“Why are some nations poor and some nations rich?”
This is the basic question development economists try to answer. It’s a question with profound practical implications – if we could suggest strategies that consistently helped nations grow wealth, we could address a huge range of problems in education, public health and state stability.
It’s also a question that both development economists and political commentators are surprisingly bad at answering.
Daniel Cohen, professor of economics at Ecole Normale Supérieure and the Université de Paris, believes than many bad answers to this question stem from a faulty assumption: “Rich countries exploit poor countries.” In his recent “Globalization and Its Enemies“, Cohen argues that this is “radically false”:
It would be better to say that these countries suffer from being abandoned to their fate. The poorest countries are not like the workers at the center of industrial capitalism; their situation is closer to that of individuals lost in the French welfare system today.”
To understand Cohen’s argument, we need to look closely at actual state of globalization. Anyone not living under a rock has been inundated with stories about borderless economies, the rise of outsourcing and and the death of distance. It’s an illusion, Cohen argues: “In wealthy countries, globalization is largely imaginary.”
We’re experiencing the third major wave of globalization. The first began with the Spanish conquistadors, while the second was led by industrialization and “free trade” throughout the British empire. In comparison to this second wave of globalization, the current globalization is “immobile” – in 1913, 10% of the world’s population was made of immigrants; that figure is 3% today. As a result, while we encounter merchandise from around the world, “it is only through television, or during a few vacation weeks for tourists from rich countries, that one encounters other societies.” Capital, Cohen argues, followed the migrations prior to World War One – by some metrics, those flows were more substantial in that second wave of globalization than it is today.
Despite the profound sense that of economic globalization an American gets looking through clothing labels in Walmart, Cohen points to arguments from Jeffrey Frankel that suggest we’re far below the projected levels of globalization we’d see in a truly borderless economy. (The US economy is 25% of the global economy. In a truly borderless world, we’d expect 75% of goods to come from abroad – actually, only 12% of our goods do, which suggest we’re at about 1/6th of this theoretical state.)
But given the track record we’ve seen with the limited amount of globalization we’ve experienced, is this something we want to encourage and celebrate? Don’t the cheap Chinese sneakers we buy at Walmart exploit the factory workers who make them? Cohen doesn’t deny that the current system is profoundly unfair to workers in developing nations, but he complicated the concept of exploitation.
He begins by addressing Arghiri Emmanuel, who in 1969 argued that poor nations were neccesarily exploited by rich nations: “If one hour of labor in Bombay is paid less than an hour in Detroit, it is inevitable that the American worker is exploiting the Indian laborer.” But a comparison of the modern-day textile industry in India and the US complicates this equation. Emmanuel’s argument suggests that American consumers use their wealth to purchase many hours of labor from underpaid workers in India. But it only requires 8% more hours to manufacture cloth in India than in the US. And salaries in India in the textile industry are 1/15th what they are in the US. So why isn’t Indian cloth a small fraction of the price of US cloth?
As it turns out, almost everything else in India costs more – the energy to run the mills, the cost of capital borrowed from banks, the price of cotton. (Cohen acknowledges, but doesn’t explore, the fact that cotton is cheaper only because of massive US agricultural subsidies designed to preserve the US textile industry…)
Cohen has done original research supporting a theory of “levers”, independent factors that combine to provide huge gains in efficiency. Literacy and professional experience make workers far more efficient – this is one lever. Another is machinery – workers using modern looms can be far more productive than those working on older machines or by hand. And “global efficiency” – modern organization of business, IT used to make processes more efficient – is another lever. In a 2003 paper written with Marcelo Soto, Cohen argues that poor countries suffer from a 35% handicap on each of these factors – low-literacy workers in a developing nation are 65% as efficient as highly educated ones in a developed nation, for instance. The result, when you combine these factors: “A worker in a poor country has at his disposal only 65 percent of the total capacity of one level, multiplied by 65 percent and remultiplied by 65 percent, which yields only 27 percent of the resources available in the rich countries, which explains why the ratio of income between rich countries and poor ones is about 4:1.”
If we accept this explanation (I’m not certain I do – I plan to read Cohen and Soto’s paper to see the argument in more detail), we’re forced to answer the question: “Why the inequitable distribution of resources that act as levers?” In other words, when British industrialization spread across the globe, why did the US and Canada industrialize quickly, and India industrialize so little?
