Globalisation Blues


Free markets, free people
~Wall Street Journal’s editorial motto

In economy, it is widely believed that market forces will correct any economic mischiefing. Adam Smith called it the invisible hand: “a free competitive market ensures that those goods and services perceived as most beneficial, efficient, or of highest quality will naturally be those that are most profitable. Thus, self-interest striving for profit has the side-effect of benefiting everyone by increasing standards” (The Wealth of Nations, 1776).

This same assumption is taken by Globalisation’s promoters as the way the open economy benefits all countries today: In the long run, they argue, everybody will be better. In the other hand, globaliphobics insist that the rich countries are getting richer on the back of poor nations.

Indur M. Goklany points out, correctly, it is a myth that the advent of globalisation has been accompanied by a rise in poverty and inequality. Revision of UN, World Bank, and IMF data about GDP per capita, paired with distribution curves, shows that the percentage of the world’s population that is poor has actually fallen over the past two decades and inequality has declined at some extent. “The surprisingly persistent picture of globalisation as a process whereby the developed world exploits and immiserates the developing one is just wrong”(James Surowiecki).

However, the number of countries that had improved their standards of living is surprisingly small, and they are mainly in Asia. Economic growth is the base for improving the state of the world, but globalisation has not done a very good job of figuring out how to spread the benefits of that growth around the globe. The economies of sub-Saharan Africa and the former Soviet Union have not just stopped growing but shrunk over the past 15 years. Most of Latin America has seen only marginal economic growth since 1980, and even Asia’s little tigers (Indonesia, Malaysia, and Thailand) have spent much of the present century recovering from the damage wrought by the 1990s Asian financial crisis.

Most of these countries have seen their human development indicators improve, thanks to the diffusion of technology and health care. But outside of Asia (and a few places such as Botswana and Chile), the economic benefits of globalization have been hard to find, which is why there has been such a backlash against what has come to be known as the Washington consensus. It makes makes sense to attack globalization if there is evidence that rich countries are getting richer on the backs of the poor, but it should not surprising that people are made unhappy by the sight of others getting richer while they stay the same or actually get poorer.

Goklany suggests one response: “the problem is that there has been too little globalisation, not too much, and that what governments need to do is step out of the way and let the market be free. There is no doubting the virtue of the free market as a wealth-creation machine, and it is certainly the case that in many countries bad policies (often designed to protect established interests) have discouraged entrepreneurship and scared away capital. Nonetheless, here, too, the evidence is far more ambiguous than The Improving State of the World implies”.

China and India, which together are responsible for almost all of the reduction in poverty in the world in the past two decades are great success stories, but when it comes to understanding what they say about how to attain economic growth, they are complicated rather than simple stories. China is a long way from a true free-market economy, and it has followed almost none of the rules that the Washington consensus set down:

  • A huge number of its enterprises remain state-owned
  • the allocation of capital in the country remains largely determined by politics
  • the country’s capital markets are not truly open
  • there are limitations on foreign ownership
  • the currency is not convertible

In the case of India:

  • has got massive tariffs
  • strict legal restrictions on foreign ownership and on new businesses
  • it is an aggressive regulatory state

The point is not to return to the old days of protectionism and import-substitution industrialization but rather that we know a lot less than we thought we did, for example Chile and Botswana are two of the only non-Asian developing countries to enjoy meaningful, sustained economic growth since 1990. Chile, under the dictator Augusto Pinochet, implemented many free-market reforms, and the privatization of its social security system has made it the daring boy of free marketeers. But a good part of Chile’s richness comes from its copper holdings, which even Pinochet did not privatize. And Chile also limited the flow of volatile capital into its markets.

Is it the following of free markets rules or the deviations from them that it is the cause for Chile’s success? or is it the combination of the two? No one is sure. Botswana, similarly, has followed orthodox economic policies and has a limited state and low levels of corruption, all of which surely have something to do with its success. But Botswana also happens to have huge diamond supplies, which account for around 40 percent of its annual output. Botswana’s efficient economic policies have helped it to receive greater benefits from this, but this is hardly a model that other nations, unless they can back up their growth plans with massive diamond supplies, too.

