Bhagwati interview (English original) "Kerry and Edwards are trying to use scare tactics"

Leading globalization scholar Jagdish Bhagwati, himself a Democrat, is highly critical of candidate John Kerry's course on economics, outsourcing and trade. He spoke to SPIEGEL ONLINE about Kerry's anti-offshoring rhetoric, his ideas for reforming company taxation - and George W. Bush's record on job creation.

 you want to affect society"
Columbia University

you want to affect society"


Professor Bhagwati, one of the defining slogans of the first Clinton campaign was "It's the economy, stupid". Will economic issues again be decisive for this year's presidential election, in spite of issues like Iraq and national security?

Bhagwati: I think Kerry has made up his mind that the economy is what he wants to campaign on. He had two choices - one was to emphasize issues like jobs, outsourcing worries, anti-globalization ideas and so forth. The other was to zero in on the war. But he's virtually throwing in the sponge on Iraq, I'm afraid - he's almost Bush light on that issue. So the main differences between Bush and himself that Kerry highlights are on economics.

SPIEGEL ONLINE: Do you think, then, that he can beat the President on those issues? Kerry's staff tries to capitalize on the fact, for instance, that Bush is the first President since Herbert Hoover to preside over a net loss of jobs in his term.

Bhagwati: Those are the type of arguments statisticians produce for the party. You can be sure that by the time of the TV debates, Bush will have worked out a nice-sounding answer to that. The real question is: How do people feel? Wherever I walk around in New York and elsewhere, there are all these signs saying "Wanted: Experienced Workers". You don't see people marching in the streets saying "I've lost my job".

SPIEGEL ONLINE: New York may be atypical - recent figures suggest that job creation in the US overall has slowed to a trickle. The Bush team seems genuinely worried by that.

Bhagwati: The unemployment rate still went down a bit, according to last month's figures. To look at figures month by month is ridiculous anyway - but that's the way politicians behave before an election. I actually think the economy in Bush's term has done reasonably well - and I'm a Democrat, you see.

SPIEGEL ONLINE: In your recent book, you argue that a fear of globalization, of international competition, once restricted to the developing world, has now reached rich countries like the US. Is this fear playing a role in this year's election?

Bhagwati: The Democratic party is moving towards a kind of anti-globalization attitude, an anti-free trade attitude in particular. I think this is dangerous. Since I finished my book, there has been this debate about outsourcing. Kerry and Edwards are clearly trying to use scare tactics here. At the convention, they got lots of applause whenever they spoke about American jobs being shipped overseas.

SPIEGEL ONLINE: If those arguments resonate at the convention, they might convince voters, too.

Bhagwati: But Kerry and Edwards don't know what they're talking about. If we look at the offshoring of online services like call centers or basic accounting, we're talking about a maximum loss of 100.000 jobs a year to countries like India. That is nothing for an economy this size. The US is a major hyperpower, and yet every time it gets into competition with Mexico, China and India, we work ourselves into a panic. It's like a rottweiler getting scared because a French poodle is coming down the road.

SPIEGEL ONLINE: Kerry and Edwards are not just speaking about call centers. Especially in industrial swing states like Ohio, they promise to stop the loss of manufacturing jobs to lower-wage countries like China or Malaysia.

Bhagwati: Here we're not talking about outsourcing but good old foreign investment. There is a huge amount of academic work that shows that this is beneficial to the US. On average, low-value jobs are going out and high-value investment is coming in. In North Carolina, where Mr. Edwards comes from, we have the I95. Along the way, there used be textile firms that have gone out since they can't produce efficiently there. Now the workers are employed by Siemens and several other German companies, with far better salaries. That section of I95, in fact, is now known as the autobahn.

SPIEGEL ONLINE: Rhetoric is one thing - but do you think Kerry will actually implement detrimental economic policies if he's elected? For instance, he proposes to give tax credits to companies that create jobs in the US instead of abroad. That can't do any harm, can it?

Bhagwati: It boils down to subsidizing companies when they stay and penalizing them when they go out. If we start doing that, other countries can follow. Everybody will be worse off. Our firms lose comparative advantage if they're stopped from saving costs. A dead firm can only employ dead souls. So we may save 10 jobs by not outsourcing but we will lose the entire 100. Keep in mind, too, that investment from multinationals helps countries like India and Mexico fight poverty. Some sections of Africa sorely need foreign investment. If we Democrats crack down on this, it's not compatible with our notion that Bush and his friends are the nasty guys.

SPIEGEL ONLINE: Bush himself is hardly a model free-trader. He imposed highly protectionist tariffs on steel imports right at the beginning of his term.

Bhagwati: He tried to win over voters in crucial industrial states. But he later punched holes into the safeguards, exempting all kinds of products and countries. Once the WTO declared them illegal, he quickly lifted the tariffs. Bush really believes in the capacity of American firms to compete successfully. During the campaign, he keeps stressing that free trade is good for us. He even got a member of his cabinet to say there's nothing wrong with outsourcing. I'm afraid Bush looks very presidential on trade, unlike my own party.

SPIEGEL ONLINE: All of these issues are central to your book In Defense of Globaliziation, which got splendid reviews from the Economist or Anne Krueger of the IMF - parties that were pro-globaliziation to begin with. Do you think you've won over anti-globalizers, people who'd been demonstrating against multinationals or the WTO?

Bhagwati: Whether I've helped convert anyone, I don't know. I've had about 80 speaking engagements throughout the world. Usually, the reaction is quite favorable. There are always some activists, but I can handle them. My best reaction is in the classroom where I teach over 150 students on globalization. They are worried about these issues, they want to think about them and reach their own conclusions. They say that I help them do this.

I wasn't trying to write a partisan tract, you see; I wanted to reshape the debate. So I try to show that multinationals don't run sweat shops in poor countries - they actually pay above-average wages there. But then I add my own criticism and argue that liberalizing capital flows too quickly has been harmful for countries like South Korea. So some of the more vocal criticism has not come from the anti-globalizers but from the right - they think I'm conceding too much ground.

SPIEGEL ONLINE: The book's fairly accessible. Do you regret that, to write it, you've had to cut back on your more academic work?

Bhagwati: I've turned 70 in July. I've done a huge amount of academic writing already, about 50 books, mostly theoretical. When you're young as an economist, you do things that are mathematical, that establish your reputation. As you grow older, you attach more importance to worrying about policy; you want to affect society. So I'm trying to help students, politicians and members of NGOs think about globalization. It sometimes takes 20 years to change minds. But it happens.

Interview: Matthias Streitz

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