Why Globalisation Works

Why Globalization Works is one of the best books within the huge literature on globalisation. Martin Wolf, the chief economics commentator of the Financial Times and avid free marketer, sets out to demolish the arguments of the ‘anti-globalisation’ campaigners.

He has several advantages over the anti-globalisation campaigners. Perhaps most important is his belief, stated at the beginning of the book, that ideas matter. He is fully immersed in the literature on globalisation, from technical economic texts to anti-globalisation tracts, and even quotes Marx and Lenin. He also has an excellent empirical grasp of the world economy, a quality authors on globalisation frequently lack.

Wolf typically starts a chapter by restating, without caricature, the main premises of the anti-globalisation campaigners on a particular topic. He then examines their arguments and the facts they deploy to see whether each point is right or wrong; usually it turns out to be the latter.

One argument he examines is the common view that multinational companies have in many cases become larger than states. A ‘proof’ of this argument is that 51 of the world’s largest economies are companies. But this comparison involves measuring the gross sales of companies against the gross domestic product (GDP) of countries. Although this may sound convincing to the non-specialist, it is actually misleading because it is not comparing like with like. GDP is what economists call a ‘value added’ measure, while gross sales are not.

To illustrate this point, Wolf gives an example from the car production sector in America. ‘Bethlehem Steel sells steel wire to Bridgestone tyres; Bridgestone sells tyres to Ford; and Ford sells cars to consumers.’ It would be illegitimate for those who compile national statistics in America to add the three sets of sales together, since the steel would be counted three times. Instead, statisticians work out the value added by each company – the difference between the value of the sales and the cost of the inputs brought in from outside.

The value added by companies is typically a lot smaller than their sales. General Motors, for example, had sales of $185billion in 2000 but its value added was only $42billion.

If national GDPs are measured against the value added by individual companies the comparison looks vastly different. Measured by value added, only two of the top 50 economies are corporations – Exxon Mobil at 45 and General Motors at 47 – while corporations are 37 of the top 100. A value added comparison also shows that the American economy is 156 times bigger than the world’s biggest corporation, and that even Britain is 23 times larger.

Nor is there a factual basis to the idea that the state is withering away, under pressure from corporations to minimise its activities. Despite rhetoric about cutting taxes and reining in state spending both seem to be on an upward path. On average, general government tax revenue as a share of GDP in the Organisation for Economic Cooperation and Development (OECD) countries – the world’s richest states – rose to 37.4 per cent in 2000 from 35.1 per cent in 1990 and 32.1 per cent in 1980. And this is leaving aside the question of the enormous military and legal power that states can wield against corporations if they choose.

The difficulty in getting a handle on the discussion of globalisation is that it is less about economics than it often appears. While covering such subjects as finance, trade and global brands, implicitly, and sometimes explicitly, it embodies broad assumptions about the state of the world. In particular, it is often premised on the idea that global interconnectedness, whether economic or cultural, is a problem. The view seems to be that the more people are connected, the greater potential there is for trouble of any sort to spread.

If there is a fault with Wolf’s work it is that he does not fully grasp the misanthropic assumptions that underlie the discussion of globalisation. As a result, he does not go far enough in his critique of the globalisation debate. In fact, the mainstream discussion of ‘globalisation’ can best be seen as a form of chaos theory for the social sciences. Rather than representing a coherent economic theory, it expresses an exaggerated sense that the world is out of control.

The reason such ideas are so pervasive is that those at the top of society no longer have confidence in their own mission. In the past, there was almost universal agreement in the need to strive to make society wealthier. Nowadays this objective is viewed with suspicion if not outright hostility, with the new emphasis on restraining consumption and promoting sustainability.

From this perspective, it is easier to understand the key premises of anti-globalisation lobbyists. For them, economic growth is a problem because it involves the risk of prompting social instability. Despite their often radical rhetoric, anti-globalisation types prefer to hold society back and slow down change, rather than advocate economic development as a positive force.

For today’s anti-globalisation thinkers, the problem with capitalism is that it generates too much growth. They argue that such growth risks damaging the environment, causing human misery and widening inequalities. The older left-wing critique of capitalism argued, in contrast, that the market did not generate enough growth, and that more growth was needed to bring the mass of society up to the level of the richest.

There is actually little to separate the opponents of globalisation from most of its apparent advocates. Both sides express similar anxieties about the world being out of control. The difference is more one of tactics – the question of whether demonstrations or grassroots conferences are appropriate, for example – than of intellectual substance.

The relatively small-scale coterie of anti-globalisation protesters – now often morphed into anti-war demonstrators – are an expression of a broader malaise. Anxiety about economic growth and a ‘runaway world’ is right at the heart of mainstream thinking. Anti-globalisation activists such as Naomi Klein, the Canadian journalist known for her attack on brands, essentially echo the likes of Joseph Stiglitz, formerly the chief economic adviser to President Bill Clinton and chief economist at the World Bank, and Professor Lord Giddens, UK prime minister Tony Blair’s favourite sociologist. Indeed, to be fair Wolf does discuss the arguments of these more mainstream thinkers.

The likes of Giddens and Stiglitz express the anti-globalisation critique in the language of sustainability and risk. Economic growth is not attacked directly, but made conditional on the need for a vaguely defined sustainability. And extensive new forms of regulation are advocated to curb the risks that are seen as being inherent in modern society.

From this perspective, anti-globalisation thinking is an expression of the anxiety at the heart of society, rather than a marginal protest movement. Although it has important implications for economics, its roots lie in the lack of confidence of social elites in their ability to take society forward.

Wolf has done an excellent demolition job on some of the main economic fallacies on which the discussion of globalisation is based. But he doesn’t quite get to the roots of anti-globalisation thought.

Daniel Ben-Ami is the author of Cowardly Capitalism: The Myth of the Global Financial Casino, John Wiley and Sons, 2001 (buy this book from Amazon (UK) or Amazon (USA)).

spiked-issue: Economy