The Davos Man

By Michael Elliott

"Davos Man" has been easy to poke fun at from the time the World Economic Forum, founded in 1971, first got widespread attention in the 1990s. And this year is no different, as business leaders, politicians and, O.K., some lucky inky-fingered wretches prepare to trek to the conclave in the Swiss Alps town of Davos. The annual meeting of the international business ??lite, Davos developed a reputation as a cheerleader for globalization. But by the late 1990s, it was fashionable to argue that economic integration benefits only those who live in rich countries and who work in multinational companies, able to source--and sell--their products anywhere they choose. The world, it was argued, is at the mercy of tectonic forces capable of impoverishing millions.

Of late, globalization's critics have taken a different tack. Among the world's fastest-growing economies are China and India. Not so long ago dirt poor, both nations, once closed economies, have opened themselves up with substantial success. You might think the prosperity of some Indians and Chinese would be something to celebrate. But no. Whether because it is thought that all the rich world's jobs will be "outsourced" to India and China or because people believe that cheap labor in India and China will drive down wages everywhere else, the rise of the two Asian giants is now viewed as a threat as much as it is a triumph. Globalization has been turned around from something that makes poor people poorer to a phenomenon that makes rich people poor.

The best intellectual case for this argument was made last year by Paul Samuelson, a Nobel prizewinner, a professor emeritus at M.I.T. and one of the most respected economists of all time. Samuelson took aim at the theoretical underpinning of globalization. For its proponents, globalization is the latest proof of the virtues of free trade, for which the case was first made in 1817 by the British economist David Ricardo. Ricardo argued that trade was always beneficial because it encourages nations to specialize in the products at which they are best and import those they are less good at. So if a rich country like the U.S. is much better at making computers than a poor country like China but only a little better at making sweat shirts, the U.S. should concentrate on making computers, and American colleges should source their logoed goods in Guangdong province. Both the U.S. and China would benefit. Samuelson argued, however, that if the poor country suddenly learned how to make more efficiently the goods in which the rich country specialized--say, if China became brilliant at making computers--then the rich country would no longer benefit from free trade. In fact, wages in the rich country would fall.

Globalization's defenders reply by saying, Relax: it will never happen. This counterblast (much of it in a paper written by Columbia University's Jagdish Bhagwati, today's unchallenged intellectual champion of free trade) has two parts. First, free trade's defenders say, it is unrealistic to assume that China or India will suddenly develop a monstrous capacity in high-end, high-technology innovation. "The oft repeated argument that India and China will quickly educate 300 million of their citizens to acquire sophisticated and complex skills," write Bhagwati and his colleagues, "borders on the ludicrous. The educational sectors in those countries face enormous difficulties." This rings true. For the past few months, there have been reports of skilled-labor shortages in the most economically advanced areas of China. Second, free traders argue that even if China and India become advanced economies almost overnight, they will look just like Germany and Japan. And nobody--well, nobody you would trust--argues that trade between rich economies doesn't benefit everyone.

Such abstract arguments do not address the real concerns of American workers whose jobs have moved overseas. But the true nature of their plight might be easier to understand if leaders were more honest about what lurks behind the globalization-makes-you-poor argument. In 1945, when almost every potentially rich economy apart from the U.S. lay amid the rubble of war, the U.S. accounted for about 50% of world economic output, and U.S. wages were much higher than those elsewhere. But other nations caught up--first Western Europe, then Japan, then Southeast Asia, then Eastern Europe, now India and China. The U.S. share of the world economy is now only about 22%, and wages elsewhere are closer to those of Americans. Why anyone should think this process is a source of net human unhappiness beats me, but then--may as well admit it--I'm a Davos man.