Book Notes: Why Globalization Works

I recently re-read Martin Wolf’s, “Why Globalization Works.” I first read the book in graduate school and it shows.  An abundance of neon Post-It papers are still poking out at the spine, the margins are littered with summaries and, in an effort to note the “important parts,” almost all of the text is underlined.  Evidently, the book made an impact.

Reading for a second time, I was again impressed.  Wolf, a distinguished international economist and editor at the Financial Times, is skilled in presenting an expansive topic (globalization), reducing it to simpler parts (i.e. trade, finance, distribution) and then presenting the readers with supporting explanations, summaries and patient arguments.  This is a book for someone who is looking for a coherent treatise in favor of modern, economic internationalism.

This book was published in 2004 but the chapter dealing with globalization and the environment could have been called “China and the U.S. in 2009.”  Here are some of my favorite bits from that chapter:

• We know from experience that market economies have been far less environmentally damaging than the socialist ones.  China and the former Soviet Union have been responsible for some of the worst environmental catastrophes in the world.
• This is so for four reasons: (1) the indifference of dictatorships to pressure, (2) the indifference of state-owned enterprises to resource efficiency, (3) lagging technological advancements and (4) desire for self-sufficiency
• Cost-internalization is the best way to deal with environmental spillovers from economic activities.  A good place to start is with the elimination of environmentally harmful subsidies (i.e. pesticides, fertilizers, deep-sea fishing)
• As people become richer, they naturally insist upon a clean-up of local environmental damage.  This happens when a country’s GDP per head reaches roughly $5000.  At $8000, local pollution begins to improve dramatically.  But carbon emissions increase with levels of GDP.  Therefore, with a rise in GDP, local environmental harms fall but global harms rise continuously.On the benefits of open trade flows:
• Pressure on fragile dryland areas is a result of overpopulation and ineffective property rights.  Trade is most often the best way of obtaining energy or food more cheaply and in less environmentally damaging ways, than locally.
• Highly protected countries use more inputs of fertilizer, pesticide and energy per unit of output than does less protected countries.
• Virtually all the environmental degradation in large, developing countries has nothing to do with trade – just experience the burning of fuel throughout China in the winter.
• The power of domestic environmental lobbies, in developing countries, is greatly strengthened by more openness, not less.
• The management of environmental externalities requires well-targeted measures aimed at making decision-makers aware of the costs.  This is also true for global environmental threats.  Trade between developed and less developed countries is not an obstacle to effective measures against such threats.  The obstacle is the unwillingness of countries to implement strong incentives or impose high costs upon processes and activities that generate greenhouse gases.