prosecute cases of wife beating and rape. Agents

who enticed village girls to India and then sold them as

prostitutes in Bombay––which happens to about 5,000

young Nepalese women a year––were caught and pun-

ished. Previously they often escaped by giving a cut of

their profits to officials.’’

26. That poor countries have nomoney and expertise to

enforce even the rules that may favor them is well known.

I have recently noticed that there is such a thing as French

feta cheese. But I remember how Armenian cognac,

known to all under such a name, had to change its

appelation because ‘‘cognac’’ is a registered trademark.

27. For a review of these policies see Easterly

(2001a,b).

28. Meanwhile, from a much higher level, US GDP per

capita has increased by a third since 1975, and has

doubled since 1960.

29. Including in the World Bank report on globaliza-

tion, issued a month before the Argentine crisis, where

Argentina proudly belongs to the group of ‘‘well-

known’’ reformers (World Bank, 2002, p. 35). It has

been demoted from that august group though in Dollar

and Kraay (2002) published in February 2002. By then

the crisis was all too obvious. Note that that in 1999 and

2000, The Heritage Index of Economic Freedom, an

ultra right-wing think-tank, scored Argentina�s eco- nomic policies about the same as Chile’s, that poster-

child of the neoconservatives. Even in 2001, Argentina

was scored only marginally worse (2.25 vs. Chile�s 2), yet much better than 3.25 given to Brazil.

30. The typical excuse that the policies were right but

were badly implemented is wrong and is a very lame

excuse indeed. It reminds me of the constant litany

under Communism, that the Communist ideas were very

good, but were either poorly implemented, or people

were too wicked for such beautiful ideas. (I saw through

that when I was less than 20. I am surprised that many

smart people do not see through similar excuses today;

but then it is true that, at 20, I did not have a stake in not

seeing the truth.) A policy that does not take into

account the actual situation and people as they are is

inadequate. Furthermore, it is not true, even on IFI�s reckoning, that the governments always failed to fully

implement the programs. Even when they did implement

them, the results––as in the transition countries––were

often relentlessly bad.

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The Two Faces of Globalization: Against Globalization as We Know It

The Mainstream View

The Two Faces of Globalization

By Railroads and Gunships

Income Divergence During the 19th Century

Misinterpreting the Recent Economic Record

The Two Narratives And The Need For “Readjustment Of Adjustment”

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