Who’s in Charge Here?

Last summer, J. Brian Atwood, the head of the U.S. Agency for International Development (AID), the government agency responsible for foreign aid, announced he was stepping down. Freed from the Clinton administration’s Panglossian view of the world, he delivered a warning:

It is time to end the hypocrisy. Globalization is thus far leaving out about two-thirds of the world. . . .If economic growth is limited to an already educated elite, then it has limited development benefit and it is a poor indicator of sustainability. Reform without equity investments may satisfy the IMF, but it cannot be a recipe for long-term stability.

About the same time that Atwood spoke out, the World Bank released a report on global poverty estimating that the number of people living on less than a dollar a day had increased by two hundred million people in the 1990s. According to the United Nations the ratio of total global income going to the world’s richest 20 percent compared to the world’s poorest 20 percent had increased from thirty to one in 1960, to sixty to one in 1990, to seventy-four to one in 1997. The same report showed that more than eighty countries have per capita incomes lower than those of a decade or more ago. And even in the United States, although employment is up, working people are laboring longer and harder for less reward than they did two decades ago.

Speaking of hypocrisy, someday, not soon, the economics profession will answer for its unqualified and near universal support for globalization. The consensus, however, is starting to crack. In the last several years the staunchly pro-globalization Institute for International Economics published Dani Rodrik’s Has Globalization Gone Too Far? and William Cline’s Trade and Income Distribution. Although Rodrik and Cline are supporters of globalization, they stand out among economists for their honesty in assessing its costs and benefits. Cline’s study, for example, estimated that a substantial part of the increase in wage inequality in the United States over the last twenty years has resulted from trade.

When economists actually try to measure them, gains from trade turn out to be very small. In Has Globalization Gone Too Far?, Rodrik concedes as much: “[N]o widely accepted model attributes to postwar trade liberalization more than a very tiny fraction of the increased prosperity of the advanced industrial countries. Yet most economists do believe that expanding trade was very important to this progress.” “Faith,” Jeff Faux concluded in a review of Rodrik (Dissent, Fall 1997), is the best word to describe economists’ attachment to the principles of free trade.

In an interview (Challenge, March-April 1998) Rodrik retur...