globalization and inequality: gunder frank abstract

the entire paper is posted on the author's web-page at 
        csf.colorado.edu/agfrank/

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               ANDRE    GUNDER      FRANK

Senior Fellow                                      Residence
World History Center                    One Longfellow Place
Northeastern University                            Apt. 3411
270 Holmes Hall                         Boston, MA 02114 USA
Boston, MA 02115 USA                    Tel:    617-948 2315
Tel: 617 - 373 4060                     Fax:    617-948 2316
Web-page:csf.colorado.edu/agfrank/     e-mail:franka@fiu.edu

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Abstract of: 

REAL  WORLD  GLOBALIZATION  AND  INEQUALITY  YESTERDAY AND TODAY A Review
Essay by Andre Gunder Frank of

GLOBALIZATION AND HISTORY. THE EVOLUTION OF A NINETEENTH CENTURY ATLANTIC
ECONOMY by Kevin H. O'Rourke and Jeffrey G. Williamson, Cambridge MA &
London: MIT Press 1999, $ ??


This book shows that the current "globalization" buzz-word refers to a
process that in fact already characterized the nineteenth century until
the beginning of the First World War. From then and until the end of the
Second World War, the process of globalization was severely reversed - in
exemplification of one of the authors' sub-theses that this process can
and does have its own ups and downs and is not a one way ever onward and
upward road, as latter day parlance would have it. During the half century
past, the globalization process was re-initiated laboriously but haltingly
until the last two and especially the last decade of the twentieth
century, when globalism more than globalization recovered the reach it had
already nearly a century earlier. Although this book focuses on the
nineteenth century period prior even to that, the authors nonetheless
express important concerns for present and future praxis and policy. Not
the least of them is the warning that "globalization"  should not be
regarded as an automatic and irreversible ever onward and upward going
process; but that it must also be cultivated and protected, in particular
from protectionism itself. ........... 

The central question that the authors address is whether the Atlantic
economy experienced convergence of income among its constituent parts.
Their short answer is YES in the Atlantic economies, in which some however
receive more equal attention than others. Moreover, the rest of the world
remains beyond their scope in this book, although not in their later work.
The authors rely less on the usual per capita GNP or GDP and prefer to use
the real PPP [purchasing power parity] wage rate of the majority of
workers as an index of income, because it takes better account of the
otherwise all too much and often disregarded important domestic
distribution of income. So the second main question posed is to what
extent and how openness and especially trade impact on domestic
distributions of income.  This factor price wage rate of labor and its
relation to the factor prices of land and capital are the empirical pieces
and the analytical red thread that guides the authors innovative and
coherent assembly of this part of their larger jig-saw puzzle still under
construction. ...........

Nonetheless, not only is trade found to be largely derivative from factor
flows, but its contribution to wage/income convergence is much smaller
than that of factor flows themselves. On the other hand, trade does have
important consequences for the DISTRIBUTION if income. However, these
effects are not the everywhere the same. They can result in both less and
more equality of domestic economies, depending on differences in their
pre-existing political economic structure. Usually, the efects are to
accentuate both their already more equal and more unequal domestic
distributions of income. Notably for instance, in the two Atlantic
economies with the already previously most UN-equal income distributions,
that is Brazil and the United States, three decades of late twentieth
century 'openness' MULTIPLIED this inequality. ...........

In this book however, the authors are not yet so interested in WHEN factor
prices converged and with what effect, than they are with WHY these prices
- and in particular why real wage rates and income - converged in the
Atlantic economies. Limiting the question to the circum-Atlantic is of
course their privilege. However as I will argue at the end of this review
essay, it is NOT adequate or satisfactory to answer questions of why what
happened IN the Atlantic Basin by drawing on evidence and its analysis,
which is also limited only TO the Atlantic. That is among other reasons
because in any one region factor prices are also formed through its
participation in an already pre-existing and still continuing globalized
world economy. Of course and perhaps in part for that reason as the
authors aver in their above cited works, part of our dispute is precisely
whether a world economy did or did not exist before the nineteenth
century. ................

So how is it then that as the authors can state
on p. 284 that "we believe that catching up of poor countries with rich
may have as much to do with economic linkages as with any other force
identified by growth theory....Where there has been openness, there has
been convergence: where there has been autarky, there has been either
divergence or cessation of convergence."  Ergo, the authors suggest that
even still today it is important to resist temptations or forces to revert
to controls and restrictions on movements of capital and migration that
have sometimes been invoked during some periods in the past.

If that is the authors conclusion and policy recommendation for the
present and future, it is open to serious reservation on at least three
counts, including some that they even raise themselves: 1] One is on their
argument as it stands so far, 2] another is on how widely in the Atlantic
Economy convergence was NOT operative, and in the remainder of the world
still less so, and 3] to what extent the authors' good cause and effect
factor analysis is or is not adequate to account for observed, let alone
unobserved, effects or consequences....
  
