The Bactra Review: Occasional and eclectic book reviews by Cosma Shalizi   39

Pop Internationalism

by Paul Krugman

MIT Press, 1996

International Economics with the Brothers Grimm, or, Krugman Discovers Ideology

An ideology, in the classical Marxist sense of the word, is a body of thought about society, politics, economics, religion, etc., which members of a given class believe, not because there are any rational grounds for it, but because it is a reflection or "sublimate" of their way of life, and usually advances the common interests of members of the class. (When, as usual, the ideology of a dominant class is accepted by the subordinate classes, the latter suffer from "false consciousness" or "false understanding.") To claim a doctrine is ideological is, thus, an undercutting maneuver, one which seeks to show the doctrine is unjustified, and probably but not necessarily false. (It was not until the Stalinist era that Marxists, and later others, began to speak of all general ideas, beliefs about society, etc., as ideologies.) In Pop Internationalism, a collection of his recent essays, Paul Krugman claims to have discovered an ideology in the classical sense: the doctrines of national competitiveness and globalization.

These ideas are so much a part of conventional wisdom that there's little need to explain what they are, but a brief reminder can't hurt. Once upon a time, c. 1970, international trade grew like Jack's bean-stalk, and became much, much bigger than it ever was before. Goods and capital now flowed freely across the globe, and some countries which opened themselves to foreign investment and thought of nothing but exports achieved spectacular growth. The old rules of classical and neo-classical economics took one look at the situation and shut all the windows in the ivory tower, because they clearly didn't apply any more, if they ever did. Nations had now to actively compete against each other in the global market place, or stagnate, if they didn't turn into toads, like, say, Chad. In particular, the lazy and feather-bedded workers in the rich countries had to either take lower wages and worse conditions, or find Rumpelstiltskins who'd teach them how to achieve massive productivity gains overnight, or see their jobs migrate to the poor and hard-working countries. Wise governments realized they should assist their national companies in competing with foreign rivals for the hands of the global markets, and make sure there were plenty of high-tech, high value-added jobs for their workers; indeed, some wise men called for active industrial policy and strategic trading, so that our country would win this race at the expense of all the others.

As I said, is now conventional wisdom, accepted everywhere from the Wall Street Journal to The Nation; I bought it for quite a while myself. Krugman shows it's all hogwash, from start to finish, and not nearly so good a fairy tale as those in the Brothers Grimm. Trade, as a fraction of the world's economies, is barely back at the level it attained in the late 1800s and early 1900s, before the Great War and the collapse of the first free trade regime: yet it was precisely in such circumstances that the original economic theory of international trade was formulated, and with special reference to Great Britain, always the most trade-dependent country, at that. (Foreign trade amounts, now, to something like 10% of America's gross domestic product, but it was about 40% of Victorian Britain's.) Moreover, trade is overwhelmingly between the rich countries --- the average wage rate in America's trading partners, adjusted for purchasing power, is about 90% of the US wage rate. Whatever happened to US manufacturing jobs, they were certainly not competed away by low-wage labor in Germany, Switzerland and Japan. (The most likely explanation --- Krugman goes through some of the math --- is that productivity in manufacturing continues to grow much faster than productivity in services, while demand for manufactured goods does not, so relatively fewer manufacturing workers are needed to supply that demand, and the surplus go into services; this accounts for why the same pattern is observed in the main US trading partners, as well. Krugman notes that the US labor movement having basically collapsed has something to do with this, too.) East Asian countries oriented towards exports have achieved massive rates of growth: but Krugman shows this can be accounted for by mobilization of resources (invest in infrastructure, train your labor force, get people out of subsistence farming and into cities and factories, etc.), with a very small residual, if any, to be explained by other factors (implying, among other things, that those growth rates cannot continue indefinitely, or be matched by countries which are already highly developed). It's impossible for a country to receive net foreign investment and run a trade surplus at the same time. It is simply not true that nations are in competition: companies are, but what is good for General Motors is not necessarily good for America, and the standard accounts of mutual gains from trade are demonstrably correct, or at least very nearly so.

