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One World?

Free Trade Today

by Jagdish Bhagwati
Princeton University Press, 128 pp., $35.00; $14.95 (paper)

1.

Globalization was the most dramatic idea to emerge from the collapse of communism and the end of the cold war. Suddenly, it seemed, there was “one world.” US State Department official Francis Fukuyama said it first: there was now no ideological obstacle to the spread of markets and democracy. Further, it seemed highly plausible to suppose that the fall of political barriers to trade and the movement of capital would unite the world into a single economic unit. On top of this came the revolution in communications: cell phones and the Internet would, at the very least, speed up the emergence of a global consciousness. At the earth summit in Rio de Janeiro in 1992, a grimmer aspect of globalization was unveiled: “global warming,” or the threat to the world’s climate from carbon emissions. Common to all these perceptions was the thought that the traditional divisions of humanity into tribes, races, nations, religions, and cultures were obstacles to the “global” thinking needed to bring about prosperity, peace, and justice to all, or indeed to avert planetary disaster.

We now know that many of the hopes aroused by the fall of communism were sheer delusion; that it was, in fact, the cold war that “froze” history; and that with its end the familiar clashes of states and religions started up again. But it was not all delusion. A World Trade Organization was set up in 1995 with 148 members. Even though it is riven by conflicts of interest, it forces the conflicting sides to confront their differences. The Kyoto Protocol limiting greenhouse gas emissions was agreed to by seventy countries in 1997—though, unfortunately, not by the United States. In international relations, the doctrine of state sovereignty is clearly in retreat—though whether it is retreating before the advance of American imperialism or regional organizations like the European Union or a reinvigorated United Nations is not yet clear. Those who commit atrocities have been put on notice that they will be held accountable for their crimes by the “international community.” Global thinking creeps forward, encountering numerous resistances, to an uncertain future.

Two important examples of this new thinking are One World: The Ethics of Globalization, by the philosopher Peter Singer, and Free Trade Today, by the economist Jagdish Bhagwati. Singer aims to overcome the tensions that have beset globalization by the application of a single perspective—that of utilitarianism. This requires us to act so as to maximize the happiness of all human beings, indeed all sentient creatures. As a philosopher, Singer seeks to interpret “happiness” in the broadest way, including in its sources everything from the environment and animal rights to international law and world health. The growing interdependence of the planet gives us, he says, a new and convincing reason to do our utilitarian duty. Singer quotes from a UN report:

In the global village, someone else’s poverty very soon becomes one’s own problem: of lack of markets for one’s products, illegal immigration, pollution, contagious disease, insecurity, fanaticism, terrorism.

So we must take the whole world to be our ethical unit, ignoring all claims of “partial benevolence”—partiality to those closest to us—unless these can be shown to contribute to the welfare of the whole world. In ethical terms, there is only “one atmosphere,” “one economy,” “one law,” and “one community.” So what will an agenda that takes the welfare of the world as a whole seriously look like?

Consider the problem of atmospheric depletion. Most people agree that what is needed is a reduction in the global level of greenhouse gas emissions. How is this to be arranged? True to the utilitarian principle that every person’s welfare counts equally, Singer proposes that everyone be allocated an equal emission “quota.” The poor and heavily populated countries like China would therefore get the largest quotas; the United States, with its much smaller population, would have to reduce its output of gases to about 20 percent of what it now produces. To avoid the total breakdown of the world economy that would result from this, Singer advocates a more extreme version of the “emissions trading” concept envisaged by the Kyoto Protocol: rich countries that want larger quotas would have to buy them from poorer ones who don’t need them.

Singer’s chapter “One Economy” is largely an attack on the World Trade Organization for putting free trade ahead of human and animal welfare. Under WTO rules, a country is entitled to ban the import of a product on health and environmental grounds, so long as the ban extends to the country’s own producers and is thus even-handed between foreign and domestic producers. But WTO law does not allow countries to ban the import of goods produced by cruel processes, even if such methods are forbidden at home. For example, when the US banned the import of Mexican tuna because the drift nets used to catch these fish resulted in the death of dolphins that got caught up in them, the WTO tribunal declared the US ban illegal. Singer is outraged at this and similar decisions. He wants the current WTO commitment to free trade to be replaced by a commitment to “minimum standards for environmental protection, worker safety, union rights, and animal welfare” across the world. Pending this, a country should be unilaterally entitled to stop the import of goods on moral grounds.

