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Is Globalization the Only Way to Develop?

A US Treasury official recently "urged Mexico's government to work harder to reduce violent crime, saying the country's high crime rate could frighten away foreign investors." An off-the-cuff remark, perhaps, but it shows how foreign trade and investment are seen as the yardsticks for evaluating developing countries. Development strategy, indeed, is becoming hostage to the idea of integration into the world economy.

This equation is too facile. Openness to trade is presented as the most potent force for economic growth, yet integration into the world economy has demanding institutional prerequisites, which are not met cheaply. It would cost a typical developing country $150 million - a sum equal to a year's development budget in many poor countries - to implement the reforms required under WTO agreements.

Although countries benefit from strengthening their institutions in relevant areas, the reality, according to Michael Finger, who calculated these figures, is that "WTO obligations reflect little awareness of development problems." Integration has other, more subtle, institutional requirements as well. Openness implies heightened exposure to external risk, and thus greater demand for social insurance. So, in the real world opening up is not simply a matter of letting barriers down. You must ensure that you abide by international rules of propriety, covering newly exposed domestic sources of weaknesses, and protecting yourself from the elements.

None of the institutional reforms needed for insertion in the world economy are bad; in fact, many are independently desirable. But recognize the argument favoring openness for what it is: trickle-down institutional reform. Reforms may or may not trickle down; even when they do, they will rarely constitute the most effective way of targeting the desired ends (whether those ends are legal reform, observance of human rights, or reduced corruption).