NEW YORK—When Joseph Stiglitz published "Globalization and Its Discontents" in 2002, the Nobel Prize-winning economist took an issue of stodgy classroom debate—the unsettling rapid pace of change in the global economy—and gave it the voice of common-man fears.
Now he's back to offer a fix.
A former World Bank chief economist and chairman of President Clinton's Council of Economic Advisers, Stiglitz published "Making Globalization Work" in September. As the title suggests, he thinks globalization isn't working and that a protectionist backlash could follow that harms the U.S. and global economies.
"There are some real losers, and while globalization may not be the only or even the most important factor, it's one that people can grab a hold of and respond to and turn to these protectionist stances," Stiglitz said in a phone interview from Paris.
Globalization—the international flow of goods, services, capital and labor—dates at least to the Roman Empire. Today Chinese-made textiles are swamping even the smallest countries. Electronic traders half a world away can purchase or unload billions of dollars' worth of oil, currency or stocks in seconds with a mouse click. Private-equity funds—large pools of investment capital—prowl the planet in search of companies to buy, strip and flip.
Over the past 18 months, globalization has met significant pushback. French workers took to the streets to demand job security in the face of cheap foreign labor. Several oil-rich countries have moved to renationalize their oil sectors. U.S. economists increasingly agree that global forces are holding down American workers' wages.
"I think we're having the discussion now because, in spite of all the changes, it's very clear that there are some things that aren't working very well," said Stiglitz, who's now a professor at Columbia University. "Change is going to occur. The issue is really whether we are going to shape the change in ways that are constructive."
The changes Stiglitz proposes are controversial:
_He advocates a shift away from the dollar as the world's reserve currency, similar to the move away from the gold standard in the 1970s.
_Global institutions such as the World Trade Organization must be revamped, he thinks, to level a playing field in trade and finance that's tilted to favor rich nations. Stiglitz points to the latest round of global trade negotiations. They were supposed to benefit the world's poorest nations by increasing their agricultural exports, but the talks collapsed over the summer because of intransigence by wealthier nations.
_He proposes direct financial aid to help the poorest nations build ports and roads, and suggests that countries such as Haiti, Cambodia and Bolivia should have free access for their products to the U.S. market.
Jagdish Bhagwati, a fellow Columbia professor and an intellectual rival, disagrees. The author of the acclaimed 2004 book "In Defense of Globalization," he thinks countries should be forced to compete no matter how poor they are.
"After 40 years of studying this matter I've come to the view that reducing trade barriers is good for everybody, because if you don't you tend to get flabby," he said. "It's what I call the goofing-off effect. Everyone can use some competition."
Pointing to his native India, Bhagwati said it had moved from a poor, closed market to an emerging economic power thanks to its prowess in information technology.
"IT, which has no (government) protection at all, has taken off in a very big way. The whole country is like Popeye on a diet of spinach," Bhagwati said. "Today, India is a growing power, and industry has lost all fear" of competition.
That may be, but India's emergence also has fueled a backlash against globalization in the United States, as jobs are lured away to Indian call centers and back-office administrative sites. This phenomenon, called outsourcing, is moving up the job-value chain to accounting, tax preparation, legal research, the editing of specialty publications and computer-aided design for engineering and architecture.
Outsourcing was a hot issue in the 2004 U.S. presidential race. The hot issue in 2008 may be globalization's effect on American wages. Several studies, including a recent paper by John Silvia, chief economist for Wachovia, the big North Carolina-based bank, confirm that U.S. wages are increasingly subject to global pressures, which hold them down.
Global economic integration "has delivered an increasingly global labor market that prices and allocates labor and production independent of political borders," Silvia concluded in a July study. Expanding the supply of labor to global proportions weakens the ability of U.S. workers to bargain for higher wages.
When many Americans worry about globalization, whether it's the impact on job security or flat wages, they're really worrying about China. The world's most populous nation is also the fastest-developing one, and the main source of pressure on U.S. wages and tension over trade.
The U.S. Commerce Department reported in mid-September that China had a record $68 billion trade surplus for the first seven months of 2006. That surplus, along with China's refusal to allow market forces to determine the value of its currency, are raising questions in the United States about whether both countries are playing by the same set of rules.
"There's nothing wrong with trade as long as trade balances, and it is not balancing right now ... and we've got to balance," said David Wyss, chief economist for Standard & Poor's, the New York credit-rating agency. "And that means more emphasis on getting domestic demand going in those countries, and less emphasis on (them) trying to use exports as the leading sector for growth."
This trade imbalance led the United States and Europe in September to complain to the Geneva-based World Trade Organization, arguing that China unfairly keeps foreign-made auto parts out of the world's fast-growing market for cars and parts. Treasury Secretary Henry Paulson, in China in September, told Chinese officials they're thwarting their own development by limiting the entry of U.S. banks and financial institutions.
(c) 2006, McClatchy-Tribune Information Services.
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