Martin Wolf: Why Globalization Works
Article added on August 1, 2004
As the title asserts, Martin
Wolf, the chief economist commentator and associate editor of the Financial
Times, successfully explains in his book Why Globalization Works.
It is intended not as a work of academic scholarship, but as one of
Unfortunately, with the collapse of the Soviet empire between 1989 and 1991,
the enemies of liberalism have not all died. Martin Wolf's Why
Globalization Works is one of the rare comprehensive books that
convincingly oppose the rising tide of anti-globalization publications.
Martin Wolf considers the market "the most powerful institution for
raising living standards ever intended... But markets need states, just as
states need markets." The best marriage of the two is the contemporary
liberal democracy. Today's problem "is not that there is too much
globalization, but that there is far too little." States should just
better understand "their long-run interest in a co-operative global
The central arguments of Wolf's book is that "[s]ocial democrats
classical liberals and democratic conservatives should unite to preserve and
improve the liberal global economy against the enemies mustering both outside
and inside the gates."
The enemies of globalization are, according to Wolf, mainly single-issue non
governmental organization, but also old-fashioned economic interests. Matters
became more complicated after 9/11, which was another "assault on
After introducing the reader to the (anti-) globalization debate and the
specific charges against market-driven globalization, the chief economist
commentator of the FT defines economic globalization, makes clear why a
liberal global market economy makes sense, examines what happens when markets
cross frontiers and introduces the reader to the long history of
globalization, which began well before the 19th or 20th century. In fact, in
"some aspects the global economic integration is no more than it was a
century ago, before the breakdown that occurred between 1914 and 1945."
In fact, "there is too little [globalization]. Too many people are
effectively outside the world market..."
Martin Wolf stresses that four interconnected features are of decisive
importance for the modern market economy, especially in connection
with the discussion of the global economic integration. First, he considers
the private corporation, "hierarchical but embedded in markets",
"the most extraordinary organizational innovation of the past two
centuries." Second, the source of sustained growth of the last two
centuries has been technological innovation. Competition forces companies to
innovate, making innovation a central feature of capitalism. Third,
intellectual property is the core of modern market economy, which only a
powerful state can protect; contrary to what anti-globalization gurus pretend, the
market relies on a strong state. Intellectual property protection should
however be limited since over-liberal granting of it is a restraint on trade.
Wolf mentions 'one-click' purchasing on the Internet as an example of a too
freely granted protection. Fourth, financial markets are the
"bloodstream" of the modern market economy. They are fragile and
imperfect, but irreplaceable.
Wolf looks in detail at the charges of the critics of globalization. Most
arguments by the anti-globalization adepts are wrong. They are wrong
"about global impoverishment, corporate domination, the threat to the
sovereignty of the democratic state and the so-called race to the bottom in
environmental and social regulation." Chinese workers will not drive down
German wages to their levels since they are so low because they are
unproductive. Wages rise in line with productivity. This is what happened for
instance in South Korea in recent decades. Today, the country has
"largely left garment manufacture behind." Wolf concludes, taking
also other factors into account, that "worries about de-industrialization
and global competition from pauper labour are nonsense."
A combination of, among other things, strong trade unions and job protection is no
solution either, as Wolf shows with the example of India, where exactly this
combination has halted growth of employment in modern manufacturing at about
five million employees in a country with over a billion people. There is
little chance of unblocking Indian industrialization as long as the protection
of workers continues. The result is no additional jobs at all. In Taiwan and
South Korea, the opposite happened, with workers enjoying wages and working
conditions Indians can only dream of.
Regarding environmental damage, Wolf takes the past examples of the Soviet
Union and China, where Socialist regimes used resources inefficiently.
Technological backwardness and self-sufficiency as a goal have produced
terrible pollution. Absence of trade can directly harm the environment, as he
exemplifies with the case of Switzerland, where the protected agriculture uses
much more fertilizers, pesticides and energy per unit of output than does less
protected agriculture; however, Wolf forgets to point to the fact that
shipping agricultural goods from Argentina or Australia to Switzerland is not
very ecological either, wasting large amounts of fuel. Still, the above
examples of inefficient allocation of resources remains true.
Martin Wolf convincingly dismisses the advocates of localization as lunatics.