In another chapter, “One Law,” Singer suggests that the tendency to genocide may be too deeply rooted in human nature to be removed simply by the abolition of poverty. So genocide needs to be deterred by enforceable international criminal law. To this end Singer proposes to reform the UN Charter to give it a legal right to intervene in countries’ domestic affairs to prevent genocide. He carefully distinguishes the legal from the ethical right to intervene:

There is only one [ethical] standard, that it is right to do what will have the best consequences, and that standard tells us not to intervene when the costs of doing so are likely to be greater than the benefits achieved.

Singer goes on, in a chapter headed “One Community,” to discuss the ethics of international distribution. If we make the plausible empirical assumption that an extra dollar is worth a lot more to a poor person than to a rich person, it follows on utilitarian premises that there should be a large-scale redistribution of wealth toward the poorest people in the world. As a matter of practical politics, Singer advocates that rich countries raise their annual foreign aid to poor countries from 0.2 percent of GDP to 1 percent; but he chooses this 1 percent only because advocating the much higher transfers that his argument implies might be too shocking to be accepted.

Singer’s main engine for enlarging the scope of ethical concern is democracy—the global counting of heads. This is because democracies pay more attention to the welfare of their peoples than do dictatorships. Thus he thinks that membership of multilateral organizations such as the WTO and the UN should be confined to democracies—a limitation that would presumably exclude China—and that voting power within them should be proportional to population. This will ensure that these organizations legislate for the benefit of the greatest number.

Singer’s book is a heroic attempt to picture a world organized and managed according to the principle of utility. It is what a Benthamite world-state would look like. It will annoy those who dislike utilitarianism and be dismissed as irrelevant by practical people. The last criticism is unfair: ideas are important even if they have little immediate practical influence. It would be just as absurd to dismiss Singer as irrelevant to current global issues as it would have been to dismiss Kant’s project for perpetual peace as irrelevant to the world of Napoleon. And many of Singer’s policy suggestions are simply extensions of current thinking: for example, his discussion of criteria for humanitarian intervention in the domestic affairs of states is in line with speeches by UN Secretary-General Kofi Annan. Serious criticism of Singer’s approach would follow one of two lines. The first would accept his utilitarianism, but deny that it leads to his conclusions. The second would question the adequacy of utilitarianism itself as the basis for a better world.

The general criticism of Singer from inside utilitarianism is that he relies on political rather than on economic mechanisms, underestimating both the power of economics and the pitfalls of politics. He would curtail trade between democracies and nondemocracies, ignoring the losses in welfare that economic sanctions inflict on peoples living under dictatorships, as well as the possibility that open frontiers in trade tend, over time, to undermine closed frontiers in politics. For example, to stop trading with countries that use child labor may close off the escape from the poverty that produces child labor.

His proposal to set up the WTO as a guardian not of free trade but of moral, social, and environmental standards ignores the near certainty that such high-minded standards would simply be used by protectionists in rich countries to keep out exports from poor countries. If Singer is seriously interested in reducing poverty, he should be arguing for more trade liberalization, not less—particularly in agriculture, labor-intensive manufactures, and intellectual property rights. Indeed, the real charge against the WTO is not that it fails to set moral standards, but that it fails to live up to its own free trade goals. As The New York Times recently commented,

The developed world funnels nearly $1 billion a day in subsidies to its own farmers, encouraging overproduction, which drives down commodities prices. Poor nations’ farmers find they cannot compete with subsidized products, even within their own countries. In recent years, American farmers have been able to dump cotton, wheat, rice, corn and other products on world markets at prices that do not begin to cover their cost of production, all courtesy of the taxpayers…. The World Bank estimates that an end to trade-distorting farm subsidies and tariffs could expand global wealth by as much as a half-trillion dollars and lift 150 million people out of poverty by 2015.

It is little wonder that at the disastrous September meeting of the WTO in Cancún, twenty-one developing nations, led by Brazil, India, China, and South Africa, demanded stringent cuts in agricultural subsidies and improved access to industrial countries’ markets as the condition of discussing anything else.

Even from a utilitarian perspective, substantial redistribution of wealth and income toward poor countries is subject to a variety of problems. Will poor countries be able to absorb aid productively? Will the aid reach the poor? Will it promote reliant self-development? A particularly stark issue arises from the fact that the world’s poor (those living on less than $1 a day) are increasingly to be found in so-called “failed states,” many of them in sub-Saharan Africa—states defined not by murderous intent but by lack of competence to secure for their people the basic conditions of life, health, and education. In such states, can poverty be reduced without large-scale intervention, even a takeover of their government and administration? Singer is silent on these practical questions.

