Protecting globalization and trade

(article written in 2007)

One of the more difficult points to get across with regard to discussions about trade is the entrenched belief among people regarding its supposed "inevitability". That no matter what is done, trade (and globalization) is impossible to stop, that it is as relentless in the way Thomas Friedman described it: like the rising sun, it may be good, it may be bad, but there's nothing anyone can do about it.

Thus, a lot of the policy discussions proceed from an implicit acceptance of this alleged “unstoppable” attribute, with the unfortunate consequence that people look at globalization and trade with helplessness or resentment. Advocates for trade have also fallen into apathy. This is unfortunate. For the reasons that we shall discuss below, rather than being complacent about or rejecting the idea of a more open Philippines, we should continuously and actively support it. For contrary to common belief, globalization and trade are not inevitable. Such are also not as widespread as most would like to believe.

Japan closed its doors from the rest of the world in the 19th century. Trade slowed in the years following World War I or the Depression. Even in this day and age, despite all advances in technology, China can stop the flow of information. North Korea, of course, is pretty much shut off from the rest of the world. It must be also noted that not all countries have chosen to liberalize (though those that didn’t are relatively poorer than those that did) and even those that did have not done so at uniform levels. The point here is that if governments so decide, they can put a stop to trade and globalization.

Economist Pankaj Ghemawat recently pointed out that "90 percent of all phone calls, Web traffic, and investment is local." This observation, however, is not new. Philippe Legrain wrote about this nearly a decade ago in his classic Open World. For a host of practical reasons, not the least of which is costs, people would prefer to do business with those nearby. For any number of reasons, not the least of which is the near similarity of circumstances, people would prefer to interact with their neighbors. Taking the Philippines as an example, setting aside the trade done with the US (of which the Philippine’s history with it plays a big part), a substantive amount of trade is done with ASEAN, Japan, China.

What emerges then is a picture of globalization and trade that is tentative, minimal, and – the most consequential attribute – fragile. Any number of circumstances – the election of shortsighted politicians, a new terrorist attack, strong lobbies and weak governments – could result in the reversal of policies that are designed to help those that need it most: the poor.

This is because, despite all the venom heaped against globalization and trade, study after study has shown that they have done well in lifting people out of poverty. Just to pick some at random: a World Bank study of 19 countries done in the early 1990’s showed that economic growth is boosted by liberalization; a recent study by two Stanford University economists found that “countries that have liberalised their trade regimes have experienced, on average, increases in their annual rates of growth on the order of 1.5 percentage points compared to pre-liberalisation times”; even more recently, a Financial Services Forum study concluded that trade “produced enormous aggregate benefits” for the global economy; and finally – and most famously – a study by Jeffrey Sachs (with Andrew Warner) showed that poor countries that liberalized grew six times faster than those that didn’t. Specifically for the Philippines, studies have shown that increased trade has been, on the whole, beneficial. Dr. Cielito Habito observed stronger industry growth and employment. Dr. Emmanuel De Dios pointed to the fact that liberalization efforts resulted in the creation of new export industries and also of price stability. Globalization and liberalization are obviously forces for good. As the book Naked Economics put it: “trade paves the way for poor countries to get richer. x x x Is there an example in modern history of a single country successfully developing without trading and integrating with the global economy? No, there is not. Which is why Tom Friedman has suggested that the antiglobalization coalition ought to be known as ‘The Coalition to Keep the World’s Poor People Poor.”

In these trying times, the temptation to revert to closed, regressive, and shortsighted policies is strong. This should be thoroughly resisted. As we’ve seen, the future of globalization and trade – obvious forces for good – is far from certain. There is a real need therefore for more people to stand up and energetically advocate for a more economically open Philippines. The progress of this country and the lives of its poor are at stake.