Articles by subject: Topics: Globalisation

GIVING the Hayek Memorial Lecture at the Institute of Economic Affairs in London this week, Martin Wolf, the chief economics commentator of the Financial Times, began by quoting Adam Smith:

What is prudence in the conduct of every family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.

There you have it: the case for globalisation. The rest, you could say, is details. Unfortunately, many people remain unconvinced. What about fairness and justice, principles which everybody believes should regulate the conduct of individuals? How could today's staggering discrepancies between the richest and poorest countries ever be justified?

In his lecture, and in the marvellous new book on which it is based, Mr Wolf agrees that alleviating global poverty is the challenge of the age. And he explodes the idea that economic liberals must regard extreme inequalities as somehow justified, a sad necessity sanctified by the market. The Sudans and Somalias, he argues, do bear witness to the limits to globalisation—but only in the sense that globalisation needs to go further. The poorest countries in the world stand mostly outside the global economic system. The challenge for development policy is to connect these countries to the rest of the world.

Mr Wolf's new book, “Why Globalisation Works” (published by Yale University Press), is the fullest and most sophisticated treatment to date of the case for globalisation. All the topics he addresses—the varieties of anti-globalist thinking; the forces driving and impeding economic integration; criticisms, valid and invalid, of the prevailing economic order—have been addressed elsewhere, but never before with such depth of thinking, and in one place. “Why Globalisation Works” is a long, serious book, addressed to economists and to academics in neighbouring disciplines as much as to the intelligent general reader. But Mr Wolf writes in plain, taut English, without gimmicks or condescension. His book is the definitive treatment of the subject, and an absorbing read for anybody with an appetite for moderate intellectual exertion.

One of the book's main ideas, highlighted in this week's lecture, is the interdependence of states and markets. Mr Wolf devotes a lot of attention to the vital, albeit limited, role that the state needs to play if countries are to prosper. The poorest countries are often failed states—where those crucial tasks (providing security of property and the rule of law) are left undone. Globalisation passes such countries by, condemning them to stay poor. Mr Wolf is surely right to highlight this. But what, if anything, can the outside world do to remedy the problem?

This is much the most difficult of all the questions Mr Wolf deals with. Here, even those who agree with him about everything else may now and then wish to take issue. For instance, he emphasises that the world's economic fragmentation arises from its political divisions. Lack of “jurisdictional integration” sustains bad government: in effect, there are too many countries. He notes that the European Union, a “regional system of jurisdictional integration”, served as “an extraordinarily successful machine for generating economic catch-up among previously poorer members, from Italy in the 1950s and 1960s to Ireland in the 1990s.” If only, one is invited to muse, we could do the same for Sudan.

This is almost to see jurisdictional integration as an end in its own right. The Soviet empire achieved jurisdictional integration, and the economic results were mixed, shall we say. Intense economic integration between America and Europe has been possible without jurisdictional integration. The East Asian tigers, now followed by China and India, have achieved economic integration and astoundingly rapid economic growth without “sharing sovereignty”. Convergence on good government, not on fewer governments, is plainly what the world needs. Whether jurisdictional integration serves the goal of good government rather depends.

In one way, as Mr Wolf acknowledges, it militates against it, by suppressing regulatory competition—as when states compete to attract foreign investment. It is at least arguable that, historically, Europe owes more to trade plus jurisdictional competition than to jurisdictional integration in its own right.

In thinking about what can be done to help the poorest, Mr Wolf also calls for more aid—but somewhat inconsistently. He recognises that aid can be useless, or worse than useless, in countries with bad governments, either because the money is simply wasted or else because it helps to keep corrupt rulers in place. This implies that aid (aside from emergency humanitarian assistance) should be aimed mainly at countries with relatively clean and competent governments—the ones, you might say, that need it least. Yet Mr Wolf then calls for “assistance aimed predominantly at the world's poorest and weakest states”. His reasoning? Well, he asks, what is the alternative? The West cannot just stand by.

A fine sentiment, but for once good intentions have apparently overcome Mr Wolf's instincts for logic and tight argument. An expense of resources that is useless or harmful is worse than the alternative, which is to do nothing, however dreadful that might be. Still, Mr Wolf cannot be accused of complacency, unlike some other advocates of globalisation. He sees the failings, and wants to deal with them. Unfortunately, nobody, not even Mr Wolf, has yet come up with a good answer to the question of what the world is to do about failed states.

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