Their "recipes" destroy trade and therefore devastate developing
countries. Localization leads to impoverishment, as the examples of North
Korea and Cuba show. Wolf dismisses import substitution. He is critical of
infant industry-protection and industrial promotion, although he admits that
South Korea and Taiwan developed without following the path of free trade,
concluding that some special efforts such as infant industry promotion by developing countries
can be necessary to create indigenous technology and growth.
The complaint that corporations, not governments, rule the world, is without
fundament since governments (and behind them intellectuals) pushed for
liberalization and privatization. "Corporations would be happier with
monopolies and cartels." Above all, in liberal regimes, the power of
corporations is limited by the market.
Their is also competition among states. Globalization forces governments to be
more open and to provide value for the taxes they charge their
citizens. Therefore, predatory states have no future in a globalized world. A
liberal economy needs a strong state since failed, disorderly, weak and
corrupt states are shunned by capital and corporations - "they are the
black holes of the global economic system."
Martin Wolf convincingly demonstrates - in an important part of the book,
touching many more areas than the
ones exposed here - that almost all accusations by the enemies of globalization
are false. According to Wolf, the biggest failure of globalization so far is the lack of transfer of capital and ideas to the developing
acknowledges that the critics are not wrong on all points. He criticizes
"the hypocrisy of the developed world on liberalization."
Agricultural and labour-intensive products such as textiles, where developing
countries have their comparative advantage, have been largely locked out of
liberalization so far. Tariffs and other protectionist barriers especially in
these fields are a disgrace, since the hurt the poorest. - Last weeks WTO talks in Geneva,
which may lead to a liberalization of agricultural trade, would probably have
been commented by Wolf as an encouraging sign, although the outcome is far
from sure yet.
agrees with critics who deplore the fact that "the institutions set up to manage
the global economy do not work as well as they might, particularly in
finance." He states that "the IMF has been secretive and
arrogant", more so in the past than today. Time and again, it has lent to
incompetent countries. Despite its weaknesses, it is needed. Wolf also admits that
the WTO is
imperfect and needs to be formed too. But he adds that "complaints [about the
WTO] are generally wrong and, where not wrong, exaggerated."
Martin Wolf comes to some obvious conclusions that are rarely considered: The market for labour is "the world's most unintegrated".
The answer would be "free migration". A large part of humanity is
locked "into failed states and economies". "The poorest regions
(countries) were not hurt by globalization. They just failed to be part of
it." Their problem "is not that they exploited, but that they are
almost entirely unexploited..."
Regarding Africa, Wolf states that the root of the continent's economic
disaster is the "failure of the state to provide almost any of the
services desperately needed for development..." A country such as Nigeria
has been "ruined by the abundance of oil." Natural resources do not
bring prosperity if the political elite is corrupt and the society
rent-seeking. A successful way of countries towards development has been the
export of labour-intensive manufactures, e.g. in the cases of Hong Kong,
Singapore, Taiwan and South Korea.
Wolf acknowledges that many important reformers were not liberals, but include
people such as Jacques Delors in Europe, Deng Xiaoping in China and Roger
Douglas in New Zealand. "The Democrats under Bill Clinton agreed to the
World Trade Organization". Tony Blair's Labour government "made the
Bank of England independent." Lionel Jospin's Socialists privatized more
than any other French government.
Still, globalization "remains
remarkably limited." However, the steps towards a global economy,
especially by China and India in the last twenty respectively ten years, have
"reduced global inequality". The "some 1.5 billion people that
lag even further behind" live in societies locked out of the
In Why Globalization Works, Martin Wolf concludes that "the market
economy is the only arrangement capable of generating increases in prosperity,
providing the underpinning stable liberal democracies..." It is not the limited
economic integration, but the political fragmentation of the world that is the
chief obstacle to globalization. It is the institutional
quality (rule of law, level of corruption, ability of political leaders, etc.)
of the state one lives in that determines the prospects of one's economic
future and not one's class or profession. According to Wolf, the world needs
better states in order to ensure better globalization. Bad politics is currently the
main threat to a better economic integration.
Martin Wolf: Why Globalization Works. Yale University Press, 2004, 398
p. Get it from Amazon.co.uk,
Other edition: Amazon.com,
Suggested further reading:
- Ian Little and Maurice Scott, Tibor Scitovsky: Industry and Trade in Some
Developing Countries: A Comparative Study. London, OUP, 1970.
- Friedrich Hayek: The Road to Serfdom. London, 1944.
- Friedrich Hayek: The Constitution of Liberty. Chicago, 1960.
Check also our biography
of Martin Wolf.