Diplomacy by Dollars

Diplomacy by Dollars

by Joseph Nye
May 29, 2002
Reprinted from the Washington Times

When President Bush announced a 50 percent increase in the U.S. aid
budget for poor countries that would reform their economies, he was
taking a smart step toward maintaining an open international economy and
disarming the protesters against globalization.

The recent period of globalization, like the half-century before World War
I, has seen increased inequality among and within countries. The ratio of
incomes of the 20 percent of people in the world living in the richest
countries, compared to the 20 percent living in the poorest countries,
has increased from 30 to one in 1960 to 74 to one in 1997. By
comparison, it increased between 1870 and 1913 from seven to one to 11
to one. Such conditions have political effects as increasing flows of
information make people more aware of the inequality. Ironically, if the
resulting protests produce protectionism and closure in the global
economy, the outcome will hurt poor people.

In part, increases in inequality by country are a straightforward result of
rapid economic growth in some but not all parts of the world. They
demonstrate that movement out of poverty is possible, although often
hindered by political factors as well as resource constraints. Most of
the poorest countries in the world - whether in Africa or Asia - have
suffered from misrule, corruption and inept macroeconomic policies. The
weakness of their political systems can be blamed in part on colonialism
and 19th-century globalization, but the sources of their recent poor
performance are more complex. Several countries in East Asia that were
equally poor in the 1950s used networks of globalization to greatly
increase their wealth and status in the world economy. Even though
openness alone is not sufficient to overcome poverty, it is difficult to find
any countries that have prospered while closing themselves off from
economic globalization, and those that have tried have fared poorly -
witness Burma and North Korea.

Consider also China, a poor country that has been growing very rapidly
since its leaders decided to open their economy in the 1980s, thus
exposing their society to the forces of globalization. China''s "human
development index" as calculated by the United Nations - reflecting life
expectancy, educational attainment, and GDP per capita - showed
dramatic gain. Hundreds of millions of Chinese were made better off by
market reforms and globalization. At the same time, hundreds of millions of
others, particularly in the Western parts of the country, saw little or no
gain. Contrary to protesters'' cliches about the rich getting richer while the
poor get poorer, some of the Chinese poor became richer. At the same
time, domestic inequality may continue to rise, particularly as China
exposes inefficient state-owned enterprises to international composition
under the terms of its accession to the World Trade Organization.

Will rising inequality create problems for American foreign policy? In the
late 19th century, inequality rose in rich countries and fell in poor
countries, and a third to a half of the rise in inequality could be attributed
to the effects of globalization. Many of these changes were due then to
mass migration, which explained about 70 percent of the real
wage convergence in the late l9th century. The political consequences of
these shifts in inequality are complex, but the economic historian Karl
Polanyi argued powerfully in his classic study, "The Great Transformation"
that the market forces unleashed by the industrial revolution and
globalization in the 19th century not only produced great economic gains,
but also great social disruptions and political reactions. There is no
automatic relationship between inequality and political reaction, but the
former can give rise to the latter. Particularly when inequality is combined
with instability, such as financial crises and recessions that throw people
out of work, such reactions could eventually lead to restrictions on
economic globalization.

Unlike the mass working-class movements of socialism in the 19th and
early 20th centuries, the current protests tend to be elite rather than
mass movements. While their leaders often claim to speak on behalf of the
poor and to represent global civil society, they tend to be relatively
well-off self-selected groups from wealthy countries. Some protesters
want more international regulation that would intrude on national
sovereignty; others want less infringement of sovereignty. But whatever
the incoherence of their coalitions, they have been able to capture global
attention from media and governments. Their concerns about growing
inequality, about cultural homogenization, and about absence of
democratic accountability manage to touch responsive chords, even if not
yet to ignite a mass movement.

To the extent that the United States wants to see economic globalization
continue, we will have to think more clearly about the political responses
to such charges and to make clear that we are committed both to open
markets and helping to reduce poverty. Mr. Bush''s decision on aid was a
wise step in that direction.

Joseph S. Nye is dean of Harvard''s Kennedy School of
Government and author of "The Paradox of American Power: Why
the World''s Only Superpower Can''t Go It Alone.