Ethics News
News: Globalization
>> = Important Articles; ** = Major Articles
Globalization cures poverty: study (National Post, 020709)
Protesting Too Much: Anti-globalization fizzles in D.C. (NRO, 021001)
Is free trade a costly myth? (Washington Times, 030225)
Is free trade a revitalizing force? (Washington Times, 030225)
The Limits of Globalization and Hegemony (Weekly Standard, 050211)
Global competition (Washington Times, 050215)
Trade & Protectionism: Globalization: A Race to the Top (Townhall.com, 050207)
Global Goods for the Anti-Globalization Movement (Christian Post, 050519)
Globalization—A Divine Strategic Set Up? (Christian Post, 060202)
Religious Leaders Bash the Global Market (Christian Post, 060913)
Christian Leaders Refuse Food to Cancel Poor’s Debts (Christian Post, 070906)
Poll finds G20 protesters blew it big time (National Post, 100702)
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Free markets credited with reducing misery - yet the gap between rich and poor widens
WASHINGTON - Globalization is responsible for dramatically reducing the number of abjectly poor people around the world, according to a new study that contradicts the claims of skeptics who say it has worsened global poverty.
“On average economic growth is good for the poor, and trade is good for growth,” said the study by the London-based Centre for Economic Policy Research.
The study, prepared for the European Commission by a group of respected economists who surveyed existing literature and studies on globalization, was unambiguous in saying that almost every criticism levelled by free trade’s skeptics is wrong.
Many globalization critics are “poorly informed about the historical record, and appear not to be aware of the contribution played by globalization in the struggle against poverty,” the study’s authors say.
They say closer economic ties between countries, reduced tariffs and greater flows of investments have made the most startling impact on global poverty.
While acknowledging the number of poor people in the world remains “disturbingly high,” the study says that in 1950 about 55% of the world’s population lived on less than US$1 a day (in constant, inflation-adjusted dollars). By 1992, only 24% of the world’s population had to make do with that tiny amount.
During that time the number of poor remained static at about 1.3 billion people, while the global population grew rapidly.
“The proportion of the world’s population living in absolute poverty is lower now than it has ever been,” the report says.
The study echoes a recent World Bank report which found the degree of an economy’s openness is closely linked to its standard of living.
The support for the often-controversial position of continuing to lower tariffs and expand free trade was a little much for the European Commission, which represents governments of various stripes and stressed that the study was not its official position.
“In many respects, the findings will prove controversial, at least to those outside the circle of professional economists, contradicting as they do certain deeply held beliefs about the negative consequences of globalization,” wrote Romano Prodi, the European Commission President.
The study notes that, while there are fewer people in abject poverty, the gap between average incomes in rich and poor countries is wider.
Improved communications has had the perverse effect of undermining the case for globalization because “the poor that remain, though a shrinking proportion of the whole population, are more than ever aware of their relative deprivation.”
Technology also makes it easier to draw attention to the startling discrepancies in world incomes.
The study takes issue with the slogans of protesters at anti-globalization rallies, like the one in Calgary during last month’s G8 summit at Kananaskis, Alta.
Critics charge globalization with increasing inequality, polluting the environment, exploiting workers, undermining the ability of governments to raise taxes to provide health care and welfare and with causing economic instability.
Untrue, according to the study.
“Many of the charges against globalization are misguided,” says the study, which says that while globalization does carry some costs, they are more than outweighed by the benefits.
The drumbeat of protest about manufacturers such as Nike and the Gap using Third World sweatshops to make their products actually harms the workers in those factories.
While a salary of $5 a day may seem “shockingly poor” to protesters in rich countries, that is often five times more than the workers would have gotten by staying in traditional industries such as agriculture, the study says.
Although there is some proof that countries exporting energy and natural resources such as timber underprice those products, causing environmental harm, there is no evidence of a “race to the bottom” in wages or environmental standards.
Many critics contend that corporations will relentlessly hunt for the cheapest place to do business, forcing richer countries to gut their social safety nets and environmental rules to match those of the lowest-cost country.
“If low wages alone were enough of an attraction, more [investment] would have flowed to the poorest countries in Africa, rather than predominantly to a small number of middle-income countries in Asia and Latin America,” it says.
In fact, it is in Africa that the study finds the weakest international performers, and failed economies that drag down the statistics for the rest of the world.
Recognizing that skeptics often make a better case than the proponents of deeper globalization, the study recommends that rich countries do a better job of explaining the benefits of globalization or else risk a backlash similar to the one that ended the last burst of freer trade that lasted from 1870 to 1913.
The study also recommended the wealthiest nations commit to lowering tariffs and subsidies for agriculture and textiles, which would boost incomes of the poorest workers and farmers, and also increase their foreign aid to 0.7% of GDP.
Currently, only Scandinavians, Luxembourg and the Netherlands give that much. Canada gives only 0.24% of GDP in aid, while the United States gives only 0.1% of GDP.
The study’s optimistic conclusions were discounted by globalization skeptics, who saw it as one of a host of biased reports aimed at confirming the reigning orthodoxy.
“For the last 25 years, globalization has been heavily tilted in favour of banks and investors and against the interests of working people,” said Robert Scott, an economist at the Economic Policy Institute, a left-leaning Washington-based think-tank.
He charged that the numbers showing poverty reduction were skewed by the exceptional cases of China and India. Removing those two huge nations creates a much more ambiguous case for globalization and shows dramatic increases in global inequality, Dr. Scott said.
“The evidence shows that unregulated capital and trade flows contribute to rising inequality and impede progress in poverty reduction,” a new Economic Policy Institute study said.
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They almost had me convinced.
It was supposed to be a banner weekend for the anti-globalization movement, with thousands of activists converging on Washington, D.C. to “shut down the city” during the International Monetary Fund’s annual meeting. And on Saturday afternoon, I was in the thick of it, in the shadow of the Washington monument, surrounded by placards and puppets and leather-lunged protestors.
Two of them — my new friends Todd and Mike, both smiling, earnest sophomores at George Washington University — had regaled me for 20 long minutes with their tales of the horrors that would result from an American invasion of Iraq ... which segued into the horrors that America had visited on other hapless countries ... which became, in turn, a discussion of the atrocities that the IMF and the World Bank had committed, or encouraged, or allowed, all across the developing world.
