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Sebastian Mallaby, Columnist

Making Globalization Work

By Sebastian Mallaby
Monday, February 28, 2005; Page A17

If globalization were a stock, it would have been shooting off the charts recently.

Five years ago, the anti-globalization street protests were pumped up with crazy momentum. Today the demonstrators are gone, or at least in hibernation.

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Five years ago, well-meaning folk doubted that trade was good for poor countries. Today I hear more people complaining about the barriers erected in the rich world that stifle poor countries' exports.

In the 1990s, the terms of the debate were set by the likes of Lori Wallach, a committed globophobe. Today they're more likely to be set by Bono, who campaigns for trade along with aid and debt relief.

It's risky to gloat, but this could be a lasting victory. Anti-globalization arguments were for the most part so flimsy that they've been thoroughly demolished. One World Bank study showed that "globalizing" poor countries, those whose trade grew as a share of gross domestic product, recorded gains in income of 5 percent per year in the 1990s, 2 1/2 times faster than the advance in rich countries. By contrast, non-globalizing poor countries had no income gains whatsoever. It's hard to argue against that sort of evidence.

So much for the left-wing critics. But globalization has also survived the shock of Sept. 11. In the aftermath of the terrorist attacks, there were dire predictions. Terrorists had used the very openness and connectedness of our societies to mount their attack. The response to terrorism would require new airport checks, new customs checks, new visa checks. "The era of globalization is over," wrote John Gray, a prominent British commentator.

It hasn't happened. A largely coincidental economic slowdown lent the pessimists some early plausibility. Trade stagnated in 2001 as a share of GDP, and foreign direct investment fell to half its previous level. But even though counterterrorist security concerns have thrown some sand into the gears -- notably, by keeping out visa-seekers the United States ought to welcome -- globalization has resumed its forward march. We've even discovered a whole new frontier -- the globalization of services such as tax accounting and medical diagnostics.

So globalization looks healthy. But although globalization brings prosperity, albeit with winners and losers, it brings challenges at the same time; we face globalized terrorist gangs, drug cartels and money-laundering networks, not to mention global diffusion of contagious diseases and transnational environmental problems. We don't have adequate institutions to deal with all this stuff: Economic globalization isn't matched by the necessary political globalization. What's more, we know this to be true -- but our efforts to respond are mostly half-hearted.

If we want to wrestle with transnational threats, we need to do something about the failed states where such threats tend to fester. Because we know this to be true, official development assistance has jumped since Sept. 11. But the jump is simply not enough. Measured as a share of our economies, the recent aid increase only partially makes up for the big fall in the 1990s.

Equally, we know that weak states will have a better shot at getting strong if they can export into rich markets. It's an outrage that the least-free areas of world trade are agriculture and textiles, precisely the goods in which poor countries have an advantage. Because we know this to be true, we have the Doha Round of trade talks, which is supposed to be about development. But the negotiators missed last year's deadline for completing their work. Nobody's betting on a quick breakthrough.

Beyond stronger governance in failed states, we need stronger global institutions. There is no shortage of proposals to accomplish this: Think tanks, statesmen and high-level panels generate a steady stream of blueprints. But while the blueprints demonstrate that we know what we should do, we're more likely to veer off in the opposite direction. We're better at complaining about global institutions -- the United Nations, the World Bank -- than we are at sustaining them.

Consider the United Nations. Washington has just lost its mind over an oil-for-food "scandal," in which the biggest scandal has been the scandalmongers' unfairness. Iraq's oil-for-food program was conceived and overseen by the United States and other members of the Security Council, not by the U.N. staff. It's true that some money did leak, but this is inevitable in any sanctions regime, and most of the leaks were recognized and accepted by the program's U.S. designers. Yes, at least one prominent U.N. official may have been corrupt, but corruption is not unheard of within the U.S. government.

Or consider, equally, the World Bank. Last Tuesday the world's rich donors concluded negotiations on new money for the bank's kitty; Treasury Secretary John Snow gave a speech emphasizing the U.S. commitment to the institution. But the U.S. contribution to the bank, which goes to support grants and subsidized loans to the world's poorest countries, has been cut in inflation-adjusted terms. What sort of commitment is that to the management of globalization?

In the late 19th century, the world experienced Globalization Mark I. New technologies -- the telegraph, the steam ship, the telephone, electricity, the train -- combined with the free-trade outlook of the British empire to produce a dramatic expansion in international commerce. But Globalization I was brought to an end by the unmanaged political tensions that ushered in world war. New tensions lurk now, and we need to get serious about dealing with them.


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