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Book notes: How flat is the world?

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
May 2005
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Georgetown University’s Pietra Rivoli takes an oversized issue—whether globalization is a force for good—and shrinks it down to size by telling the story of a simple product, T-shirts, in a global market. At every stage, people try to mitigate the adverse effects of free markets by erecting barriers. But that’s increasingly difficult, says New York Times columnist Thomas L. Friedman, because powerful forces are knocking down barriers to global competition and the world is becoming a flatter place.

Three forces are leveling the global playing field, argues Friedman in The World Is Flat: A Brief History of the Twenty-First Century. First, in the aftermath of the collapse of communism, its most potent alternative, market capitalism is spreading around the world. Second, new technologies now allow companies to create a virtual assembly line across the globe. “Bangalore, Beijing, and Bethesda are now next-door neighbors,” he said in a recent talk at the IMF. And, third, global companies now have access to large, low-cost pools of labor as a result of China’s and India’s embrace of market reform.

How should governments cope with a flat world? Friedman advises the governments of advanced economies, such as the United States, to stay ahead of the competition by investing in education and by constantly upgrading workforce skills rather than by erecting protectionist barriers. He also advocates wage insurance to protect workers displaced by competition and benefits, such as universal health coverage, to provide a more “compassionate capitalism.” Emerging markets, such as Mexico, should also eschew protection, he argues, insisting that their interests are better served by “retail reforms.” Such micro-level reforms, he says, can spur growth by removing the legal and institutional impediments to doing business.

The comparative advantage enjoyed by U.S. cotton farmers lies in their skill at collecting government subsidies.

—Pietra Rivoli

Reality check

Of course, not all governments behave as Friedman advises. In The Travels of a T-Shirt in the Global Economy: An Economist Examines the Markets, Power, and Politics of World Trade, Rivoli shows that at nearly every stage, the people involved in producing and selling T-shirts try to mitigate the effects of free markets and free trade on their own fortunes, generally by appealing to politicians for help. The irony is that their pleas tend to be heeded in richer countries, while those in poorer countries are more likely to be at the mercy of the market.

Consider, for instance, the 200-year dominance of U.S. cotton producers in the global market. This, says Rivoli, is a testament not only to the “entrepreneurial creativity” of U.S. cotton farmers but also to the support provided by their government. Quoting an Oxfam report, she writes that “the comparative advantage enjoyed by U.S. cotton farmers lies in their skill at collecting government subsidies,” the total value of which exceeds the income of a number of cotton-producing countries in Africa.

Left turn to China

Rivoli’s story begins in places like Lubbock, Texas, where cotton is produced, and then “turns left toward China,” where sweatshops in Shanghai and elsewhere turn the cotton into T-shirts. On the surface, Lubbock has little in common with Shanghai (Shanghai| has a Starbucks, while Lubbock does not). But, says Rivoli, the two cities “have been linked by cotton fiber for nearly a century.” In Shanghai Number 36 Yarn Factory, the Texan cotton is turned to yarn, and in Shanghai Brightness Number 3 Garment Factory, the yarn into a T-shirt.

Conditions in these factories are far from pleasant, though generations of activists—the predecessors of today’s anti-globalization protesters—have helped to make them better than they would be otherwise. Lan Jiang works in the Number 36 factory “fixing broken thread. She sits on a hard metal chair attached to tracks on the floor. By depressing the pedal at her foot, Lan glides left and right, stopping wherever she sees a flashing red light, the signal of broken thread.”Lan does this eight hours a day, six days a week, and makes $100 a month, most of which she saves. And she likes her job because it beats back-breaking farm work.

What Lan would like from her politicians, but does not receive, is job protection. Factories are closing in Shanghai as producers traverse the globe in search of cheaper labor. Of the Shanghai yarn factories that “once numbered 1 through 40 only 6 remain.” In fact, over the past decade, China has lost 10 times as many textile industry jobs as did the United States, “and textile job losses were the most severe of any industry in China.”

Back to the U.S. of A.

Nevertheless, China is still a major player in textiles, and Rivoli’s story follows the Shanghai-produced T-shirts as they are shipped back to the United States. Now the “T-shirts enter the most complex and challenging phase of their lives: trying to gain access to the U.S. market,” writes Rivoli. The rules governing which foreign country gets to sell T-shirts and other textile products in the United States, and how many of each, are complex or, simply put, “nuts, as even the people who made them readily agree.”

But the rules do serve two purposes: they provide jobs for the armies of bureaucrats and lobbyists in Washington and around the world, who interpret the rules or try to influence them in favor of their clients, and they give many smaller textile-producing countries a foothold in the U.S. market by restricting imports from large countries like China. “However unsuccessful the quota regime has been in protecting U.S. jobs,” Rivoli notes, “it has been successful indeed as foreign aid ….The quotas given to Mauritius and Bangladesh not only opened sewing factories, but indirectly build roads, ports, and communications systems ….”

And then on to Africa

The final stage of the T-shirt’s story begins in places like the Sumner Place Shopping Center in Bethesda, Maryland, where soccer moms donate the contents of “their closets to make room for new stuff.” The castoff clothes end up with firms like Trans-America, a family firm run by the Stubins of Brooklyn, New York, for more than 50 years. In their warehouse, the clothing is placed on a conveyor belt, and, as in an I Love Lucy rerun, workers standing on either side of the belt sort them into bins or chutes. Then, along another belt, workers grade these T-shirts by quality.

Trans-America ultimately ships the T-shirts to Africa and elsewhere, where they end up in secondhand markets. In Dar es Salaam, Tanzania, the T-shirts with the highest expected resale value hang from trees in the commercial district, guarded all day long by a trader’s helper until they are sold.

Advice to anti-globalizers

The T-shirt’s tale, Rivoli concludes, is one “in which market forces on the one hand meet demands for protection on the other.” Some players, such as cotton farmers and textile workers in the United States, receive protection; others, such as the Chinese garment workers, do not. Left out in the cold are the millions of small-scale producers, such as African cotton farmers, “who are granted neither political protection nor market opportunities.”

Rivoli urges anti-globalizers to “appreciate what markets and trade have accomplished” for the poor who have managed to gain access to them. The energies of the anti-globalizers would be better spent, she argues, on working to gain access to market opportunities and political participation for those who do not enjoy it at present.

Friedman is far less sympathetic toward the anti-globalizers. At the IMF event, he accused them of “dining out on the carcass” of institutions like the IMF and the World Bank that champion globalization. “If populists really want to help the rural poor [in developing countries],” he writes, “the way to do it is not by burning down McDonald’s and shutting down the IMF and trying to put up protectionist barriers that will unflatten the world. That will help the rural poor not one iota.”

But Friedman also suggests that agencies such as the IMF “are going to become less important. In the future, globalization is going to be increasingly driven by the individuals who understand the flat world, adapt quickly to its processes and technologies, and start to march forward—without any treaties or advice from the IMF.”

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