Krugman - There's Some Good News About Globalization

Circa 1975 it seemed that the club of nations with decent living standards was no longer accepting new members.

Now we know that the club isn't that exclusive, after all. South Korea and several smaller Asian economies have made a full transition to modernity. China is still a poor country, but it has made astonishing progress. And there are signs of an economic takeoff in at least parts of India. I'm not talking about arid economic statistics; what we've seen over the past generation is an enormous, unexpected improvement in the human condition.

How was this improvement achieved? Whenever I give talks about my latest book, someone asks whether I still believe in free trade. The answer is yes — not because I have any fond feelings about multinational corporations, but because every one of those development success stories was based on export-led growth. And that growth is possible only if rising economies can expand into new markets.

Latin America has signally failed to replicate Asia's success: Latin nations have liberalized, privatized and deregulated, with results ranging from disappointing (Mexico) to catastrophic (Argentina). Open world markets, it seems, offer the possibility of economic development — but not an easy, universal recipe.

Meanwhile, competition from newly industrializing economies does hurt some workers in advanced countries. I could tell you how sensible government policies could minimize this cost, but since we don't have those policies and aren't about to get them, free trade is, in reality, a morally ambiguous issue.

Yet I keep coming back to the big good news of the past 25 years: in a world with more or less free trade, development is possible. We are not, it turns out, condemned to live forever on a planet where only a small minority of the global population has a decent standard of living.

Will this good news continue? Growing tensions over world trade worry me. The steady trickle of U.S. protectionist moves, against everything from steel to Chinese bras, hasn't yet become a torrent. But there's a definite sense that the grown-ups have left the building.

I was on the staff of the Council of Economic Advisers during the Reagan administration (those were nonpolitical jobs back then); one thing I remember was that if the experts said a proposed trade restriction violated international trade law, that was that. By contrast, just about every protectionist step taken by the Bush administration has been clearly in violation. And if the major economic powers stop honoring the rules that preserve open global markets, the chances of future development in poor nations will be much reduced.

But none of this cancels the fact that over the past 25 years more people have seen greater material progress than ever before in history. That's something to celebrate.