Truck and Barter

Philippe Legrain debates Robert Wade;

“Wade claims that, “If the liberal argument holds, we would expect the global shift towards free markets in the past 25 years to have raised the rate of world economic growth. Instead, there has been a slowdown in developed and developing countries. Between the era of managed capitalism (roughly 1960-78) and the era of globalisation (roughly 1979-2000), the growth rate of world output fell by almost half, from 2.7 per cent to 1.5 per cent.”

Not so. According to the latest IMF figures, the world economy grew by 3.3 per cent a year from 1986-95 and by 3.9 per cent a year from 1996-2005. Better still, while in 1986-95 emerging economies grew only fractionally faster than advanced economies (3.7 per cent a year compared with 3 per cent), in 1996-2005 they grew over twice as fast (5.5 per cent a year compared with 2.7 per cent). Far from stagnating, the world economy is booming—and developing countries are outpacing developed ones.

But in any case, Wade’s methodology is shoddy. Even if global growth had slowed since 1979, one could not deduce from such aggregate figures that globalisation wasn’t working. Contrary to what he asserts, there has not been a global shift towards free markets, let alone one that can be dated to 1979. Countries have opened their markets to varying degrees and at different times; some have failed to liberalise at all or have even become more protectionist. What’s more, globalisation is not the only economic change of the past 40 years, and so cannot necessarily be considered responsible for any particular change in economic performance. The right way to judge whether globalisation is working is to look at individual economies’ performance before and after they liberalised, controlling for other changes that might affect the picture—and one finds a mountain of evidence that it is indeed delivering the goods.”

*The picture is from the cover of the latest edition of The Economist

Related;
Philippe Legrain’s Globalization posts
Thomas Palley’s Globalization posts