Singer’s contention that the world can be shifted toward the utilitarian ideal through the counting of heads fails to persuade on several grounds. Accountability through representation is hard enough to apply within a nation-state. Control of politicians by voters is subject to many well-known problems such as lack of information and the inability to monitor results, as well as the political manipulation of the press, radio, and television. At the global level, the problems of representative government are multiplied. Certainly it is important to try to make international organizations such as the International Labor Organization more accountable by insisting that they provide more information, and submit to internal and external evaluation, and to the criticism of civil so-ciety groups. Proposals to democra-tize such international organizations through more representation may achieve the form but not the substance of democracy. Indeed, one of the chief arguments for protecting national sovereignty is that the nation-state is a much better unit of democracy than the world as a whole. A UN or WTO elected by the whole world will be a charade, with the real business carried on elsewhere—as in fact it already is.

Thus even a thoroughgoing utilitarian may doubt whether Singer’s proposals would make the world a better place. But a deeper question concerns the adequacy of utilitarianism itself. Specifically, its inability to treat particular loyalties and commitments other than instrumentally—according to whether they have good or bad overall consequences—means that it lacks an adequate account of morality, including a theory of justice.

Moral behavior arises from the sense that we have obligations to others. These obligations are felt much more strongly to those closest to us—our family and friends—and extend in successive circles to compatriots, coreligionists, and so on. Indeed, in moral life we distinguish between obligations to our families and friends and acts of charity to strangers. Singer does not consider the possibility that such particular loyalties can be building blocks of morality, that is, that morality grows out of real attachments, without which it withers and dies. Instead, he proposes that social practices which presuppose the partiality of parents for their children, of lovers and friends for one another, and of nationals for their compatriots should be judged from an “impartial” (i.e., utilitarian) perspective. Partial preferences can be justified only if they make the world as a whole better off. In cases where a conflict between partial and impartial commitments arises, the former should be jettisoned. This is an argument that goes back to the eighteenth-century British philosopher William Godwin. But an impartial or provisional attitude toward particular ties is bound to rob them of their binding force.

If this criticism is right, it follows that benevolence toward all cannot be a binding moral obligation that people will agree on. It is even less obvious that benevolence is an obligation of distributive justice. Justice is a matter of what is owed, of duties to which there are correlative rights. Do the poor have a claim on the rich simply because they are poor? It may be argued that they have such a claim but only as members of states that derive their authority to redistribute income from an implicit contract with their citizens. But they are not members of any state that has redistributive duties to all the world’s poor—because no such state exists.

Singer has not resolved the tensions of globalization, he has simply evaded them by asserting the priority of impartial benevolence. His refusal to take particular obligations seriously works against the possibility of constructing a case for a form of cosmopolitanism (we would call it weak cosmopolitanism) that many people would find persuasive: that we have some moral obligations to all human beings even though we have some special obligations toward our fellow citizens. But Singer is precluded from making such a case by his single-minded utilitarian standpoint.

2.

Jagdish Bhagwati’s Free Trade Today is an excellent antidote to parts of Singer’s One World. His approach, like Singer’s, is utilitarian, but of a less extreme variety. He has no grand cosmopolitan design. Instead, he accepts nation-states and is concerned solely with the question of whether national interests would be secured by trading freely. He is a much more reliable guide than Singer to the consequences of free trade policies for welfare. His book is also a pleasure to read—unusually for an economist, Bhagwati writes with wit and verve.

The book is based on three lectures. The first gives a nuanced exposition of the underlying theory of free trade that is rather hard going for the general reader. At the heart of Bhagwati’s analysis lies the crucial distinction between free trade and laissez-faire. Laissez-faire—complete nonintervention by government in the economy—can produce an undesirable distribution of income; it can also produce market distortions or “failures.” For example, an “infant industry” may not be able to get started in the face of import competition because investors may not see its potential. This is the classic case for protection, much invoked by developing countries trying to establish a steel or automobile industry. Bhagwati’s insight is that it would be preferable for a country to correct this deficiency of laissez-faire directly while continuing a general policy of free trade. Thus the government would do better to give the infant industry a temporary subsidy rather than impose a tariff which would raise its prices to consumers and remove the discipline of having to sell on the world market.

