The Hindu Business Line : `Does globalisation make the world more unequal?' and other stories

WITH heroes of the early 1990s back in the driving seat, and a party that was almost ruled out of reckoning now in power, it is appropriate that one should read topics of interest to the new bosses. Such as, Globalization in Historical Perspective, edited by Michael D. Bordo, Alan M. Taylor and Jeffrey G. Williamson, and published by National Bureau of Economic Research through the University of Chicago Press (www.press.uchicago.edu) . The G-word is nothing new, notes the intro. Thus, Chapter 1 is titled `commodity market integration, 1500-2000'. It discusses how these five centuries were interrupted by shocks such as wars and depressions.

"Price gaps for identical commodities in different markets remain the best measure of commodity market integration," indicate the authors. Disappointingly, however, there is "no discernible general trend toward commodity price convergence during the past four decades."

Chapter 2 is on international migration and integration of labour markets. "Man is of all sorts of luggage the most difficult to be transported," Adam Smith had said. But the luggage continues to be mobile; thus "international migration does respond strongly to market signals, either legally, when policy environment allows, or illegally, when there are artificial barriers to mobility."

There is a risk that countries that are net givers of labour to the world could lose on three counts: Limited role of unskilled migration, decline in human capital arising from skilled emigration, and dearth of remittance flows. A problem that would accentuate international migration worries would be the "substantially lower-than-replacement fertility rate in the economically advanced countries." Wonder if somebody is already talking about globalising fertility too.

`Globalisation and capital markets' is chapter 3 that discusses `the trilemma: capital mobility, exchange rate and monetary policy.' A century ago, world income and productivity levels were far less divergent than they are today, and capital was directed to countries at or below the 20 per cent and 40 per cent income levels (relative to the US), observes the book. "Today, a much larger fraction of the world's output and population is located in such low-productivity regions, but a much smaller share of global foreign investment reaches them."

Chapter 4 talks about convergence club. Globalisation is no magic bullet to achieve convergence, so "at the end of the twentieth century, the growth benefits of opening up appear substantially lower than in that century's third quarter." Also, "there is little reason to be confident that opening doors to the world economy will guarantee a place at the high table." Perhaps, one can be assured of crumbs in such a case.

In Chapter 5, face the question: "Does globalisation make the world more unequal?" Its authors discuss two components of inequality — intra and inter country. "Inequality between nations calls for attention to the determinants of per capita incomes. Inequality within countries calls for attention to the determinants of factor prices and their link to the size of distribution of income."

If you come across increasing inequality, don't blame globalisation but fault poor government — for `vast regions with inferior education and chaotic legal institutions' — advises the book.

`The great divergence' can blame technology, chapter 6 would suggest. "Tacit knowledge transfers poorly from society to society, certainly more poorer than cotton-spinning equipment, railroad cars, or bags of synthetic fertiliser," is a thought to ponder. Chapter 7 looks at G in another g, that is, geography, asking questions such as: "Why did the world not develop some quite different economic geography, with different centres of production, or with activity more evenly distributed?"

There are several distinct sources of agglomeration benefits, and in the current century, "these are likely to revolve much more around complexities of information and pools of skilled labour than the costs of transporting manufactured goods."

The last part of the book has four chapters of interest to finance people. These are: Financial systems, economic growth, and globalisation; exchange rate regimes; crises in the global economy from tulips to today; and monetary and financial reform in two eras of globalisation.

Top on the `to do' list is upgradation of financial market governance and supervision. "The vehicles for doing so are international financial codes and standards for everything from auditing to accounting to bankruptcy, insolvency, and corporate governance," notes the last chapter.

But some emerging markets in Asia view these standards as a move "to foist upon them Western modes of corporate and financial governance," — something that may be ill suited to an Asian model of high debt gearing.

"The most difficult task for the multilaterals is to monitor compliance and publicise their findings in a way that strengthens market discipline without running the risk of precipitating a crisis."

Here is a caveat: "Unskilled workers in today's developed countries are the counterparts of the European landowners and farmers of the nineteenth century, the ones who see themselves as most threatened by more open trade and are likeliest to turn against it."

Globalisation of warfare is a dirty dimension of today's world. It must bear the responsibility for the breakdown of international trade, capital flows, and migration, says the book. "It was only in the twentieth century that it became possible to mobilise men — and kill men, women, and children — in millions."

While "even the French Revolutionary and Napoleonic wars put together accounted for the lives of 0.3 per cent of the world's population", the Second World War snuffed out 57 million lives, that is, 2.4 per cent of global headcount.

On the plus side, however, has been the globalisation of democracy. "More than half the world's countries were democracies in the 1990s, for the first time in history."

A book that shows globalisation in its multiple dimensions, woven inside anecdotal and analytical history.

Economics@TheHindu.co.in