Optimal Globalization and National Welfare

for exceptionally stimulating conversations that helped us to come to grips with our subject and shape our arguments.We also thank participants at the NAEFA session on globalization at the WEAI annual conference (July 2004, in Vancouver), and at a RIIM seminar at Simon Fraser University (October, 2004), for their incisive comments.All errors or omissions are, as ever, our own responsibility.implications of our analysis with a view to casting light on the debates over broadening and deepening of integration in the Americas. The globalization controversyEver since the 1999 WTO meetings in Seattle, the word "globalization" has become infused with passion, with strongly-held opinions both pro and con.By economic globalization is usually meant free international movement of goods, services, capital and people: that is what we will comment on here, although the globalization of ideas and culture is perhaps even more profound. Many economists were shocked and dismayed when one of their finest -JosephStiglitz -apparently broke ranks with the profession when he published his 2002 book, Globalization and Its Discontents.But Stiglitz's book is by no means a condemnation of globalization per se; rather it is a critique of the management of globalization by international institutions, especially the IMF and the WTO: institutions, moreover, that are dominated by developed-world interests.What shocks many economists, perhaps, is the passion with which Stiglitz makes his case.Passion is not an emotion that economists easily condone.A more recent, and more nuanced, contribution to the globalization debate is Jagdish Bhagwati's 2004 book, In Defense of Globalization.As befits one of the profession's most practiced and prominent defenders of free trade, Bhagwati takes on all the common shibboleths about globalization: that it increases poverty, induces child labor, harms women, threatens democracy, imperils national cultures, undermines wage and labor standards, threatens the natural environment, and enhances predatory corporate power.He dismisses all these shibboleths both theoretically and empirically.Much of his theoretical logic follows from the economists' first article of faith -that trade voluntarily entered into between two parties must perforce benefit both parties.But there are subtleties: Bhagwati recognizes that when trade agreements are made at aggregate and national levels, some individuals will be made worse off just as others are made better off: Pareto improvements are virtually impossible. 1There is less substantive difference between Stiglitz's "discontent" and Bhagwati's "defense" than would first appear.Stiglitz highlights losers, Bhagwati highlights winners.Neither denies that globalization will produce both.Both recognize that free trade in capital is generically different from free trade in goods .And both recognize that the pace, coordination and sequencing of liberalizing reforms is crucial to their success in enhancing aggregate welfare.This is a theme to which we will turn shortly in the broader context of reforms in transition economies.Nevertheless there are substantive differences.Stiglitz puts much less faith in the efficiency, let alone fairness, of markets, as befits his position as the premier pioneer

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