By the time they finished talking, I was practically sold. Somewhere behind me, beyond the black-clad anarchists and the Radical Cheerleaders (“1-2-3-4, we don’t want your racist war” they yelled, waving pom-poms and high-kicking), a man with a Bob Dylan rasp was on stage singing about the Sixties. A squad of D.C. cops, body-armored and stone-faced, roared by on motorcycles, and overhead I could hear the thup-thup-thup of a police helicopter. It was Seattle 1999 all over again, or Genoa 2001, or maybe even Chicago 1968. The whole world was watching, and I was primed — no, I was pumped for the revolution.
I just had one more question.
“So what would you do?” I asked. “What would you do, if you were put in charge tomorrow? What would you do to change the world?”
Todd looked at Mike. Mike looked at Todd.
“I’d abolish it,” Todd said. “And then I’d . . .” He trailed off.
“Yeah, we’d abolish it,” Mike said. “And then . . . and then things would be better.”
Thirty years later, we’re looking through bullet-proof glass, the singer crooned on. Led by a gun-slinging preppie with his head up his . . .
“Yeah,” Todd finished. “Things would be better.”
And maybe they would. But neither of my enthusiastic friends could quite explain why — and neither could the copy of the International Socialist Organization’s paper that they pressed into my hands (it looks a lot like the New York Post, oddly enough). The drummers “jamming for justice” nearby couldn’t explain it, either — and neither, disappointingly, could the wild-haired rocker who took over the stage shortly thereafter to complain we were “destructing the Earth … destructing the environment and the plants and the defenseless animals!”
“Mad Cow!” he bellowed. “Mad Cow rages against all that!”
I was confused — was “Mad Cow” disease actually a nefarious corporate plot? And then I realized that it was the name of his band.
Maybe the clannish anarchists, who wore bandannas over their faces and identified themselves by “protest names” like Scorpio and Otter, could have given me a better explanation. But they weren’t talking.
It was that kind of weekend for the anti-globalizers. They expected 20,000 people, but maybe 5,000 showed up. They hoped to shut down the city, but after a rain-drenched Friday in which hundreds were arrested and D.C. went on with business as usual, the rest of the weekend trailed off into well-mannered sloganeering (“They say privatize, we say democratize!”). By Sunday , their antics had been bumped back to the Metro section of the Washington Post — this, a scant two years after the last anti-IMF rally had taken D.C. by storm, and finally given the anti-globalization movement the attention that they so loudly claimed to deserve.
The weekend’s organizers wouldn’t admit their failure, of course, preferring to blame the police for miscounting Saturday’s crowds by a factor of, oh, ten thousand or so. But most of the people I talked to that sun-kissed Saturday admitted that yes, they had seen better protests.
It didn’t help that organized labor, one third of the anti-globalization movement’s supposed triple threat of “workers, students, and activists,” largely stayed away. Maybe the unions were uncomfortable with the anti-American fervor that animated many of the protesters — after September 11, flag-burning and Amerika-bashing might be hard to justify to the AFL-CIO’s rank and file. Or maybe they just didn’t want to hang out with Scorpio and Otter all weekend.
Whatever the reason, in the unions’ absence all that remained was a sea of students, activists and student-activists in long hair and shaggy beards, singing and dancing and eating granola (yes, there was a “granola stand” near the Washington monument). For a movement that claims to represent the oppressed, the sea of young, white, college-educated faces must have been a tad disheartening.
Even Ralph Nader, who addressed the crowd after Mad Cow’s performance finally careened to a close, seemed somewhat diminished. Fumbling through a prepared text, he railed against corporate greed and corporate power, declared the end of democracy, ran down the list of global ills, demanded revolutionary change — but like Todd and Mike, he didn’t seem to know what would come next.
“The genius of the Third World, not the IMF, “ he cried thinly, “will save the Third World!”
It hardly seemed like a revolutionary program to me, but the motley crowd didn’t mind. They yelled and hooted and waved their signs — Ghana’s water not for sale . . . Bush is an insane, unelected maniac . . . Congress: Another Israeli-occupied territory . . .
From two blocks away, you could barely hear them.
— Ross Douthat is an editorial analyst for The Atlantic Monthly.
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President Bush’s recent press conference on strengthening America’s economy used cargo boxes as props with their true “Made in China” labels covered over, showing theoretical “Made in USA” labels.
This was just another act in a decade-old vaudeville routine of naive “free trade” theories. Increasingly, only the excuses are really made in America.
Americans borrowed and spent $2.4 trillion more for goods and services than we made in just the past decade. America is now the world’s largest debtor, by far. And we are today borrowing or selling off assets at the record rate of $1 million per minute — that’s one-half trillion dollars a year — just to sustain our great lifestyle.
Free Trade Vaudevillians shout that “foreign direct investment” (FDI) in the United States shows investor confidence. But the details reveal virtually all FDI is merely acquiring firms like Chrysler and Paine Webber for their worldwide assets.
Commerce Department reports show foreign trade has reduced gross domestic product (GDP) growth in 10 of the last 11 years, for an unprecedented total loss of more than 5% of GDP. The trade deficit likely reduced the meager growth rate in the last quarter of 2002 by more than one full percentage point.
This is the key reason that even during the asset-bubble economy of the 1990s, with a massive rise in private debt that has not vanished, U.S. growth trailed far behind world growth and was only one-third of China’s growth rate.
Replaced by imports, U.S. output has not kept up with population growth and our own market. Last year, U.S. production of autos, trucks and parts fell $123 billion short of our own domestic market needs. We paid $203 billion for foreign-made automotive goods and earned just $80 billion from exports. Our $152 billion deficit shortfall just for office machines, TVs and clothing was triple our surplus for all traded services — which has fallen to an 11-year low.
Federal Reserve Chairman Alan Greenspan and others have finally spoken out about the immense pressures this unsustainable trade deficit puts on financial markets. Some catalyst — terrorism, an accident, a rumor — could cause interest rates to soar, the dollar to plunge and global financial markets to go into another of their now too familiar crises.
But the real, looming economic problems created by our huge and sustained trade deficits are far worse than immediate financial concerns.