The second and third lectures are more concerned with practical matters. Bhagwati contests antiglobalist objections to free trade in the name of “fair trade,” environmental objectives, and moral and social aims, which, he argues, are often a cloak for protectionism. He makes two main points. First, the charge of “unfair trade” is often and increasingly directed at a wide range of legitimate differences in national policy. For example, if Mexico has cleaner air than the United States it should have a lower tax on its air pollution. It would be absurd for the US to impose a tariff on Mexican goods on the ground that it had lower environmental standards. “But that,” Bhagwati writes, “is exactly what several American politicians have called for, including Democratic leadership all the way to former vice president Gore.”

Secondly, even when there are good grounds for uniform minimum standards across countries (for, say, fuel emissions, or heritage laws, or labor standards), Bhagwati believes it is generally better to avoid using trade policy alone to achieve them. It is important, he argues, to address these various concerns separately by using

international agencies suited to the specific agendas for which they were set up: the WTO for trade liberalization, the International Labor Organization for labor standards, the United Nations Environment Program for environmental issues, UNICEF for children’s rights, UNESCO for cultural preservation, and so on.

For example, he believes that the International Labor Organization, which was established in 1919, is the best agency to address issues such as workers’ rights and child labor, because it “was set up explicitly for that purpose” and can bring to bear “a vast amount of postwar experience and thought.” The WTO, he argues, has no special staff to deal with these matters. (Bhagwati does not go into any detail, however, about how the ILO could effectively work with the WTO in practice, an important question that should be addressed.) According to Bhagwati, if you attempt to use trade policy to achieve both gains from trade and a desired moral objective, you will do neither: it is a case of “missing two birds with one stone.”

The third lecture contains penetrating criticisms of the current fashion for preferential trade areas like the EU and NAFTA as opposed to unilateral and multilateral approaches to free trade. These preferential areas eliminate trade barriers between partners, but erect barriers against nonpartners. Nonpartners lose, and it is not clear whether even the partners gain—that depends on whether the trade created by the agreement outweighs the trade diverted by it. Preferential trade areas are often justified as incremental steps toward world free trade. Bhagwati argues that they are much more likely to be stumbling blocks than building blocks. The explosion in the number of preferential areas is evidence in favor of his view. “By the last count, there were over four hundred formed and contemplated; and the number was growing by the week.” This “spaghetti bowl” of preferences is becoming increasingly hard to unravel. In his recent writings Bhagwati has also pointed to the use of preferential agreements by the United States to push through a program of imposing environmental controls and labor standards on other countries.

Bhagwati does not adequately analyze the reasons for the drive to preferential areas, nor does he discuss the longstanding use by the United States of trade preferences and sanctions to secure political objectives, whether in Cuba or Iraq. The new rationale for such measures and for imposing barriers to trade and labor mobility is the need to penalize enemies and cement “coalitions of the willing” in the “war against terrorism.” Thus, French and German companies are excluded from contracting to rebuild Iraq. The truth is that when security issues start to dominate international relations, free trade is usually jettisoned.

Some other doubts remain. Bhagwati has an open mind on the desirable speed of trade liberalization, which, as he writes, may have “adverse effects,” including an increase in poverty. “The optimal speed at which one liberalizes is not necessarily the fastest,” he writes. He adds that institutions such as the World Bank and the International Monetary Fund should provide grants to improve welfare in poor countries in order to relieve the effects of trade liberalization. But his arguments in general assume that governments are reasonably competent, effective, and interested in promoting the welfare of their citizens. (For example, he notes that poverty has declined in India since the country abandoned a policy severely restricting imports in favor of greater integration in the world economy.) These assumptions do not always hold. The economic and social performance of many countries in Africa has been miser-able despite their having been opened up to trade for two decades. This is largely because these countries have lacked the minimum requirements of sound policy, effective institutions, and governance. Apart from this are the effects of the blatantly protectionist agricultural policies of the US and Europe, which amount, as has been noted, to some $300 billion a year in farm subsidies. Still, to say that trade liberalization is necessary but not sufficient for growth and eliminating poverty leaves open the big question of what is needed besides freer trade.

3.

Free trade is a benign aspect of globalization; free capital movements are not always so beneficial. On the one hand, capital inflows, especially in the form of direct foreign investment, can bring large benefits by enabling countries with limited savings to undertake productive investments. On the other hand, movements of “hot money”—i.e., funds that are temporarily invested in order to make a quick profit—can be highly unstable and cause financial crises. Paul Blustein’s The Chastening is about one such crisis, the East Asian one, which swept through global financial markets from mid-1997 to mid-1999. Blustein has interviewed some of the key officials and investors who made the crucial decisions that affected the main countries in difficulty (Thailand, Indonesia, South Korea, Russia, and Brazil) and in the “High Command,” which tried to manage the crisis: the IMF, the US Treasury, and the central banks of the main creditor countries. The result is a fascinating story that is a model of investigative journalism. What comes through clearly is that the High Command did not have much understanding about what to do to stop the flight of capital, default on loans, and the contagion of collapsing currencies, which spread rapidly from Thailand to much of East Asia and then to both Russia and Brazil.

