Jagdish Bhagwati: Well I could give you an academic answer as to which way the things are going. But let me give you an answer from the point of view, the fact that economics is a social science. It’s about society. Therefore it’s about amelioration of the human condition. So to me, that is the central focus of where economics ought to be. It’s more or less the English focus which I learned. It’s also the focus I learned at MIT, which is where I came and spent a little time. Because that’s the most English school in the United States actually, in terms of its orientation towards solving problems, which matter rather than doing mathematical pyrotechnics and so on.
The most important challenge facing us today, I think, is globalization. In the sense that I think things have changed very dramatically in the system and the world economy. Part of it is, of course, what is sometimes called the death of distance. People are much closer. A lot of economies have gotten much more integrated into the world economy as a result. We have reduced a lot of barriers to transactions. That’s manmade. We have also improved technology. That is manmade too.
But on the other hand, it’s something which is not, which is not policy. It is in fact technology which is really changing the conditions under which we live.
I mean imagine in the 19th century. I read somewhere there were 12 deliveries of the mail in London. On horseback, of course. Then it got steadily less. And then we had, two, I think, was the last when I was studying in England. There were two. And then I think now there is one. Now we’ve got e-mails. We’ve got delivery every second, right?
In fact one of the most distracting things in the world is to have your Blackberry with you, because it’s very hard to control your impulse to see if somebody sent you something. So what we now have is a tremendous growth of technology, under which transactions have become so much more easy, and more dramatic, and instantaneous and so on. This is really the way to do it.
My student Paul Krugman, who is a major economist of the younger generation, and writes an interesting column in the New York Times. His major work – for which I hope he will get the Nobel Prize one day – is on economic geography. Meaning people actually transacting face-to-face with one another, right? So people having to be in the same physiological space.
And I often tease him because it’s a privilege of a professor to tease his students – particularly the ones he admires. And I say, “You know Paul, you’re just behind the curve. Geography has now become history.”
It’s gone because today, very rarely do you really need people to be together in the same place. You look at a number of people writing papers together. Hardly anybody writes papers together with the people who are in the same department. Most of them are doing it with people who are skillions [sic] of miles away.
The strongest argument for globalization is that it enables you to profit from specialization. Now by that I don’t mean that there’s a static specialization. Like I’m going to be the ___________ water or ___________.
Because endowments, technology, everything is changing all the time. What I mean is that at any one point of time, you have a certain set of endowments which you have accumulated, you have shaped and so on, which then define what you’re good at.
But once you do that, then we economists say – and this goes back to Adam Smith at its very essence over 200 years ago – “Maybe I can do everything better than you can.” Like I can maybe interview better than you do. I can teach better than you do. But clearly my greatest advantage over you certainly is in teaching, certainly not in; I may be a little bit better than you at interviewing.
You know there’s this Jewish joke about someone asks somebody, “Can you play the violin?” And the answer by this Jewish wit is that, “Well maybe I can, but I’ve never tried.” So maybe I’m a better interviewer, but I’ve never tried it.
But let’s grant it for arguments’ sake what economics teaches you – international economics – is that what _________ pointed out, was that if I specialize in where my advantage over you is greater, and therefore teach and leave you to do the interviewing, we’ll both be better off. Because we’ll have more of each of these two activities. And if each activity or each good is actually a good, not a bad like __________, then you are going to be better off. So that’s the fundamental case.
Now today people are worried about this case, and we can come back to that later in the discussion and try and see how the modern world looks. But the greatest argument against it today is that there are two sets of arguments. And let me just say one is the social criticisms. There are many young people who are altruistic and empathetic, and they worry about the effects of globalization on women’s rights; on democracy; on poverty in the poorer countries; on indigenous cultures, like Eva Morales, you know that globalizing is going to wipe it out.
Then Monsieur __________ in France worries about mainstream culture – that the French culture will be wiped out. And also French agriculture for that matter. So it’s a double jeopardy for the French.
And so there are a variety of such things. And those I will say are mainly the concerns of the young and idealistic people. And they really form the most important part of the world in my view. Then there are the fears and self-interest driven critics of globalization. Those are the AFL-CIO, or the presidential candidates today in the United States who, of course, reflect AFL-CIO fears and so on. They are worried about how trading with the outside world, having multinational corporation investing abroad and so on, how all of that is going to really undermine our wages of our unskilled workers; maybe even of the middle class in some cases. There are some people who worry about that.
But I would say that ties up with my original worry of what’s going to happen with the bottom 30 percent? I’m a Democrat in the U.S. political configuration. I have always worried about the bottom 30 percent. If this is true, it’s a serious downside. But I don’t believe it is true. But this is something which a lot of people feel, and that’s the biggest challenge of globalization today in the rich countries.
Recorded On: Aug 14, 2007