The best global corporations and new technologies radically transformed trade from when it was mostly between developed countries and driven by who made the best product. Trade now undermines, rather than raises, current and future prosperity as firms outsource their most productive research, industries and jobs to places like China, which are far less productive but have vastly lower regulatory and wage costs.
Long gone are the days when the United States imported mostly oil and basic commodities while producing a surplus of sophisticated, high-value-added goods and services for export. Commerce Department data show the United States plunged into trade deficit last year even for our most advanced technology products, such as navigational and communication devices, high-tech machine tools and medical equipment.
Last year, Americans paid $28 billion more for computers and computer parts than we earned from exports. This was $5 billion more than our entire net earnings from so-called intellectual property — royalties and fees on all software, movies and Wal-Mart franchise fees abroad.
Outsourcing and imports are destroying millions of our best, most productive jobs in electronics, machinery, aircraft, autos, computer programming and engineering. They are being replaced by low-wage, labor-intensive jobs that cannot be outsourced in areas like healthcare, education, criminal justice, home repair, building security and local government.
This downward shift, and the price pressures on those jobs that remain, is why wages are now barely keeping up with inflation rather than growing by 4% per year as they did a generation ago. The shift also undermines tax receipts, worsening the exploding federal, state and local debt problems and service cutbacks.
There always have been people opposed to laws that require a minimum wage, prevent dumping toxic sludge in our streets, assure food safety or prevent predatory pricing from driving out competition. Many of these people have found support in the free-trade movement, both by outsourcing their production to China and other countries, where dictators or others prevent enforcement of such laws, and by declaring that now we must eliminate our own U.S. laws to be “competitive.”
Extreme, unregulated global commerce is clearly hurting United States and world prosperity. It must be immediately and forcefully reformed in the best pragmatic traditions that made our country great.
Charles W. McMillion is president and chief economist of MBG Information Services, and former associate director of the Johns Hopkins University Policy Institute.
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New Commerce Department data show that the United States set a record in 2002, importing $435 billion more than we exported. This trade “deficit” immediately generated howls of anguish. “A real downer,” said the president of the National Association of Manufacturers. The head of the AFL-CIO claims it’s “a catastrophe for working Americans who are losing their jobs, health care and stable communities due to our nation’s failed economic policies.”
This end-of-the-world rhetoric is completely misguided. A nation isn’t harmed when it imports more than it exports, which is why the trade deficit is the most dangerous statistic collected by government. It leads some people to support protectionist policies because they’re convinced America is losing a critical international battle.
But America isn’t in a battle. It is people who trade, not countries, and people trade because it makes them better off. This is true if someone in Virginia trades with someone in Maryland, and it is also true if someone in Kansas trades with someone in Singapore.
Protectionists usually will admit that free trade is a good idea, at least in theory, but then argue that the “trade deficit” shows there’s an imbalance that must be corrected. Yet, they offer no evidence for this hypothesis. I have trade deficits with my local supermarket, movie theater and gas station: I buy lots of things from them and they never buy anything from me. Why is that bad? Should politicians and bureaucrats be allowed to limit my freedom to make these purchases in order to “protect” me from a trade deficit?
The same analysis applies to the overall economy. At any given point in time, Virginia may have a trade deficit with Maryland and the United States may have a trade deficit with Germany. But these deficits are merely the result of millions of voluntary transactions between producers and consumers. And unless we’re willing to assume that people are idiots, those transactions benefited both buyers and sellers. Would these people be better off if politicians and bureaucrats used quotas and trade taxes to hinder trade?
The evidence clearly says no. The 1930 Smoot-Hawley legislation was supposed to protect American jobs, but instead it helped cause record unemployment and the Great Depression. Countries today with high trade barriers — like Japan — suffer from anemic growth, while free-trade jurisdictions prosper. Unfortunately, protectionists won’t heed economic arguments. They seem convinced that a trade deficit is like cancer, something that’s always bad news. In reality:
• A trade deficit usually is a sign of economic vitality. America’s economy may not be booming, but we’re doing much better than most other countries. And because we’re growing faster and earning more, we can buy lots of goods and services, regardless of where they are produced. Japan has a trade surplus, but it also is mired in a 10-year economic slump. Would anybody be crazy enough to want to trade places? How about Europe? It has a trade surplus with America, but would anyone seriously suggest that we mimic the high-tax, high-unemployment economies of France and Germany?
• A trade deficit means America is enjoying an investment surplus. Foreigners earn lots of money by selling goods and services to Americans. Protectionists seem to think that foreigners should use that money only to buy an equivalent amount of goods and services from Americans, but many foreigners consider the United States is a good place to invest. As a result, a substantial share of the money we send overseas to purchase TV sets, cars, oil and bananas winds up getting invested in our economy. Foreigners think our economic future is bright, and they’re helping to create jobs and prosperity in America by putting money in U.S. banks and buying stock in U.S. companies. This is a vote of confidence, a sign of America’s strength.
Because protectionist sentiment often is an emotional reaction to the trade deficit, perhaps using a new term can mute this self-destructive impulse. Instead of publishing “trade deficit” statistics, the Commerce Department could publish “investment surplus” statistics. Journalists then could discuss a real story — how capital is fleeing uncompetitive slow-growth economies and coming to America.
Of course, our exports can be hampered by protectionist policies in other nations. (Japan, for instance, imposes a tax of nearly 500% on imported rice.) American policy-makers should work to diminish those barriers.
We also should make sure we aren’t hurting ourselves. America has one of the highest corporate tax rates in the developed world. This is hurting U.S. competitiveness, especially since we then tax that income a second time at the individual level.
There are many things lawmakers can do to make America more competitive, but protectionism isn’t the answer. Trade barriers are the siren song of special interests and the refuge of those who doubt America.
Daniel J. Mitchell is the McKenna senior fellow in political economy at the Heritage Foundation (www.heritage.org).
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In the nineteenth century, Great Britain found out that economic globalization does not guarantee peace.
BETWEEN THE END of the American Civil War in 1865 and the beginning of the First World War in 1914, the first great period of human globalization brought the world together as never before. Technologies like the railroad, the telegraph, the airplane, and the internal combustion engine led many optimistic observers to predict the end of large-scale war. We often hear similar arguments today. Are they as wrong now as they were then?
