April 23, 2002 | Commentary on Foreign Aid and Development

Visualize Globalization

Like it or not, we live in a global economy. And aside from the black-pajama-clad protesters who disrupt meetings of the World Bank and the International Monetary Fund, hardly anyone believes we can return to less "globalized" times.

But what should drive the global economy? One camp -- the United States, Singapore, Hong Kong, New Zealand and others -- envisions a global economy ruled by free-market forces such as open trade and market competition. The other side -- exemplified by such international pariahs as Iran, Iraq and North Korea -- clings to protected economies. As time goes by, though, the evidence mounts in favor of free markets.

Supporters can note, for example, that the more quickly former Soviet republics abandoned their command economic ways, the more quickly they expanded their economies. Estonia, with 5 percent or more annual growth rate, personifies a reformed and now healthy economy; Bulgaria and Belarus, with tiny or even negative growth rates every year since 1991, signal the danger in "staying Soviet."

Ireland, meanwhile, has frustrated its fellow European states with its "unfair" (read: low) tax rates and its resistance to the continent's statist institutions. But it has earned the gratitude of the Irish people with economic growth rates at or near double digits every year since 1995.

Leaders of economically successful countries wisely rely on their entrepreneurs -- not international bureaucracies such as the United Nations or the International Monetary Fund (IMF) -- to produce economic growth.

They've discovered that openness brings wealth, not poverty. According to the "2002 Index of Economic Freedom" (published by The Heritage Foundation and The Wall Street Journal), countries that maintain a "free" economy have an average per capita income of $23,325 -- versus an anemic $3,829 in economies rated as "repressed."

Small wonder, then, that aid agency Oxfam International (which has long allied itself with the anti-globalization movement) noted in a recent report that "trade can deliver much more [for poor countries] than aid or debt relief." According to The Washington Post, the left-leaning group has put its "considerable prestige behind a pro-trade agenda that sets the organization apart from groups that favor protection for labor unions and farmers in rich countries."

Free trade leaders push for a strong rule of law (including vigorous contract enforcement), limited government spending, low barriers to business start-ups, lower taxes and limited restrictions on foreign investment. They know these practices promote trade, that trade promotes growth and that growth promotes wealth.

A World Bank study shows that when countries grow through free trade, poor people benefit -- dollar-for-dollar -- as much as any economic class. Just two arrangements that further free trade, the North American Free-Trade Agreement (NAFTA) and the Uruguay Round, boost the income of an American family of four by at least $1,300 per year.

And free-marketeers reject the black-pajama crew's efforts to blame globalization for environmental problems. A landmark 2001 study by the World Economic Forum, the Center for International Earth Science Information Network and the Yale Center for Environmental Law and Policy shows that economically free countries spend far more on clean-up efforts than poor countries -- and have cleaner environments to show for it.

If protectionists truly seek to lift economies out of the doldrums and people out of poverty, they should quit trying to "protect" their citizens and take the proven route. They should encourage freedom and entrepreneurship, and make it easier for their people to find work.

Will it solve all their problems? No. But it certainly beats donning those black pajamas to protest "globalization." 

Sara J. Fitzgerald is a policy analyst in the Center for International Trade and Economics at The Heritage Foundation, a Washington-based public policy research institute.         

About the Author

Sara J. Fitzgerald Policy Analyst
Center for Trade and Economics (CTE)

Related Issues: Foreign Aid and Development