Investigations
The politics of free trade

Free trade, most observers acknowledge, brings long-term economic gain. But does it also carry political consequences? Lloyd Gruber, associate professor in the Irving B. Harris School of Public Policy Studies, believes it does-and notes that they may be negative.

Gruber, back from a year's sabbatical at the Brookings Institution in Washington, D.C., studies how globalization relates to a country's internal political relations. "We don't know as much as we probably ought to about how trade liberation affects the performance of domestic political institutions," says Gruber, author of Ruling the World: Power Politics and the Rise of Supranational Institutions (Princeton, 2000). "For example, do open societies have a harder time governing and reconciling differences among various societal groups?"

That's where the political geography of inequality comes into play. "You can have a society that is polarized among rich and poor, but if rich and poor are living together-intermingled spatially-there will be strong pressures for political representatives to move toward the moderate center and away from the extremes," he explains. "In cosmopolitan cities, for example, people from different ethnic groups all live together, and those cities are not typically cauldrons of political violence. The problems tend to come when the inequality has a spatial element, the rich in enclaves in the suburbs and the poor clustered in the inner cities. In those situations, political representatives are less interested in finding common ground. Instead, their focus is on speaking to their own homogeneous constituencies."

Spatial inequality, says Gruber, disrupts domestic political harmony-and trade liberalization can be a major cause of spatial inequality. "When markets are protected and suppliers and customers are all within a country's borders, there are strong pressures to concentrate business activities in a single location," he explains. "That reduces the costs of transacting across space and results in an intermingling of rich and poor." Almost overnight, globalization changes everything-suppliers and customers are international so there is less reason to cluster business activities. "We are seeing this happen in Mexico," Gruber says. "If you are wealthy, you can now live in enclaves virtually anywhere in the country and you don't have to live near poor people in Mexico City or other congested urban centers. The pattern worries me, and it's a development that badly needs to be studied."

Gruber uses census data to analyze economic segregation within and across electoral districts, both in the United States and around the world, and he spent his leave scouring the current literature on cases of political upheaval in which the effects of spatial inequality had not previously been factored in. He gives the example of the former Yugoslavia. "It became very segregated economically in the years after communism," Gruber notes. The rich provinces of Slovenia and Croatia in the north were closer to Europe and better able to benefit from trade liberalization. The more distant Serbia, however, developed much less rapidly than its northern counterparts. "I argue that economic segregation was a very important factor in Slovenia's and Croatia's decisions to secede and in the political upheaval and violent war that resulted. They were basically taking the most economically productive people out of the country." What was left was a "rump state"-and the political disharmony caused by spatial inequality.

"Current research focuses entirely on inequality-the haves versus the have nots," says Gruber, "but for me the question is where the two groups live. When haves live apart from have nots, you might get growth but not high-quality growth, and the well-being of the poor is hurt."
- Peter Schuler.

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