Here Cohen leans on analysis from Gregory Clark, who observes that at the turn of the last century, workers at English and American textile mills were operating four looms each, and factories were pushing them to move to six. By contrast, Indian workers managed a single loom. It was not incompetence or lack of education that Cohen believes prevented Indian workers from operating multiple looms – it was racism. In Northern countries, workers demanded better pay and better working conditions in exchange for taking on a greater workload. In the South, workers who demanded better compensation were marginalized, but the majority of the workforce refused to take on the greater load. This, in turn, is a product of the colonizer mentality with which Britain approached India: “To give meaning to his existence, the colonist must diminish the colonized by reminding him of his inferiority in every detail of life.”
An explanation of why “lever” technologies aren’t introduced in developing nations today is less centered on racism and more on fiscal reality:
Why does capitalism not supply workers in poor countries with the machinery that would make them productive? The answer has to do with the fact that it could be efficient to add physical capital to poor countries from a technical point of view, but that this is not neccesarily the case from a financial point of view.
Making grocery stores in Lagos more efficient by computerizing may not make sense – the marginal added cost for consumers would make products unaffordable – and it would have the perverse consequence of removing jobs in a labor-rich economy.
What poor nations want, Cohen argues, is more globalization, not less. Globalization “has not kept its promises. Globalization creates a strange world that nourishes the feeling of exploitation while in fact exploiting only a bit or not at all.” This image is one created through technology and media. It’s now impossible to avoid the imagery of a prosperous global world even within the most impoverished nations. The possibility of prosperity makes it untenable for people in developing nations to accept their current level of underdevelopment.
Here Cohen is inspired by Amartya Sen and his idea of development as freedom – economic development increases the ability of individuals to act and the possibilities they, as individuals, can explore. “The problem of globalization up to now is it has altered people’s expectations more than it has increased their ability to act.”
Cohen’s book is focused more on debunking the frame surrounding the problem rather than offering solutions – it spends less time on policy prescriptions than it does on challenging the fundamental assumptions of anti-globalization critics. But it’s clear that any solution Cohen would endorse involves a recognition of the desirability of interconnection, not an attempt to oppose free markets, capitalism and global integration. His solutions focus on finding ways to counterbalance the goals of free trade with considerations of public health or economic development.
In this sense, he leaves himself open to the criticism John Gray levies in his (otherwise glowing) review in the New York Review of Books: the globalized future Cohen proposes would be environmentally disastrous. This is true, but it’s less clear that globalization is the driver of global warming, rather than overconsumption in developing nations. (Globalization, particularly of the petroleum industry, has clearly made it possible for the US and Europe to overconsume well past the limits of their own local energy supplies.)
The area where I felt Cohen could have gone further is in acknowledging the shifting character of media and its role in communicating the hopes of globalization. His analysis is rooted in existing models of broadcast media. While the cost of producing media goes down, existing players win because they have the concentration of capital neccesary to make Hollywood blockbusters or pay football stars to play televised matches. As a result, a wider range of people can create media, but no one watches it.
This idea is challenged by a number of papers that have emerged since Cohen published his book (in French in 2004.) Chris Anderson and others writing about the “long tail” suggest that there may be a market for a much wider range of media than Cohen imagines. My current hopes around globalization center around making media flows more bidirectional – can we complement the export of American values and aspirations via broadcast media through citizen’s media created by people in the developing world? If globalization is truly immobile, as Cohen argues, can we hack the media to increase the contact of people in the developed world with ideas and perspectives from people in the developing world?
These opportunities to expand Cohen’s work aside, this is one of the most useful books I’ve found in advancing conversations about globalization beyond arguments of whether it’s good or bad. It’s both and neither – and it’s inevitable. By understanding that the issue is uneven access to productive capacity, not the “inherently exploitative” nature of global capitalism, Cohen gives us a hope of focusing our debates on places where we can have economic leverage. And, at roughly 170 pages, it’s got the best ratio of big ideas to pages I’ve encountered in a long time – it’s very much worth a read if you’re interested in debates that range farther than free market inevitability versus Altermonde.