On the eve of that era’s violent destruction, Norman Angell predicted in his best-selling book The Great Illusion that commerce among Europe’s great powers had finally rendered war obsolete. Angell declared that it was economically irrational for any European power to upset the global economy through continental conquest. He argued that the gains of conquest were substantially outweighed by the costs of war. Economically speaking, he was undoubtedly correct. He was also irrelevant. In less than a year, the guns of August shattered his vision and the First World War mired Europe in four years of hell on earth. However economically detrimental it may have been, war was not obsolete.
The first era of globalization shared many common characteristics with our present era of burgeoning trade, rising powers, and a hegemonic security provider. What Britain did then, the United States does to an even greater degree now. That era accordingly provides interesting parallels to our current globalized period. Namely, in that era, intelligent observers viewed war between great powers as economically inefficient and therefore improbable. Perhaps unsurprisingly, we hear the same arguments today: In the face of free trade and global interconnectedness, free people will not make war on one another.
It is worth examining this enduring notion that commerce can pacify cultural rivalry. It has not done so historically, and there is no guarantee that it will do so now. In other words: It is worth looking at why Norman Angell was wrong.
IN THE FIRST GLOBAL ERA, Great Britain loosely filled the United States’ current role as guarantor of global stability. To a lesser degree than American aircraft carriers do today, the Royal Navy preponderantly ruled the seas. Also like the contemporary United States, a democratic Britain maintained strategic bases around the globe.
Likewise, in that era, many emerging nations benefited from a unilaterally provided security blanket. All nations engaging in global trade reaped the benefits of such commerce, but Britain alone maintained responsibility for patrolling the world’s seas and keeping the lanes of maritime commerce open. In essence, Britain subsidized a sizeable share of global stability.
In the present era, the United States subsidizes global security for much the same reasons Britain did—the costs of maintaining such military preponderance are substantially outweighed by the benefits of open markets and forward-based power projection. For a percentage of GDP that is less than the percentage of GDP spent on the military during the Cold War, the United States reaps valuable economic and strategic gains.
In the late 19th century, the emerging economic giants were Germany and the United States, each with sizeable and growing populations. Towards the end of that era, an ascendant Japan was also rapidly gunning for great-power status—even militarily defeating Russia in 1905.
Arguably, each of these nations derived significant economic benefits from the British security guarantee. As a democratic nation, Britain possessed little desire for costly wars on the European continent, or for that matter, on the North American continent. Such a large-scale war would undoubtedly spread the costs of war down to the voting British people, and the instigators of such a conflict would suffer electoral consequences. While Britain was constantly engaged in small-scale wars in Africa, the Indian sub-continent, and elsewhere in Asia, defending and expanding its colonial possessions, its naval dominance posed little real threat to German, American, or even Japanese security. Britain alone was dedicated to a policy of free trade, and Britain staunchly defended free navigation on the high seas.
(In this era, Britain fought a large number of engagements against non-Western adversaries to further its imperial interests. Among the more notable are the Anglo-Zulu War of 1879, the Wars of the Sudan in 1884-5 and 1898, and the Boxer Rebellion in 1900. Britain’s single war against a westernized adversary, the South African Boers of the Transvaal and the Orange Free State, proved extremely costly and substantially strained British society between 1899 and 1902, when the Boer Republics finally capitulated.)
Yet, Japan, Germany, and the United States all embarked upon policies of dramatic naval expansion. They did so in spite of the economic windfall provided by British naval hegemony. This desire for naval strength accordingly transcended both economics and a generic concept of security. Rather, the driving idea was cultural glory
and power projection. The muscular nationalism of the age had little to do with economics, and much to do with gaining a “place in the sun.”
SO WHAT DOES MEAN for the era of the Internet, satellites, and ICBMs? It means that not long ago, cultural ideas presided over economic rationality for ascendant powers. They could do so again, today. While many ascendant nations currently benefit economically from U.S. military preponderance, there is no guarantee that they will be content to remain free-riders. Like Wilhelmine Germany, Rooseveltian America, and Imperial Japan, ascendant nations and regions may, and likely will, still seek their place in the sun.
Without question, the means of augmenting comparative power have changed, and a nascent naval race is not to be expected. Although, the current push among second-rate powers to obtain and develop nuclear weapons may survive loose scrutiny as a modern day comparison. Nevertheless, the overall message of the first era of globalization remains vital—in the case of ascendant nations, economic prosperity does not necessarily preclude a desire to militarily or coercively influence geopolitics.
It is necessary here to distinguish between “ascendant nations” and what could be termed “declining nations.” By ascendant nations, we refer to developing and or growing power centers, such as China or India, whose comparative geopolitical power is on a clear upward trajectory, as opposed to for example, Germany or France, whose comparative power in terms of demographics, economic growth, and power projection is likely looking at a downward or stagnant developmental trend. In the first era of globalization, it was ascendant cultures that proved least accepting of a hegemonic world order—regardless of the economic benefits that accrued from that order.
BUT WHILE OUR CONTEMPORARY ERA may be a time of economic globalization, it is also a time of emerging cultural warfare. The contemporary Middle East provides powerful vignettes to illustrate this trend. Perhaps none is more salient than the fact that while jihadists willingly utilize the fruits of globalization—such as cell phones or the Internet—they utilize such tools to organize cultural warriors in opposition to the very culture which produced those tools.
More importantly, in regard to truly ascendant powers such as China, it is imprudent to assume that economic prosperity will necessarily pacify Chinese national ambitions. Like Wilhelmine Germany or Imperial Japan, and unlike Gilded Age America or contemporary India, China is not a democracy.
Accordingly, the oft-touted argument that economic prosperity and commercial interaction will pacify China must be taken with a grain of salt. With an occasionally saber-rattling, officially Communist authoritarian government still in power, the idea that China is using economic liberalization as a means of dramatically expanding its national power must be taken seriously. From China’s space program to their military modernization, there exist indicia of a non-democratic and culturally-proud nation aimed at regional and perhaps if possible, global power.
IN THE LATE NINETEENTH CENTURY, both America and Germany entered the naval arms race against Britain. One posed a substantially greater threat to British security and the British world order. (Not surprisingly, it was the nation that started the First World War, not the nation that came to Britain’s aid midway through it.)