The chief questions Blustein raises concern how the “international financial architecture” should be changed to reduce the likelihood of future crises, and to manage them when they occur, and what part the IMF should play in the process. He offers some standard remedies, such as standstill arrangements allowing debtors in crisis to delay their payments, but the last chapter would have benefited from a longer and deeper discussion.

In World on Fire, Amy Chua, a Yale law professor, offers a dramatic counterthesis to the current orthodoxy that the spread of markets and democracy are necessary to make the world prosperous and pacific. What the optimists ignore, says Chua, is that in much of the developing world wealth is concentrated in the hands of unpopular ethnic minorities. The best examples are the Chinese in Southeast Asia, the Jews in Russia, and the Lebanese and Indians in Africa. (She is surprisingly incurious about why some ethnic groups seem to be so much more economically successful than others.) “Laissez-faire markets,” she notes, “have magnified the often astounding wealth and economic prominence of an ‘outside’ minority, generating great reservoirs of ethnic envy.” In this situation more democracy could easily lead to majority uprisings against economically dominant ethnic minorities. In Indonesia, where an ethnic Chinese minority has huge economic power, “markets plus democracy equals ethnic confiscation.” It follows that the American recipe of spreading democracy as the solvent for the world’s ills is not just “breathtakingly naive”; it directs against America itself the “anger of the damned,” a potent source of recruitment into terrorism.

Chua cannot deny that the spread of democracy in East Asia and Latin America threatens the corrupt systems by which dictators shield enterprising ethnic minorities while sharing in the spoils of their efforts. Rejecting the solution of postponing democracy in developing economies, Chua proposes a mixture of educational programs to widen opportunities, social safety nets, extension of property rights, the spread of equity ownership, and affirmative action programs. Democratization should be gradual and introduced at the local level as is now happening in parts of China. Finally, the “market dominant minorities” should make their wealth more palatable to poor majorities by eliminating corruption and by increasing their spending on philanthropy.

A modest form of Chua’s thesis is not too difficult to accept. There is a lot of evidence that democracy works best in ethnically and religiously homogeneous societies and where inequality of wealth and income is not too great. Where these conditions do not exist, great attention needs to be paid to the form of the constitution and the provision of fair opportunities for all if a stable democracy is to be established. The United States was built on the legal foundations and social policies that Chua advocates for other ethnically diverse countries. It is also easy to agree that the fact that six out of the seven leading Russian “oligarchs” are Jews in a country with a long history of anti-Semitism may well make them targets of popular resentment: the recent arrest and imprisonment of Yukos chief Mikhail Khodorkovsky has been as popular in Russia as it has been disturbing to the West. As for democracy, no one who reads Chua’s book will be left in much doubt about the naiveté of the US seeking to impose it by force in the Middle East, to be followed by a quick exit from the region.

However, her arguments fail to justify the catchy title of her book. The “spread of markets and democracy” is hardly likely to cause a world crisis unless it can be shown that globalization, as defined here, leads to big increases in inequality within developing nations. But she provides no evidence, other than anecdotal, that this has happened. Chua’s claim that wealth is concentrated in the hands of ethnic minorities works well for the Chinese in Indonesia, Thailand, Malaysia, and the Philippines, but makes no sense in China itself. Elsewhere it breaks down as she is forced to add more and more qualifications to what she means by minority ethnic dominance. (In Latin America it dissolves into “pigmentocracy,” the dominance of people with lighter skin.) She fails to distinguish between new entrepreneurial elites and long-established ex-colonial elites. She confuses the domination of economies by well-to-do minorities with their domination by ethnically prominent individuals (as in post-Communist Russia).

Finally, she calls the five million Jews of Israel a “market-dominant minority” in the Middle East without apparently realizing that she has shifted the whole basis of her argument, for in no sense can the Israelis be said to dominate the economies of 220 million Arabs. That ethnic and religious conflict is palpable in today’s world is undeniable; that it is connected to economic inequality is probable; that it is a product of globalization is nonsense.




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