So, until we can define better the factors that are helping countries to reap the benefits of globalisation or planetary economic growth, and then apply them to the countries that are being left behind, we will keep hearing about anti-globalisation, protectionism movements, and no truly be able to respond to them.

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6 Responses to Globalisation Blues

  1. el zorro de La Jolla says:

    Sadly free market capitalism is the best method we have come up with to naturally regulate the global economy. Maybe if it wasn’t an absolute humanitarian and environmental tragedy it might be something we should work with. If the WTO and NFTA get there ways the whole world will live like the Chinese, slaving away for a dollar a day so some fat American can save a buck at wal-mart. Nice try humanity, but back to the drawing board.

    Try Capitalism 3.0 by Peter Barns for a better idea than “free trade” capitalism, and Naomi Kline’s The Shock Doctrine: the Rise of Disaster Capitalism for a more accurate and complete assessment of the origins and practice of globalization than found in this bit.

    PEACE

  2. Hector says:

    Muy interesante tu articulo, me parecio bastante objetivo.

    Sin embargo, creo que la globalizacion esta dejando de lado un tema muy importante, el Desarrollo Sustentable.

    Creo que este video explica en palabras muy simples lo que esta sucediendo con este fenomeno economico, checa el video:

    http://www.storyofstuff.com/

    Un abrazo.

    P.D. Olvidaba comentarte que al respecto hice un post, por si quieres verlo:
    http://explorandomontreal.blogspot.com/2008/04/para-qu-tpicos-de-desarrollo.html

  3. mcyclops says:

    Hi Hector,

    Sustainability is an integral part of the Globalization movement, if you analyse some of my other posts you will see that I am analysing the global economy from a sustainable perspective.

    The video you mentioned because that video has nothing to do with sustainability but with consumerism. I have writing about how to reduce our footprint by consuming less. In my book section you will find some books on Simply Living, very related to the topic.

  4. el zorro de La Jolla says:

    Globalization is a ten headed hydra. One head (the smaller one) is the small business owner who is attempting to provide a service or product to the global market in an attempt to maximize the reach of their profitability but remains self constrained and morally aware of the environmental and humanitarian consequences of their activities in other peoples countries. The other nine heads of the hydra are the lazie fair Chicago school of economics pipe dream theory of “free trade” and the neocon agenda to implement it forcefully on the world to establish a minority global elite who can sustain a global economy without the necessity of including around 85% of the worlds population. Globalization, as the economic theory’s designers intended, is a way to insure the wealth and lone superpower status of the United State’s oligarchs in order to keep their strangle hold on the worlds economies through monopolizing and militarizing trade. I’m an architect and I study sustainability on multiple levels and have concluded through extensive research that globalization poses the greatest threat to working toward a sustainable and self-sufficient lifestyles. Let’s work out sustainable trade on local community levels first. After that we can talk global trade, but until the terrifying inequities of the “free market” system are confronted, to support globalization at this point is to advocate the right of the global elite to feed off the poor and the vulnerable.

    Peace

  5. mcyclops says:

    Zorro,

    I do have a master degree with a major in Sustainability, and globalization is neither a threat or a new issue. If you ask some authors like Thomas Friedman the world is actually less globalised than 100 years ago, being technology the sole factor that increase the communication between people in the world. Now, wherever we like it or not, globalisation is here to stay and no matter how many manifestants manifest themselves in Davos it is not going away, so we better use it for our purposes. Fair Trade is a big winner in a globalised world, and Architecture, being able to learn construction standards and practises from all the world should be one too. Big corporations are tamed now if you compared them to the powerful Western Indian Company, Hudson Bay Company, or Wells Fargo that in the 19th century where owners of Countries, not markets.

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