An armed United States posed a de minimus threat to Edwardian Britain for the same reason that a nuclear France does not trouble U.S. strategic policy makers today—substantial, democratic cultural ties make such power relatively unthreatening. The same simply cannot be said of economically modernizing non-democracies. To the extent that non-democratic economic modernization and the rule of law that must accompany it serve to promote democratic cultural values, such should be strategically embraced and promoted. However, the concept of a non-democracy using globalization as a means towards comparative power advancement must not be forgotten in the process. Commerce, in other words, can cut both ways.
Michael Brandon McClellan is a writer in Washington, D.C. and runs the blog Port McClellan .
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How the mighty have fallen. And even if the fall is not all that big, consider that it’s happened to a so-called superpower. Were you looking for the “land of the free” would you try Iceland? Or Ireland? Or how about Estonia?
These three countries made it to the top 10 in the Heritage Foundation’s “2005 Index” in terms of economic freeedom, along with Hong Kong (No. 1), Singapore (No. 2), and then in descending order, Luxembourg, New Zealand, United Kingdom, Denmark and Australia.
Surprise, America for the first time in 11 annual issues did not make the top 10. It slipped to No. 12. Why? Edwin Feulner, head of Heritage and an editor of this volume, explains disquietedly: by the United States conceding trade leadership through relatively higher government spending and some protectionist measures.
Or as Mary Anastasia O’Grady, another of the book’s editors and a senior editorial page writer at the Wall Street Journal, puts it: “By replacing duties and quotas with antidumping action, the United States is weakening its moral authority as a trade leader and unintentionally encouraging its trading partners to join in the practice.”
How do Heritage and the Wall Street Journal, you may ask, measure economic freedom? They update data on 161 countries against a list of 50 independent variables divided into 10 broad empirical factors:
• Trade policy
• Fiscal burden of government
• Government intervention in the economy
• Monetary policy
• Capital flows and foreign investment
• Banking and finance
• Wages and prices
• Property rights
• Regulation
• Informal market activity
So this book shows two trends at work. One lies in the dynamics of global competition for rising betterment of mankind, including the enhancement of world peace, terrorism aside. The other, a counter-trend, lies in ongoing political pressures to stifle this trend through protectionism, especially through tariffs, import quotas or other forms of anti-globalism.
CNN has gotten into the act through its nightly business program under TV anchor Lou Dobbs. For months Mr. Dobbs has been firing torpedoes at what he and his producers call “Exporting America” or “outsourcing” jobs. Heritage senior research fellow James Jay Carafano here takes CNN and Mr. Dobbs to task for needlessly stirring up job-loss fears, which Mr. Carafano says “are wildly overblown.”
Meanwhile, Mr. Dobbs himself, the winner of an Emmy award for sharp reporting, as well as those Emmy judges, might brush up on classical 19th century-economist David Ricardo’s theory of “comparative advantage.” This is Mr. Ricardo’s famous argument that, even when a country such as Portugal has an absolute advantage over Britain in producing both wine and textiles, it would most likely veer to producing and exporting its more profitable wine and importing its less profitable textiles.
As a matter of fact, the editors promote even greater globalization than exists today. They present data showing how global trade and world GDP per capita have together tracked onward and upward between 1960 and 2003. Per capita GDP in constant 1995 dollars has more than doubled, from $2,622 in l960 to $5,786 in 2003. The percentage of world trade (exports plus imports) of global GDP has nearly doubled, from 24.3% in 1960 to 47.2% in 2003.
So the editors present their challenging plan for a Global Free Trade Alliance (GFTA). GFTA is based on the fact that there is still much room for gain. The editors ask: How many people enjoy economic freedom? Only 8% of the world population, including Americans, live under the index’s category of “free,” 15.9% live under “mostly free” and 72.1%, with over half of this percentage taken by China and India, under “mostly unfree.” The remaining 4% live under “repressed,” with this latter category covering such countries as Venezuela and Zimbabwe.
Time is short and terrorism equals X, the unknown quantity. Bully then for the editors who explain that the GFTA is based on legislative initiatives ,rather than on the slow treaty process of diplomatic negotiations under the jaundiced eye of the World Trade Organization. I think their point on saving time and expanding trade (call it stepped-up globalization) well fits the old IBM motto of “World Peace Through World Trade.” Now, who could object to that?
William Peterson is an adjunct scholar at the Heritage Foundation and the Mises Institute.
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by Pete Geddes
Imagine a world without borders. Here, businesses are free to move people, products, and capital anywhere with minimal friction. Governmental interference has lessened and economic coordination improved.
Critics of globalization and free trade would have us believe the result would be a giant race to the bottom. (Read more about the anti-globalization movement.) They expect firms to seek out localities with the lowest wages and weakest environmental regulations. Does this actually occur?
The United States is just such a world. And over the last century, a lot of moving has gone on, for example, the migration of entire industries (e.g., textiles from New England to the Southeast). The result has not been the predicted nightmare. For example, while there is still disparity in regional incomes, over time these differences have declined and continue to do so.
The overwhelming consensus among economists is that the quickest way to boost living standards and improve environmental quality is to remove trade barriers.
In many “progressive” circles this is heresy. Here, globalization and free trade are metaphors for a world dominated by multinational corporations. They pollute the environment, exploit workers, and increase inequality, all in the name of profits.
Mexico is frequently used as an example. It’s true a growing Mexican economy has made controlling pollution more challenging. But economic progress, combined with a more competitive, open political system, has spurred the government to respond to demands for environmental protection. (Read on aWC about free trade and environmental improvement.)
One result is that Mexico City’s notoriously dirty air is improving. The government’s environmental regulations have significantly reduced the levels of lead, carbon dioxide, and sulfur dioxide. Today, Mexico City’s air is cleaner than that of Los Angeles 30 years ago. It’s vital to understand the connection between economic progress and the increased demand for environmental quality.
But why can’t Mexico City have even cleaner air, right now? Here’s a key to understanding. Cleaning the environment requires an enormous commitment of resources. Only when people can provide the basics for their families (e.g., food, shelter, and security) will they turn their attention to environmental quality. Russ Roberts of George Mason University explains:
“[Mexico] cannot afford the luxury of our standards any more than America could have afforded them 100 years ago. One way to see this is to think about bicycle helmets. Where are more bicycle helmets worn Manhattan or Mexico City? Don’t people in Mexico know that it’s dangerous to ride a bike in traffic without a helmet? I suspect they do. It’s just too expensive. Poor people are better off foregoing the helmet, keeping their kids in school a little longer and doing the best they can to avoid being hit by a car.”