And so on, and so on: essentially nothing in the conventional globalization-and-competitiveness stories is true. Given that this is so --- and that, as Krugman shows, the people pushing globalization find it necessary to resort to hallucinatory statistics and even arithmetic errors to support it --- the question naturally arises, where did such bad ideas come from, and why are they so well-entrenched?

Krugman identifies a number of purely intellectual sources of error at work here --- mathematical illiteracy (John McCarthy is too generous; it is those who refuse to do algebra, not just arithmetic, who are doomed to talk nonsense); the incompetence of the economic profession in teaching and popular exposition ("What Do Undergrads Need to Know about Trade?"); the allure of the fallacy of composition (if one person getting a 10% raise has a 10% rise in income, surely everyone's income must go up by 10% if we all get a 10% raise?); the desire to possess profound knowledge without profound effort in thinking. Others are rhetorical or stylistic: the competitiveness story sounds realistic and hard-headed, while gains-from-trade sounds abstract and nearly utopian; English-speaking countries have a century-long tradition of looking-with-alarm on the latest rapidly growing planned economy in the East. The most important causes, however, are social.

Nobody now in business remembers the old, pre-WWI free trade regime, so the current levels of trade look unprecedented, and are certainly not what was expected back when they were in business school. Companies must compete for markets and profits, often enough against foreign companies: those in business, and those who take their cues from them (that is to say, most of the political nation) generalize from this experience, and think that countries are like oversize corporations, and likewise engaged in competition, in zero-sum games. This is convenient for them to believe, since it not only justifies their positions and rewards --- they're the people who're keeping us from winding up like Liberia, after all --- but is also wonderfully handy for putting the screws to workers, dependent companies, governments, and even the executives themselves. It also gives governments a justification for implementing policies which are desired on other grounds (generally, something or other in favor of large corporations at the expense of the rest of the body politic), and Krugman provides a number of examples of the practice. As for the news media and lesser organs of opinion, ignoring for a moment the fact that they're largely owned by large and diversified companies, and saying nothing of outright bribery and intellectual prostitution, competitiveness is a simple, readily understood story, easily tied to all manner of economic developments, and is more or less without vocal opposition. Some liberals favor the story because it can be twisted to provide a justification for things they want anyway, like industrial policy. (Krugman does not consider why belief in globalization is almost universal among my fellow leftists; the word "hegemony" comes uncomfortably to my mind.) A better instance of a contemporary ideology could hardly be asked for.

Krugman does not say that his critique of globalization uses the Marxist conception of ideology, or indeed any notion of ideology at all. Whether this is out of prudence (unlikely, considering the author), a failure to realize the source of the notion, or a lack of interest, I couldn't say. In any case, he is quite successful in not only debunking the ideas of globalization and competitiveness, at least in anything like their usual form, but in discrediting their advocates as well. As usual, Krugman's writing is excellent --- in his own way, he's as good a writer as Galbraith, though a much better technical economist --- and his polemical force would have given those old bruisers Marx and Engels pause. Considering how large these issues have loomed recently (e.g., the American debate on NAFTA --- a fine essay here shows it to be irrelevant to the US economically, but important as a foreign policy), this book would be worthwhile to any voter who prefers knowledge to plausible ignorance. It is, however, of particular interest to specialists in both recent socio-economic transitions, and in contemporary ideologies.

Disclaimer: Prof. Krugman was kind enough to look over this review for misrepresentations of his position, and explain that he does not consider himself a Marxist; but I have no stake, financial or otherwise, in the success of Pop Internationalism (heck, I didn't even get a review copy).
xiv + 221 pp.; separate bibliography for each article; index.
Debunking / Economics / Politics and Political Thought / Sociology
Currently in print as a hardback, US$25.00, ISBN 0262112108 [buy from Powell's], and as a paperback, US$10.00, ISBN 0262611333 [buy from Powell's], LoC HF1359 K784
7 April 1998
Thanks to Danny Yee and Mitch Porter