It's only now that I've gotten around to borrowing Joseph Stiglitz's recent book, Making Globalization Work. Make that relatively recent as it came out in 2006. After going through it, my opinion is decidedly mixed. Like Stiglitz, I too believe that globalization can be made to work. As it is, globalization in its current form leaves much to be desired--I think most reasonable folks would not have qualms with that statement. However, as a political science instructor and not an economics one, my main concern with the policy proposals he makes is that they may not be feasible in the sense of being able to achieve buy-in from various constituencies. As ever, politics is the art of the possible. Perhaps reflecting his background as an economist, Stiglitz makes many proposals that I would consider extremely hard to implement.Something that really wound me up, though, was his restatement of a classic canard raised by those in the anti-globalization crowd. Anderson and Cavanagh of the Institute of Policy Studies famously noted in 2000 that of the world's 100 largest economic entities, 51 are now corporations and 49 are countries. Stiglitz recycles this idea in ch. 7 of his book on multinational corporations:
For many people, multinational corporations have come to symbolize what is wrong with globalization; many would say they are a primary cause of its problems. These companies are richer than most countries in the developing world. In 2004, the revenues of US car company General Motors were $191.4 billion, greater than the GDP of more than 148 countries. In its fiscal year ending 2005, US retailer Wal-Mart's revenues were $285.2 billion, larger than the combined GDP of sub-Saharan Africa.Sounds scary, eh? It makes you want to buy Naomi Klein's novel or an "Ernesto Che Guevara Classic Thong," right? Before you do, I feel obligated as an educator to tell you that this argument comparing national output with corporate revenues is technically incorrect and fallacious. It is irksome that Stiglitz did not consult two books on globalization that came out earlier in 2004 that pointed out the flaws in this countries-companies comparison. First, let us begin with Martin Wolf in Why Globalization Works:
Jagdish Bhagwati makes a similar point in In Defense of Globalization:The two researchers (Sarah Anderson and John Cavanagh of the left-center Institute for Policy Studies) committed what economists would regard as an elementary howler: they confused gross sales with GDP. As Paul de Grauwe of the University of Leuven and Filip Camerman of the Belgian Senate pointed out in a powerful riposte, if their method were applied to GDP one would end up with a vastly bigger number than the correct one. But one would also be double-, triple- or quadruple-counting. Take the example of cars. Bethlehem Steel sells steel wire to Bridgestone tires; Bridgestone sells tires to Ford; and Ford sells cars to consumers. If national income statisticians added the sales of Bethlehem Steel, Bridgestone and Ford, the steel would appear three times; it would be triple-counted. What statisticians do, instead, is sum the value added of each company, which is the difference between the value of its sales and the costs of inputs bought from outside the company (and so equals the value attributable to the people and the capital employed by each company). The sale of steel adds to Bethlehem Steel’s value added, because making steel is what it does. But the cost of steel is subtracted from Bridgestone’s sales, because it is a cost of business, which is making tires.
The De Grauwe and Camerman paper Wolf mentions is still available online, BTW. It is unfortunate that the error made by Anderson and Cavanagh is repeated without fact-checking by Stiglitz. Yes, even a Nobel laureate can make what Martin Wolf has described as a "schoolboy howler." Again, I am much more in the camp of Stiglitz in believing that globalization can be made to work instead of in the other camp suggesting that it already works (for the most part), but my concern is with creating policy proposals which are more feasible. I will have more to say about this matter in the future, but suffice to say that the corporate-bashing bandwagon is flat wrong here. As I have previously discussed, the anti-globalization crowd often pumps up factual errors to taboid-ish proportions to make their points. If they are to be taken seriously, then they should start to make sensible arguments instead of bloopers and practical jokes like this one. It is unfortunate that those who should know better sometimes buy into this balderdash.This fear [of corporations] is often justified by noting that if major corporations and the world’s economies are ranked together, the corporations by their sales volumes and the countries by their GDPs (a measure of their national incomes), then the corporations are half of the top one hundred performers! This dramatic statistic is misleading, however, as the two sets of data are not comparable. To see this, consider a shirt that costs $100. Its sales value (which economists would call gross value) includes the value of cloth at $70 and wages and profits (i.e., incomes earned by the productive factors in the garments industry) of $30. Economists call this $30 value added in the garment industry. Now, GDP is simply the entire factor income or value added in all activities, including garments. So when we compare sales volumes, which are gross values, with GDP, which is value added, we are comparing oranges with apples. The comparison, while conceptually flawed, also exaggerates the role of corporations because sales figures across the entire economy will add up to numbers that will vastly exceed the GDPs of the countries where these sales occur.
I would attribute it as an oversight if one of my undergraduate students made this sort of error, but it should absolutely not pass muster with a Nobel laureate in economics. Stiglitz's quant skills may be without peer, but his fact-checking leaves something to be desired here.