Affluent American college students show their concern by protesting the exploitation of “sweatshop” workers. Their angst will be reduced if they answer this question: Why do the world’s poorest continue to line up for these jobs? Contrary to popular belief, multinational corporations pay significantly higher wages than those paid by local firms. These jobs are among the most coveted in developing countries. The positive results are measurable and increase over time. (Check out this aWC article on sweatshops.)
The World Bank notes that globalization is responsible for a “spectacular” decline in poverty in East and South Asia. In 1990, there were roughly 472 million people in the East Asia and Pacific region living on less than $1 a day. By 2001, there were 271 million living in such extreme poverty, and by 2015, at current projections, there will be only 19 million Asians living under those conditions.
This economic progress is responsible for declines in illiteracy, child labor rates, fertility rates, and for improving environmental quality.
Here’s a shocker. A 2001 paper from the National Bureau of Economic Research suggests the real cause of rising global inequality may be insufficient globalization. In the developing world, incomes in and among open, democratic societies tend to become more equalized. Incomes in countries more closed to trade and foreign investment lag. (Read about the Gains from Trade.)
Martin Wolf of The Financial Times wrote in his recent book, Why Globalization Works, “Never before have so many people — or so large a proportion of the world’s population — enjoyed such large rises in their standard of living.” Let’s not exclude the poor from this race to the top.
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An anti-globalization group called “Anti-Marketing” defines globalization as “the process of exploiting economically weak countries by connecting the economies of the world, forcing dependence on (and ultimately servitude to) the western capitalist machine.” While this formulation may sound extreme, the same basic, perverted understanding of globalization has poisoned the minds of many.
In a world of scarcity, the most advanced societies have the most internationally connected economies. This has always been true. In ancient northern African nations, the Greco-Roman world, and later in the Netherlands, Britain, Spain, and the United States, nations that traded widely were nations that prospered.
Trading societies also tend to be open societies. The Scriptures expose the proclivity of people in any system to be “lovers of self, lovers of money, proud, arrogant, abusive…” (2 Tim 3:2-3). But the assumption that societies in isolation from the world promote human dignity and increase human freedom better than internationally connected ones is historically fallacious. Isolationist nations lag behind the rest of the world in terms of both human freedom and standards of living. It is no accident that the developed nations of the West offer more freedom and protection for women and non-elite citizens. Connecting weak economies to stronger ones, overall, is mutually beneficial and empowers developing countries toward true independence for its citizenry.
This is exactly what happened when Japan connected its economy to the rest of the world. Japan’s isolation from the West rendered it technologically and economically weedy. After opening trade with the West in 1854, Japanese leaders and scholars of the Meiji era studied the United States and its key formative figures like Abraham Lincoln and Benjamin Franklin. In the span of three generations, Japan went from an isolated, agrarian economy, to the second largest economy in the world—on an island with relatively few natural resources.
Within the context of global trade, Japanese innovators took Western products and made them their own—actually improving them to sell back to the world cheaper and better than originally produced. By 1958, just over a hundred years after opening trade with the West, America’s first Nissan dealership opened for business in San Diego, offering the $1,695 PL210 four-door Datsun sedan. It sold only 83 vehicles. At the time, analysts believed that Japanese automobiles would never be a major player in the U.S. market.
By the late 1980s, Japanese cars accounted for more than 30% of the U.S. market. The island nation continues to lead the world in technological advancement in electronics, robotics, and transportation. Japan became the second largest economy in the world by connecting its economy with the rest of the world.
The irony of the anti-globalization movement is that the protesters themselves are the beneficiaries of globalization and rely on it to bite the hand that feeds them. Western protesters have the freedom and wealth to use Nokia cell phones and keep time on Seiko digital watches as they drive bumper-sticker laden Subaru Outbacks to protests, where they use Canon digital cameras (or a Nikon 35mm camera with Fuji film) to snap photos that will be viewed on the Internet or on the news by millions watching televisions made by Sony or Toshiba.
In fact, much of the anti-globalization angst is nothing but old school paternalism cloaked in concern for other cultures. The protesters presume that only Westerners have the fortitude to request, receive, and handle imported products. Here’s their logic: A Guatemalan franchise like Pollo Campero Fried Chicken is good for Los Angeles, but GAP clothes and Coca-Cola are destruction for other countries. Saabs, Volkswagens, Volvos and other foreign products can only benefit those sophisticated enough to purchase in a way that won’t undermine fragile native cultures. North Americans and Europeans can comfortably surround themselves with imported accoutrements, but the benighted developing world should remain shackled to the enslavement of Western foreign aid programs.
It is true that filth and evil are sometimes exported in the process of connecting economies, a fact that highlights the need for a sound moral culture without which political and economic structures function ineffectively and harmfully. This is where the focus of globalization worry should be. Meanwhile, the misguided complain about MTV throughout the world but say nothing about Reggaeton, the latest Latin music craze, polluting the airwaves all over the United States and Latin America. The real enemy is not connecting economies of prosperity but connecting economies of evil.
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Anthony B. Bradley is a research fellow at the Acton Institute.
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We hear a lot in today’s news about globalization and its effect on international economies. Many people have mixed feelings on the subject. But have you ever stopped to think that God might be strategically orchestrating all of this?
Twenty years ago most people couldn’t imagine that China would be one of the major economic players of the world. India used to be considered the epitome of a “third-world” country in many people’s minds. Today India boasts one of the world’s fastest growing economies.
What does this say about the world we live in today? I believe God is saying to Believers, especially Christians in the marketplace to wake up and see the harvest around us! Commerce is opening new doors for the Gospel that traditional missionary efforts were never able to open!
Back in the 1800’s in the interior of Africa, the great missionary David Livingston wrote in his journals that Christian merchants combined with missionaries could help drive away the slave traders. Livingston saw the enormous impact Christianity and commerce could have on a continent.
Today is no different. God is giving many men and women visions of forming “great commission companies” that will be used to glorify God throughout the nations. These businesses will generate resources that will be a blessing to scores of people, pointing them to the life of Christ. God wants to use His people in the marketplaces of the world to bring spiritual hope to scores of lost people and tangible solutions to problems that plague societies, communities and nations.
