Spread Trading Solutions

Jagdish Bhagwati, the pioneering international trade economist who is often rumored to be on the short list for the Nobel Prize, gave a witty, wide-ranging lecture on globalization on Oct. 17 at Ira Allen Chapel as part of the 30th annual Aiken Lecture Series. The Columbia University professors message: The American middle class has many things to worry about but trade isnt one of them.

Disputing New York Times columnist and author Thomas Freedman, who argued in a best-seller that technology has flattened the globe, allowing call-center workers in Bangalore, India, to fill jobs until recently reserved for employees in Burlingame, Calif., Bhagwati said, The idea of a flat world is as wrong now as it was in the time of Copernicus.

The globe, Bhagwati said, still looks mighty bumpy. While some services, granted, are no longer location-dependent, many more still require geographic proximity. Countries will always retain different strengths and niches. India has a powerful information technology sector; China does not. Why not? Bhagwati said. Because of an authoritarian system. The CP, communist party, is incompatible with the PC.

Japan has incredible high-tech manufacturing capabilities, but its financial system, still, is a disaster. And fretting over Americas competitiveness may have some justification, but its important to recognize that the United States has powerful comparative advantages over the rest of the world in many areas, advantages that flourish with open trade. As one small example, he cited Indian firms developing their presence in Silicon Valley to tap into the areas networks of capital, innovation and talent.

The world is a kaleidoscope of comparative advantage, drawing and redrawing patterns of capital and trade, Bhagwati said. Jobs and industries move and thrive based on these patterns far more than on the basis of low wages. Factors like education, infrastructure and productivity are more important than wages in the most desirable industries, he argued. Labor costs are not a huge factor for multinationals, he said.

Bhagwati argued that American critics of free trade often use scare tactics to argue for prosperity-limiting protectionism, including raising the misleading specter of billions of Chinese or Indian workers ready to take over American service jobs.

The large population numbers make people worry, but if you look at the college-educated cohort in India, only a small percentage can read English, a smaller percentage still can speak English, and even smaller number of them can speak English in a way that you or I can understand it. The actual number of competitors is negligible, he said.

Trades discontents
Bhagwatis account of trades manifold benefits was about as rosy as one would expect from the author of In Defense of Globalization. Global free trade, he said, increases aggregate wealth, as he put it, the size of the pie, spreading prosperity and fighting poverty. Poor countries that embrace freer trade, he said, have done substantially better over the past 40 years than countries that havent.

While a tiny minority of economists disputes this view of trades economic power (largely to gain attention, Bhagwati mischievously suggested), he believes that its ability to increase prosperity is firmly established. Other key questions revolve around trades social impact. But these social negatives arent usually what critics say they are, Bhagwati said.

Touching on a few examples, he argued that global trade generally has a liberalizing effect. Firms locked in global competition, he argued, cant afford the inefficiency of paying men more than women. The male-female wage gap in identical jobs shrinks most rapidly in global trade industries. Studies show, he said, that trade doesnt encourage child labor; as the poor in Vietnam saw their incomes rise because of trade, they respond not by trying to grab more by putting their children to work, but by putting their kids into school.

A more damaging consequence of global trade, he said, might come from short-term currency trading, or portfolio capital flows. He favors restrictions on them, a position he said raised some eyebrows but doesnt compromise his overall pro-trade views.

Hes quite negative about the forms of trade regulation most commonly discussed. Protectionism is almost beneath the pale for Bhagwati. He also rejects the notion of fair trade, the idea discussed by candidates like John Kerry and Howard Dean of requiring partners to raise labor and environmental standards to something approximating U.S. standards.

Export protectionism, Bhagwati said of this, and said it was futile meddling in complex processes that will hurt the poor in other countries and make the U.S. a less desirable trading partner.

The most damaging critique of trade, he said, is distribution the uneven spread ofwinners and losers in a global economy. While trade reduces misery in some poor countries, some of globes most impoverished are left out. African farmers who cant produce enough food for their own people are unlikely to build wealth producing goods for a global market.

The doors are open, but many countries still cannot find the traction to move through them, Bhagwati said.

In the richer, northern half of the world, the obstacle is managing change. Without an effective education system, universal health insurance, and effective programs to help displaced workers adapt, the squeezed middle class in America and elsewhere will inevitably begin questioning trade and asking for protection from it. The resulting wave of protectionism would be a tragedy for a huge swath of the globe, and wouldn't get at the real issues facing workers, Bhagwati said, making a coherent, timely response to middle-class issues crucial.

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Vermont Public Radio will broadcast Jagdish Bhagwatis UVM lecture at 6 p.m. on Nov. 3. Following the lecture at 7 p.m., VPRs call-in Switchboard program will facilitate discussion of the talk.

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