Does the world need yet another book on globalization?” wrote Jagdish Bhagwati in the preface to his celebrated In Defense of Globalization in 2003. Five years on, the same publishing house has brought out Deepak Nayyar’s collection of essays on Trade and Globalization. Admittedly, this collection of 15 papers covers more than globalisation: it includes other themes — international trade theory, world trade, the Indian experience — in addition to globalisation and development, reflecting what Nayyar terms his “intellectual journey over the past three decades.”
Nayyar has had an illustrious career, he is a Rhodes scholar, has been an academic and bureaucrat of enviable repute and has held plum posts in both avatars. He is therefore eminently qualified to comment on the scholarship focused at the intersection of economics and politics in the arena of trade or perhaps the lack of it. His lament of trade theory being simplistic is not new; models clearly cannot capture the complexity of reality, especially in international trade. Paul Samuelson, who many consider an authority on the subject, is believed to have said that the only proposition in the whole of social science that is both true and non-trivial is David Ricardo’s Law of Comparative Advantage. It states quite simply that trade is mutually profitable even when one country is more productive than the other in every commodity that is being exchanged. It is also the one proposition that virtually no politician seems to believe.
Simplicity aside, economists might take issue with Nayyar on at least one other ground. That the existing theories of international trade are insufficient to embrace the new paradigm of trade in services and, therefore, a new set of tools is needed to analyse such trade. Nayyar himself offers a simple analytical construct to understand the nature of trade in services.
On the other side of the debate are two outstanding economists who need no introduction. Gregory Mankiw, when asked whether it mattered from an economic standpoint if values of items produced abroad came on planes and ships or over fiber-optic cables, answered, “Well, no, the economics is basically the same.” Supporting him is Jagdish Bhagwati who claims that trade in services can be treated with the same analytical tools as trade in goods, that is, “subject to the usual theoretical caveats and practical responses, outsourcing leads to gains from trade, and its effects on jobs and wages are not qualitatively different from those of conventional trade in goods.”
Nayyar’s contribution to the literature on international trade should not be judged, however, on the basis of his contribution to theory. He acknowledges that the volume begins with the “limited domain of trade theory and ends with the wide canvas of globalization.” Globalisation is indeed the enduring theme throughout the volume — if anything, this anthology should be judged on the basis of its contribution to the globalisation literature. Nayyar’s focus is economic globalisation (as opposed to cultural) and his discontent stems from the fact that it is not benign. The rich are getting richer; the poor are getting poorer, according to him, and it does not matter how this inequality is measured.
For the record, there are three commonly used concepts of income inequality: cross-country inequality, which refers to the inequality of average incomes; within-country inequality measured using a Gini coefficient—a statistical construct that ranges between 0 and 1, with lower values indicating greater equality; and global inequality, which measures inequality of incomes between persons rather than countries. Nayyar condemns globalisation to have been responsible for increase in inequity no matter how it is measured. And there is a growing tribe of distinguished economists who believe globalisation to be malign and lacking a human face.
More From This Section
But is this the truth? Not according to Bhagwati, one of the fiercest supporters of globalisation who hotly and eloquently contests the charges against it. Not only has globalisation been good, it already has a human face which can be made better by improved governance.
Globalisation is now a phenomenon that is destined for unending controversy. To Nayyar’s credit, his critique of globalisation does not arise from an ideological hostility, but from a careful, reasoned and extended analysis. He advocates a new consensus on development in which “the focus is on people rather than on economies.” Such interventions are, however, never neutral and given that governments are “without exception fallible”, Nayyar’s prescription to “redefine the economic role of the state” is, if anything, a tough ask. But undoubtedly worth the effort.
Answering the opening query then is straightforward. Nayyar’s collection not only brings together his widely dispersed writings in space and time for the benefit of students and researchers, it also, more importantly, adds to the growing discontentment against orthodox neoclassical economics.
TRADE AND GLOBALIZATION
Deepak Nayyar
Oxford University Press
416pp; Rs 795Deepak Nayyar
Oxford University Press
416pp; Rs 795