Think about the eternal impact of millions of new great commission-minded businessmen and women being raised up in the nations! What if God’s people learned to steward and generate finances for the Kingdom! Not only the spiritual but the economic benefits to the Church around the world could be significant.
No matter what line of business you’re in, you have a role to play in God’s ultimate business- the great commission. Let’s keep an open heart and perceptive mind to what God is doing in our day and time.
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Jonathan Shibley serves as Vice President of Global Advance and direct the Marketplace Missions efforts.
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Religious activists are more outspoken than ever about the problem of global poverty. So why do they so often and so energetically attack multinational corporations – the very organizations that are helping developing nations create jobs and grow through broader trade relations?
To a certain way of thinking in religious circles, large global corporations are often perceived to make excessive profits, exploit the poor, damage the environment and exercise undue influence on governments – especially struggling democratic nations in the developing world. In many ways, these companies are visible and easy targets for the anti-globalization crowd.
If the material living conditions of the poor are the main criterion, religious leaders should be arguing for more, rather than less, globalization. By that, we mean the inclusion of developing countries in the global economy and lower barriers to their participation in international trade. It would most probably also mean increased investment by multinational corporations in developing countries. In order to compete for these investments, developing countries need to provide an attractive climate by fighting corruption, establishing good banking and legal services, and ensuring basic education, health care and infrastructure. These improvements would increase transparency, accountability and benefit society in general.
But recent anti-business campaigns by religious activists would lead one to conclude that the cure for poverty involves attacking large companies. For example:
• A December 2005 letter signed by several dozen religious leaders, including Jesse Jackson and the president of the United Church of Christ, took the CEO of Wal-Mart to task for paying “poverty level wages.” (http://www.reclaimdemocracy.org/walmart/2005/religious_leaders_letter.php). “Wal-Mart needlessly ignores the Golden Rule putting our children and their workers needlessly at-risk,” the religious leaders wrote.
• In February 2002, (http://www.nlcnet.org/campaigns/shahmakhdum/truth.shtml) the now retired Roman Catholic auxiliary bishop of Detroit, Thomas Gumbleton, and a Methodist Bishop, Jesse DeWitt, wrote to the CEO of Disney and called for better working conditions at a garment factory in Bangladesh. The conditions at the factory actually did improve, but Disney’s contractor subsequently halted operations there, prompting another letter in December 2002, this time from the superior general of the Marianists, a Roman Catholic religious order, urging Disney to return.
• Then there’s the long running campaign against Coca-Cola in India (http://www.indiaresource.org/), criticizing the beverage manufacturer for not listing pesticide residuals on labels and for allegedly draining and polluting local water supplies. Government officials reacted to these latter, unproven claims by shutting down a bottling plant in the southern state of Kerala in March 2004. The company has also been attacked for quality-control problems in Europe and labor practices in Columbia. The anti-Coke campaign has been supported by a social action fund of the Unitarian Church and Union Theological Seminary in New York, which banned the sale of Coca-Cola products on campus in April 2005.
The very concepts of business and profit motive are often reason enough for religious leaders to condemn an activity as immoral and unethical, and criticisms of multinational corporations are just the same condemnations on a larger scale.
Even if the necessity of market economics is granted by some religious groups, few seem to appreciate how business activity and work are actually good for human beings. People spend most of their waking hours on the job and people of faith can learn to see their particular occupation as their vocation in life, no matter the type of work.
Does size matter? Not really. It is now well-established that multinationals tend to treat workers better than domestic employers in developing countries (see, for example, the National Bureau of Economic Research Working Paper 8299 of May 2001 and numerous studies by the OECD, such as Trade, Employment and Labour Standards of 1996). China and India are two prominent examples of countries that have greatly reduced poverty as a result of opening up their economies. From the perspective of developing countries, it is much worse to be ignored by multinational corporations than to work for them.
A dose of realism may also be in order. For all the good things it brings, increased commerce will not result in a perfect society. There will always be some forms of inequality, leading to resentment and class divisions, while materialism and alienation can be commonplace in commercial societies – as they were in socialist planned economies. Moral education is vitally important, as there can be no good society without good human beings. But if religious leaders must address economic issues, a little more economic literacy is necessary.
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Kishore Jayabalan is director of Istituto Acton, the Acton Institute’s Rome office. Formerly, he worked for the Vatican’s Pontifical Council for Justice and Peace as the lead policy analyst on sustainable development and arms control.
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by Irwin M. Stelzer
SO WE LIVE in a globalized world, which impacts on jobs, wages, consumers, and producers. All of which already have received too much attention to require further comment by me.
But what we have not fully considered is the extent to which globalized markets produce pressures for globalization of government policies. And some policymakers and officials want to build dikes to prevent the regulatory policies of other countries from leaking into theirs. In Europe, the big worry is that what the European Union considers excessively burdensome financial regulation will seep into Europe’s financial markets. So Ed Balls, the new Economic secretary to the British Treasury, and the chancellor of the exchequer’s principal ally, is assuring the City that in the event of a takeover of the London Stock Exchange by NASDAQ, now deemed likely, the government will save the City from the dreaded heavy hand of American regulation, most especially the hated Sarbanes-Oxley Act.
Stock exchanges in America are facing such competitive pressure from London’s less-heavily regulated exchanges that they are scrambling to lighten the regulatory load. Secretary of the Treasury Hank Paulson and New York Mayor Mike Bloomberg, both intimately familiar with the working of financial markets, see the globalization process as a threat to the ability of New York to compete with London in the competition for share listings. So they are each initiating studies of ways to make Wall Street less regulated, and therefore more competitive. Which in practice, means getting Congress to modify Sarbanes-Oxley by exempting smaller firms from
the act’s requirements. That chore might be made easier by the impending retirement from Congress of both authors of that now-controversial legislation.
In addition, both the Treasury secretary and the mayor are putting pressure on the Securities and Exchange Commission to take a more relaxed view of the procedures companies must adopt to comply with SOX, as it is known (or “Darn Sox”, as the Economist dubs it).
