Globaloney more like Swiss cheese

In "Globaloney" (Oct. 2), David Eil provides a critique of Lou Esparza's column "loU.S.A." Eil promotes a defense of the concept of globalization and the liberalization of economic markets. While I do not defend Mr. Esparza's column, I do believe that because of the lapses in Mr. Eil's argument, Globaloney is actually more like multi-national Swiss cheese.

At the beginning of Mr. Eil's column, he accuses the opponents of globalization of creating arguments using "very little actual evidence and a whole lot of rhetoric and anecdote to make arguments." This statement shows a clear ignorance of the myriad professors, economists, and other authors who have shown the impacts of globalization as it is currently pursued to be questionable or flat out negative for the countries on the receiving end of the "liberalization of markets."

The authors and sources Mr. Eil cites at the conclusion of his column _ individuals such as Bhagwat, organizations like the IMF and the World Bank _ bolster this ignorance. Jagdish Bhagwati, a professor of economics at Columbia, has written such articles as "Coping with Antiglobalization: A Trilogy of Discontents" (Foreign Affairs, Jan./Feb. 2002), in which he blames the antiglobalization movement on misguided youth or "virulent anticapitalists [who] experienced their social awakenings on campuses, in fields other than economics. English, comparative literature, and sociology are all fertile breeding grounds for such dissent." Talk about empty rhetoric and anecdotes. Likewise, one must question the objectiveness of an organization whose purpose is precisely what its statistics reveal. Believing the World Bank or IMF when they say that what they do is good is like believing Exxon Mobil when it says there are no drawbacks to gasoline.

Mr. Eil then goes on to offer a creative analogy involving the United States. While his take on United States history is certainly interesting, he defeats his own argument once he points out that the United States also had "political stability and incredible natural resources." Add to the list over 100 years of isolation, a diverse mix if minds and talents, and protection by oceans, and the United States becomes a unique case in which the sole attribution of success to liberal markets is highly questionable.

Even if the argument holds, in comparison to every other state which has applied the "Washington Consensus," the United States appears to be a statistical outlier. Why? Because the combined economic growth of the nations which have applied this formula of liberalization is near zero. (For more, check out Juan Enriquez, "As the Future Catches You," or ask any student in this year's EPIIC class). Just for kicks, compare this to China, which has done the opposite of the Washington Consensus and now has one of the fastest, if not the fastest, growing economies in the world.

Next, Mr. Eil asserts that the reason the IMF and World Bank push free market capitalism is because it "is so overwhelmingly the most successful economics system that it would be irresponsible to suggest anything else." While I do not completely disagree with this argument, Mr. Eil neglects that free market capitalism and the assignment of complete property rights has substantial drawbacks and (gasp!) inefficiencies.

For example, in terms of anything that has an externality, the free market can only be efficient if there are zero transaction costs, perfect information, and rational actors. Of course, "externalities" is the economic way of saying "environmental things like pollution." but it also deals with public goods, something every government must provide. The problem with the free market and public goods is the "free-rider" problem, in which some individuals do not pay because they can mooch off of others who place a higher value on the good. Thus, so long as the IMF and World Bank are advancing free market economics and neglecting these caveats, they are being irresponsible.

I also would like to submit a second theory of international finance: if free market competitive economics is so great, how come the World Bank and IMF have monopolies on international loans? Would it be possible to set up a competing system in which the organization giving the loan would be forced to give the most preferable rates to the nation?

Now we get to empirical studies. Mr. Eil explains he has "read no serious study that concludes that increased trade and investment with the outside world is a drag on growth." From this he concludes that it is "undoubtedly the case that more economic freedom and property rights domestically lead to higher growth."

First, I would like to caution any reader to never believe a conclusion reached by what someone else has read, because you never know what he or she has not read. For example, I doubt that Mr. Eil is familiar with Prof. James Galbraith (the son of the famous J.K. Galbraith) and his work, which shows why the primary data set used by the World Bank and others is faulty and actually leads to the false conclusion that globalization has decreased income disparity. (Likewise, the article by Dollar and Kraay, "Spreading the Wealth" [Foreign Affairs Jan./Feb. 2002], which found that the most successful countries in recent years have been the globalizers, is based on this data.)

The reason the data set is faulty is because it does not have data. Really, there are many nations where data is only available for a few years with large gaps in between or over a very short period of time. Prof. Galbraith has created a more complete data set and offers it at utip.gov.utexas.edu.

The second problem with Mr. Eil's statement is his conclusion. First, by "property rights domestically", does he mean multi-national corporations which often come in and develop, as in the case of the Ogani in Nigeria? The Ogani are a native tribe who just happen to have oil on their land. The government decided to assign property rights... to Shell Oil. The results have not been pretty.

The conclusion does not follow from the premises. As Mr. Eil said himself, the reason for the success in the United States was "political stability and incredible natural resources." Might higher growth need more than just economic freedom and property rights? Perhaps a fair market, a stable government, and an equal standing in the market place (rights and equality) would help as well. Finally, Mr. Eil cites China as an example of reform. I do not think that was the best choice given the actual record and current state of China.

As for the conditionality of international loans, I agree that there need to be strings attached. However, I am not entirely sure what conditions Mr. Eil proposes to attach. In my opinion, there needs to not only be an accountability factor, but more importantly there must be a plan in place for sustainable development and growth. (Yes, those "labor and environmental standards" which nations see as an "encroachment on their internal politics.") Is it right for the developed world to raise even more nations to be addicted to oil and to force developing nations to count "value" by the definition of the developed world?

On to Marie Antoinette, where before she gets beheaded, perhaps she should reduce the subsidies of the developed world that are manipulating the prices of grain so that others cannot enter the market. Furthermore, she should also look to the analysis of Juan Enriquez, who compares Columbia and Holland, one nation with low wages and one with high wages. Mr. Eil would argue that Columbia, with its low wages (and sunny warm climate for that matter) would do wonderfully at growing something like flowers. Compare this to Holland with its high wages (and rainy, cool climate). Which nation is better off right now? Might there be other factors besides low wages which determine whether a nation will prosper? Mr. Eil answers this question in the next paragraph discussing foreign direct investment and the importance of high productivity and, oh yeah, "political stability." (I would add, like Juan Enriquez has, that technology and education is key to development as well.)

One last issue I want to hit on _ what has led to the recent growth, whatever growth there has been? Mr. Eil argues it is the "individuals and corporations, who while pursuing their own self-interest have given rise to incredible progress in economic growth." Questions: 1) What growth where? 2) Is this growth sustainable? 3) Are people's rights being violated from this growth? I do not believe that the growth is the result of the invisible hand guiding economies towards greater efficiency so much as it allowing self-interested people to take advantage of desperate situations.

For the sake of space I will leave the rest of Mr. Eil's column as it stands. I would like to thank him, though, for an argument I fully agree with: do your homework. Do not believe what you read, what you are told, or even what you see. It is your responsibility to be able to explain what you believe. So regardless of what side of the debate you end up on, just know that your globaloney sandwich always tastes better with Swiss cheese.

Daniel Mandell is a sophomore currently designing a major in Public Policy