Sunday, July 18, 2004

Jagdish Bhagwati, In Defence of Globalization

Oxford University Press, New York, 2004, 308 pages, $28.

This book has arrived not a day too late. A lot of rubbish has been floating in the air ever since May 13, when our election results came out. Silly ideas, discredited years ago, have been revived and assiduously marketed by the left, creating the illusion that India’s centre of gravity had shifted against the global market system. To those who are undecided in this battle of ideas Jagdish Bhagwati’s charming and highly readable, In Defence of Globalization, offers well thought out answers to the questions that have been raised over the past six weeks.
Jagdish Bhagwati is a distinguished economics professor at Columbia University, a former Adviser to the United Nations on Globalization, and one of the world’s authorities on international trade. He was one of the first persons to raise serious questions about the premises of Nehruvian socialism in the sixties. In his book with Padma Desai, India: Planning for Industrialization (OUP, 1970) he described how India was steadily degenerating into a “license raj”. A generation later, the same sorts of do gooders are blaming global capitalism for worsening poverty, for child labour, for degrading our environment, for cultural homogenisation and many of the world’s ills. In this book Bhagwati seriously takes on the bogus arguments of the anti-globalization movement and shows them for what they are--a threat to human development. He argues that globalization is not the problem but the solution, and he does it with wit and humour.

In recent weeks the Left in India has stridently argued that the economic reforms need a human face. Bhagwati shows that global capitalism does have a human face and he demonstrates its beneficial effects on poverty, child labour, women’s rights, and host of social issues. The left argues that growth by itself will not create enough jobs or alleviate poverty. Bhagwati shows that growth is the principal means of reducing poverty. He illustrates this with the examples of China and India.

Since 1980, China and India have been among the fastest growing economies in the world and both have reduced poverty spectacularly. China’s poverty ratio declined from 28 percent in 1978 to 9 percent in 1998, according to the Asian Development Bank. India’s poverty fell from 51 percent in 1978-79 to 26 percent in 1999-2000, according to official Indian data. In contrast, for a quarter century before this, when our growth was an abysmal 3.5 percent poverty, poverty had obdurately hovered around 55 percent. China had the same experience in its pre-reform period. As a result of high growth in Asia, Sala-I-Martin’s huge 97 country study, concludes that the poor in Asia as a whole declined to 15 percent of the world’s poor in 1998 (from 76 percent in the 1970s) while they rose in Africa from 11 percent in the 1970s to 66 percent of the world’s poor by 1998. Surjit Bhalla’s and Dollar and Kraay’s recent work has come to the same conclusion.

I had a sense of déjà vu as I noted Bhagwati demolishing the same arguments of the anti-globalizers that India’s reformers had faced in the early nineties when India began to seriously reform its economy. When we liberalised the rupee, the left warned us about a flight of capital, as rich Indians would run away with their money. The opposite happened, in fact, and our reserves shot up from $1 billion to $117 billion today. When our tariffs began to come down and import licensing was scrapped, the left prophesied that India would be flooded with luxury goods, and there wouldn’t be any foreign exchange to buy capital goods for our industry. Again the opposite happened; with declining tariffs, India became more competitive, and our exports grew.

When we lowered tax rates, the left forecast that our government would be reduced to a pauper; instead, government revenues shot up and income tax has consistently grown faster than our GDP since the reforms. When we liberalised foreign investment, the left predicted that predatory multinationals would swamp Indian businesses and our industry would be destroyed. None of this has happened, and Indian brands are thriving in many product categories. In fact, our worry is that we are not getting enough foreign direct investment. Forget China, countries much smaller than us—Vietnam, Malaysia, Thailand, Poland—attract far more foreign investment.

Given this terrible track record of the left, why should we should we now listen to it? It has been consistently wrong. It has always led us astray, and it now wants to bring back the sort of policies that made India, “the world’s greatest under-achiever” in the words of the Economist. Is it surprising that the markets continue to be spooked by the Common Minimum Program? I sometimes don’t know who is more likely to destroy our future--the lunatics of the left or the fascists on the right.

1 comment:

Health Blog said...

The left argues that growth by itself will not create enough jobs or alleviate poverty.