1] We must have very serious reservations about the authors argument and
policy conclusions already even on the analytic battlefield the authors
selected themselves and engaging them only with the analytic arms they use
themselves. Their insistence on openness for the future must be suspect
insofar as it is based on their own factor analysis of factor movements
and their consequences in the past. For the authors found that it was
factor mobility of labor, primarily through inter-continental migration,
that accounted for 70 percent of observed convergence.  That also means
that insofar as factor mobility was the crucial factor at all, the
mobility of all other factors combined accounted for no more than 30
percent of observed convergence. Indeed, that percentage may also have
been lower inasmuch as it is possible that some other factor mobility was
DI-vergent but compensated by labor mobility. Moreover, the authors find
that merchandize trade did NOT generate convergence.  That leaves capital
mobility as the other most important factor. But regarding that, the
authors find that capital moved as a complement of and not as a substitute
for the movement of labor and the development of land and other resources.  
Without capital to make labor and land productive in the regions of recent
settlement, their development and convergence would have been much less
than it was or even nil. Moreover, it was precisely to these resource rich
and labor attracting potentially productive regions that capital went, and
hardly at all elsewhere. So in the conclusion to their chapter 12 on
"International Capital Flows," the authors themselves observe that
"late-nineteenth century world capital flows were a force for divergence,
not convergence" [p245]. How much morso then must serious analysis of the
evidence demonstrate, or even raw evidence or pure theory each taken
separately suggest, that the enormous flows of speculative financial
capital in the late-twentieth century had to be and have been highly
DE-stabilizing and DI-vergent.... ........ 
..........

However valuable their innovative study in this book
unquestionably is, what this reviewer nonetheless finds missing is the
examination of how WORLD trade, capital movements and payments, and
migration impact on the Atlantic Economy that is under study here.

All of these economic relations are and MUST be examined also as the
structure and operation of the complex system of world trade and payments
itself. For as the saying goes, the whole is more than the sum of its
parts; and it and helps shape the parts and their relations among each
other. Therefore, an adequate - or even any - analysis of HOW the causes
and consequences of inter-regional [and inter-sectoral] flows of capital,
trade and migrations and their consequences for convergence or not must
also take due account of how any, e.g. Atlantic, regions were also
importantly shaped by and dependent on what Ragnar Nurske called THE
NETWORK OF WORLD TRADE [League of Nations 1943]. Moreover as he, Saul,
Condliffe and Frank [1978,2001] analyzed and Kenwood & Lougheed apparently
unsuccessfully sought to "popularize," this network was and is
characterized by a WORLD-WIDE MULTILATERAL system of balances and
imbalances of trade and payments. And arguably it is the POSITION WITHIN
this system, more than relative factor prices and productivity of each
economic region and sector that determines their absolute and relative
benefits and any convergence or not among them.  Of course, if all
positions were equivalent, occupying one or another would not afford any
particular dis/advantage to whoever manages or is obliged to locate there.
But some positions are much more and others less beneficial than others,
and even among apparently equal ones, some can in Goerge Orwell's
terminology be more equal than others.  The importance of locational
position in the world economy is by no means derived from or limited to
only geographical location, as we will note below. But it is perhaps the
easiest to visualize, e.g. in the locations over two milennia of
Constantinople/Istanbul near one and Malacca/Singapore near the other end
of Eurasia. The former boasted a population already of 750,000 while Paris
and London were edging from 50,000 to 100,000. Both were located at
natural turn-around places in Afro-Eurasian East-West and North-South
trade.  And what is the benefit they derived from their locations?
MONOPOLY RENT!  That is why I use the term LOCATION, LOCATION, LOCATION in
the Nineteenth Century World Economy [Frank 2001] to dramatize this all
too neglected problematique, also by our present authors.
..............

In conclusion we must observe again that our authors very laudable but
sole or main object of inquiry have been factor price equalization and
income convergence among otherwise separate productive, sectoral and
geographic units. We already observed earlier on that [1] even their own
evidence does not support their argument for openness even on their own
turf and that [2] the evidence they do not examine beyond their own turf
disconfirms their argument altogether. [3] Thirdly and most importantly
however, their factor analysis of what factors and factor prices intervene
in the process of con- or di- vergence are not the only factors of major
significance for the economic and social outcomes that the authors are
keen to observe and explain. The structure, organization, functioning, and
transformation of the global world economy itself and the location within
it of any particular unit also accounts for as much or very probably more,
as per the titles of Adam Smith and David Landes, of "the wealth and
poverty of nations,"  their inhabitants and of con- or di-vergence of
income among them. By confining their analysis almost entirely to the
former in neglect of the latter, our authors therefore also able to convey
at best only half or even less of the truth. I leave it to the reader to
judge whether a half truth or less is better or worse than none.