This is only one, albeit the most prominent, of the consequences of the globalization of policy. Tax is another. More and more companies operating in high-tax venues are casting envious eyes on lower-tax Ireland and a variety of island tax havens. Britain’s chancellor Gordon Brown has always resisted calls of high-tax E.U. countries for “tax harmonization,” fearing that meant imposing on the United Kingdom the stultifying tax regime of the European Union. Now the shoe is on the other foot, and the market is attempting to impose on him the low-tax regime of countries that British companies are beginning to consider as havens from the Inland Revenue’s apparently insatiable desire for funds, and the intrusiveness of its 70,000 tax collectors. We are witnessing on an international scale the sort of tax competition that has always existed among our states in their scramble to attract business. (Although that competition has most often been on a one-shot basis when a business was mulling over a decision to locate a new plant.)
Meanwhile, the U.S. business community is calling for all manner of harmonizations. The, shall we say, looser policies of many countries towards the protection of intellectual property allows foreign competitors to steal American technology, audiovisual content, and designs. So firms in industries from pharmaceuticals to film-making want to harmonize rules on the use of IP—which is a bridge too far for China, where it is possible to buy the DVD of a film for $1 on the day of its U.S. theatrical release. Intellectual property disputes are also a source of some trade tension between U.S. pharmaceutical companies and Australia, a country somewhat less deferential to the patent claims of America’s drugs companies.
For the American businessmen with whom I spoke the big worry is competition policy. Ever since the European Union prevented the merger of two American companies, GE and Honeywell, and decided to be tougher on Microsoft than the American government’s reluctant antitrust enforcers, European competition policy has had a very high a profile in the States. Some American CEOs think, or say that they think, that the European Union uses competition law to prevent American companies from competing vigorously with home-grown firms. Never mind that most of the complaints against Microsoft, and now against Intel, have come from American companies challenging the competitive tactics of rivals they believe to be “dominant” under E.U. law.
American firms are also finding that doing business in a globalized world subjects them to the merger policies of many nations. Indeed, one expert in mergers and acquisitions tells me that when a deal is struck, he now sets up a giant board with a column for each of the dozens of nations that have antitrust statutes which have to clear the transaction of any company that operates on a transnational basis. Authorities in Australia, along with those in the United States and the European Union, are always top of the list of his concerns.
Then there is food. Europe and America can’t agree which foods are safe and which are not. The disputes shift from time to time, going from beef or other specific foods, to the broader category of genetically modified crops—which are considered safe for American stomachs,
but not safe enough to eat in many E.U. countries, despite a World Trade Organization finding that there is no sound scientific basis for eschewing the chewing of GM foods.
Finally, there is the globalization of product markets, with made-in-China sneakers flooding America, made-in-China soccer balls flooding Britain, and made-in-China shoes flooding European markets. This phenomenon is leading to a call from America and Europe for harmonization of labor standards. America’s trade unions are pressuring the government’s trade negotiators to demand internationalization of U.S. work-place standards, while Europeans want the competition from Britain’s harder-working labor force ended by preventing workers in the United Kingdom from putting in more hours at work than lazier French and German workers.
There’s more, but you get the idea. The European Union wants to impose its more rigorous competition policy on American firms, who want to impose their more rigorous financial regulations on European firms. The Americans and Europeans want to harmonize China’s lax-to-nonexistent IP protection regime with their own. Britain wants protection from American financial regulation and from E.U. labor market regulation, and worries that harmonized tax policies might force taxes up if France and Germany do the harmonizing, or down if Ireland plays that role. And every nation wants to impose its own view of appropriate environmental policies on every other, with Europe last week threatening to impose emissions taxes on U.S. airplanes flying into and out of E.U. air space.
Such are the business complexities created by globalized markets.
Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.
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[KH: “liberal” evangelicals; Wallis is just a liberal Christian]
Several prominent Christian leaders are joining a 40-day fast beginning Thursday to lobby Congress to cancel the debts of 67 of the poorest countries in the world.
Forty major religious and community leaders will participate in the “Cancel Debt Fast” organized by the Jubilee USA Network Sept. 6-Oct. 15. The leaders will be joined by up to an expected 20,000 Americans who will urge not only for the cancellation of debts, but also to establish responsible lending practices for the future.
“Today, millions of men, women and children around the world are literally starving for debt cancellation,” lamented Jubilee USA Network on its website.
Jubilee USA Network is a religious alliance working for the cancellation of debts to fight poverty in poor countries.
“The 2007 Jubilee Act (HR 2634) would provide expanded debt cancellation for many countries that were not included in the 2005 G-8 (Group of Eight) agreement and need debt cancellation to address extreme poverty,” the network explained.
Indebted nations spend an average of $100 million each day to pay their debts – money that could be spent on food, education, health services and other needs in a poor country, according to Jubilee.
Among the faith leaders participating in a day-long fast during the campaign are the Rev. Jim Wallis, CEO of Sojourners/Call to Renewal; Ron Sider, founder of Evangelicals for Social Action; and John Thomas, president of the United Church of Christ.
Dr. Tony Campolo, founder of Evangelical Association for the Promotion of Education, meanwhile has endorsed the fast.
Organizers and participants hope to secure a hearing on the Jubilee Act in the House of Representatives and the introduction of a similar bill in the Senate.
The Jubilee campaign noted that this year marks the halfway point of the G-8 Millennium Development Goal to cut worldwide poverty in half by 2015 – a goal which the United States had committed itself to in 2000.
The Jubilee Week of Action for Debt Cancellation & Economic Justice will take place Oct. 16-18 in Washington, D.C., and will include its National Lobby Day on Oct. 17 and the 10th Anniversary Celebration of Jubilee USA Network on Oct. 18.
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Those demonstrations during the G20 summit sure did a lot of good for the activist community. Here they had a chance to make a political point on some crucial issues at a moment when attention across the world was temporarily focused on Toronto.
So what did they achieve? According to Angus Reid they disgusted the vast majority of the people they were trying to woo:
Respondents were asked about their feelings about the demonstrations that took place in Toronto during the G20 summit. Two-thirds of Canadians (69%) are disgusted, 59% are ashamed, 57% are angry, and 54% are sad. In Toronto, the proportion of respondents who reported negative feelings was higher (Disgust 81%, Anger 74%, Sadness 65%, Shame 61%).
Good job activists! Way to seize an opportunity and make it yours!
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