Book Review

The Race to the Top The Real Story of Globalization
By Tomas Larsson, Cato Institute

Up, Not Down

Globalization means upward mobility and increased prosperity for Latin America and the developing world, a new book argues.


Prominent and not-so prominent critics  of globalization last week concluded their second annual, international (or should we  say "global"?) meeting on the subject - the World Social Forum in the Brazilian city of Porto Alegre.

Like last year's bash, this year's meeting concluded that globalization was bad. And just like last year, there was no specific alternative offered.

Which leads us to rewrite Winston  Churchill's quote on democracy:  Globalization is the worst model - except 
for all the others.

And yet, is globalization even bad?

Swedish journalist Tomas Larsson, who lived in Asia for more than ten years, thinks not. In a new book, The Race to the Top: The Real Story of Globalization, Larsson argues that globalization rather than leading to a new world order where the rich get richer and the poor poorer, actually benefits third world countries.

Among his evidence: The slums of Rio de Janeiro, specifically the shanty town of Rocinha. Yes, there is violence, but security is in many ways better than the wealthy areas of Rio because the local mafia has a "zero tolerance" policy for petty crime on its own turf. More importantly, free-market capitalism thrives. There's no bureaucratic red tape, but plenty of goods.

"It is in Rocinha—not the sleepy business districts of Rio, frequented by the élites—that Brazil's progress in recent years is most visible," Larsson writes. "The favelas, shantytowns, are dynamic, hopping."

Viewed from above, satellite dishes dominate the town, while small shops on the main street offer everything from Nokia mobile phones to refrigerators for cash or by credit cards, he writes.

While there's still a perverse income gap, the poor are not worse off, Larsson argues.

"Globalization in Brazil is indeed resulting in a 20/80 society, but not as normally understood: the prosperous 20 per cent are now worse off, while the poorest 80 per cent are better off," he writes.

Brazil's poor majority have been helped by President Fernando Henrique Cardoso's reforms that slashed import tariffs and reduced inflation, according to the book.

"These economic reforms have struck hard at those who benefited from protectionism , and who resent the loss of privilege, but they have brought growing prosperity for the poorest Brazilians," Larsson believes.

While Brazil suffered from hyper-inflation, the rich could always deposit their key savings in banks abroad, but the poor didn't have bank accounts, which meant that the destruction of Brazil's capital was a destruction of their capital, Larsson points out. (While the book came out before the Argentine crisis, the same case could be made there as the country's savings are being destroyed by devaluation and bank restrictions).

And yet, not all is well in Brazil, the book acknowledges. In fact, many of the reforms have been belated, and uneven and Larsson quotes Harvard economist Jeffrey Sachs calling the South American giant "chronically introverted." Exports are too low (despite being the largest economy in Latin America, Brazil's exports are three times lower than the second-largest economy, Mexico) and the state, especially at the provincial level, is still too big and over-bloated, while the social security system is in dire need of a dramatic overhaul.

But the key is more, not less market reform and globalization, the author argues. And he blames the current income gap partly on the protectionist policies that have dominated the country for so long and are being advocated today by leftist presidential candidate Luis Inacio "Lula" da Silva from the Workers Party (see Latin America's Political Outlook 2002.

"The Brazilian example shows that "economic growth" as such is by no means a cure-all," Larsson writes. "It has to be enjoyed more or less across the board. And it can be, if there's no artificial steering of wealth to one group at the expense of another."

While "Brazilization" ironically is being used as a synonym for globalization by leading critics like John Gray, fact is Brazil is one of the least globalized countries, as the recent Globalization Index from AT Kearney and Foreign Policy magazine shows. (See last week's special report, Panama Most Global)

Larsson agrees with the irony, saying that rather than claiming that countries like Brazil (and Thailand) are poster boys for globalization, they are victims of what he calls the "isolation trap."

"Brazil and Thailand were caught not in the globalization trap but in the isolation trap," he writes. "Their tribulations show why only globalization and markets...can save disadvantaged groups from strong, predatory elites."

In The Race to the Top, Larson makes a convincing case against tying trade to labor and environmental standards and even "ethical" standards aimed at rewarding/punishing the manufacturers of goods (depending on how they treat their workers) - all hot topics as the United States negotiates a Free Trade Area of the Americas.

More importantly, Larsson argues that proponents of globalization and free trade have failed in many of their arguments. The benefits aren't more jobs - but rather better-paid ones, or just more exports - but rather more two-way trade, he says.

After all, more exports in one country have to lead to more imports in another. If we favor more exports from our countries, how can we then oppose more imports?

But, that is what many in the United States do. Just as the U.S. government promotes exports to Latin America and the rest of the world, it punishes those countries that succeed in exporting their goods to the United States through "anti-dumping" measures. Just ask Chilean salmon farmers, Brazilian orange growers or Mexican steel producers.

Yet, how often is even the rationale behind the anti-dumping measures criticized?

"As a consumer, I would love it if all manner of imports were "dumped" in my lap at exorbitantly low prices," Larsson writes.

And yes, a globalized world means that some jobs are lost, but others are created. Larsson uses the example of broomstick manufacturers in South Texas, which may be thrown out of business if broomsticks can be imported at a much cheaper price from Mexico. However, the U.S. companies can make other products that Mexico can't, Larsson believes.

In the end, we all do what we do best. And that means benefits that didn't exist without such competition. A producer can benefit from cheaper imports since he'll likely pay less for certain parts he needs while also benefiting as a consumer when he buys products at a store. In the end, more profits means he can hire more people, the book argues.

"A tariff designed to stop competition is, on net, an act of destruction that benefits only the immediately protected industry, and then only in the short run," Larsson writes.

But globalization isn't just about trade, the book points out. Larsson defines globalization as "the process of world shrinkage, of distances getting shorter, things moving closer." And one of the best examples of that is the Internet, which Larsson himself could use to read Swedish papers while being based in Thailand and - ironically - globalization opponents can use to spread the word of their cause.

The Race to the Top clearly shows how Brazil and other developing nations benefit from increased trade and similarly are hurt by increased protectionism. Tomas Larsson has produced one of the best cases yet for globalization and against protectionist measures, whether they come from Latin American tariffs or U.S. anti-dumping measures.

Originally published in Latin Business Chronicle, February 11, 2002