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 / Fourth Quarter 2002 / Issue 29(originally published by Booz & Company)


Best Business Books 2002: Globalization

Two Cheers for Free Trade

Globalization — the process by which the world is becoming increasingly integrated — has transformed economies and societies and created vast new opportunities to improve standards of living, especially for people in developing countries. Yet it has also produced a powerful wave of opposition, most evident in the large and sometimes violent protests that have recently accompanied routine meetings of trade officials and economists around the world.

Some of the forces that have led to globalization, such as advances in communication and transportation, are so pervasive that they are unlikely to be slowed (much less defeated) by globalization’s opponents. But the dynamic that lies at the heart of globalization — the movement toward free trade among nations in goods, services, and capital — is more easily attacked.

Antiglobalization critics have lobbied successfully to make continued trade liberalization conditional upon the inclusion of labor and environmental protection concerns in the world trade agenda. The roles of the international economic institutions that have the most influence on global trade — the International Monetary Fund, the World Bank, and the World Trade Organization — have been sharply questioned. And lobbyists for special interests have scored victories against free trade, notably in the U.S., where the current administration imposed punitive tariffs against foreign steelmakers earlier this year. This will likely lead to more, rather than less, protectionism around the world. As the 21st century opens, globalization, which seemed both relentless and inevitable a decade ago, has arrived at an inflection point, with its future path in doubt.

An understanding of the core arguments of the opposition to globalization is crucial in dealing with it — as a matter of overall corporate policy, as a practical matter in addressing global competition everywhere, and in planning and conducting operations in developing markets. The future of globalization is of particular interest to managers and business strategists of multinational corporations. Although a day-to-day check of the news and business pages of your newspaper provides an instant information update (the globalization controversy plays in both newspaper sections), a deeper understanding of the story demands a fuller overview of the past and present, as well as the outlook for the future.

For Free Trade
The best and most straightforward case for the benefits of globalization and open markets is made by Douglas A. Irwin, an economics professor at Dartmouth College. In Free Trade under Fire (Princeton University Press, 2002), Irwin makes the classic economic case for the benefits of free trade — an argument that dates back 200 years to the work of British economists Adam Smith and David Ricardo and one that has had enormous influence. But he also reviews recent empirical research conducted by academic economists, much of which is too technical to be accessible to noneconomists. Still, the verdict is clear: Expanded trade leads to higher productivity, more investment, and improved living standards, both in developed countries and in the developing world.

Irwin also tackles the antiglobalist critique that free trade destroys jobs, a perspective that resonates forcefully with labor unions, the general public, and politicians. However, he shows that efforts to protect domestic workers tend to reduce a nation’s exports, and thus wind up destroying jobs in other industries. Free Trade under Fire includes a well-researched history of U.S. policy and the world trading
system over the last 50 years, a review of the role and history of the World Trade Organization and its predecessors, and an investigation of the recent attempts by critics of globalization to use trade negotiations to accomplish larger social goals. So far we’ve been lucky, Irwin concludes: Opposition to the liberalization of trade has been surprisingly weak and ineffectual. In the future, however, he warns, the forces opposing globalization are likely to gain in strength and momentum, making it more difficult to sustain a freer trading system.

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