"When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals.
We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues"

( JM Keynes, "Economic Possibilities for our Granchildren" 1930 )

Sunday, January 22, 2012

Globalization : The Unfinished Job

The reference for this post will be a recent article titled “Charity needs capitalism to solve the world’s problems” ,written by former US President Mr. Bill Clinton (“Financial Times” website). The article opens with the following statement:

“Charity alone will not solve the world’s problems. Capitalism can help and at the same time put people back to work……” (FT , January 20, 2012)

The cooperation plan between Capitalism and Charity are explained along the article, resumed in one of its ending paragraphs.

“These efforts ( of Charity and Capitalism E.F.) benefit both the communities they target and the corporations and philanthropists involved, diversifying their businesses, expanding their markets, training more potential workers and helping to create a culture of prosperity. All this enhances profits, increases economic inclusion and gives more people a stake in a shared future”

Mr. Clinton actually offers a “Win- Win” deal: Achieving a moral end (“Solve the world problems”…. “Gives more people a stake in a shared future”) by appealing to the Capitalist intuition of profits seeking, a deal adorned with an unequivocal MBA new speak (“Diversifying business….expanding markets…training potential workers…). Social responsibility at its best!

In the philosophical sense, there is nothing really new in Mr. Clinton words. The idea a moral end (such as general prosperity) can be achieved through the pursuit of self interest has been already expressed some 250 years ago by the Philosopher/Political Economist Adam Smith.

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages” (Adam Smith. An Inquiry into the Nature and Causes of the Wealth of Nations)

These 18 century ideas were developed on later decades, becoming the pillar of free market ideology, the foundation of the Globalization for the last 20 years. If so can Mr. Clinton call for a “Capitalism and Charity” system considered as an implicit recognition that the original version of “Smithian” Globalization (launched along his own Presidency years…) actually failed ?

In order to answer the question we address the question what Globalization is all about?: One possible answer is "… (Globalization) When used in an economic context, it refers to the reduction and removal of barriers between national borders in order to facilitate the flow of goods, capital, and services and labour... (UN agency (ESCWA) From the Wikipedia)

True, barriers to Goods, Capital and Services were (partially) removed: The globalized world allows you an easy transfer of money abroad, the purchase of foreign currencies and/or financial obligations…. Alternatively when landing in a remote country you will find out that you and the native share not only the “human condition” but products, services, and corporations so familiar at home.

But, the above definition got another twist. UN agency is aware that “….although considerable barriers remain to the flow of labour... “

The observation that our “Globalized World” still impedes (20 years since its launch…) from human beings to move freely in the search for a decent life abroad is self evident. Still, the exclusion of labor from the free movement scheme has serious consequences on the whole Globalization edifice.

The theoretical framework of Globalization (or free markets as a general frame) requires that ALL production factors and products should be allocated freely. ALL. Theory can easily demonstrate that restrictions on freedom impacts competition, prices and quantities, all for the worst. Moreover, if the free movement of one “player” in the model is being restricted, the rest must be accommodated, even restricted, something that could unleash a dynamic of more restrictions and protectionism. In other words, Game over….

So, if the outcome from restrictions on labor is BAD, why the system operates this way? Well, it could bad for all,,,, but good for some players . The answer lies in the relative position of the countries and the short term benefits. Rich countries, the ones who dominate the scene have plenty of Capital and products in relation to their workforce. From the other side, Poor / Developing countries have to offer in that scheme plenty of labor and relative shortage of Capital.

It is turning to be a longer than planned post…. So in a very shortly comment, labor restrictions ( in addition to the imposition of production quotas on some products … that is another story …) favors rich countries as it permits to export their excesses and create a two tier production/ consumption system, poor workers vs. rich consumers .That is the main line that explains the widening gap between countries, that feeling we share with Mr. Clinton that his Globalization did not deliver the expected welfare fairly . Just have a look on wages, prices, working conditions, social security nets around the world to understand the bridge, better put the abyss between countries.

So, instead of embrace a half baked Capitalism/Charity ideas in the spirit of Mr. Clinton article, maybe the world should go a step forward and implement a full globalization and fair scheme, without restrictions simply frictionless as possible. The economy will do the rest, and no need for charity.

Even Mr. A. Smith would agree with such proposal. How do I know that? Last quote for today…. (the outlines are mine )

"It is not by the importation of gold and silver, that the discovery of America has enriched Europe. ...The commodities of Europe were almost all new to America, and many of those of America were new to Europe. A new set of exchanges, therefore, began to take place which had never been thought of before, and which should naturally have proved as advantageous to the new, as it certainly did to the old continent. The savage injustice of the Europeans rendered an event, which ought to have been beneficial to all, ruinous and destructive to several of those unfortunate countries." (An Inquiry into the Nature and Causes of the Wealth of Nations, by Adam Smith : Book IV: On Systems of Political Economy Chapter I: On the Principle of the Commercial, or Mercantile System )


Anonymous said...

If I hadn't seen this in writing, I would never have believed anyone could formulate such a wrong-headed, childish notion about capitalism:
►►00"So, instead of embrace a half baked Capitalism/Charity ideas in the spirit of Mr. Clinton article, maybe the world should go a step forward and implement a full globalization and fair scheme, without restrictions simply frictionless as possible. The economy will do the rest, and no need for charity.00◄◄

Hint (Sr Homo Economicus) Capitalism consistently tends towards monopoly.

IOW, take down the barriers, and in time there will be far more needing charity; and there will be no charity from homo economicus.

Enrique said...
This comment has been removed by the author.
Enrique said...

Mr. or Ms . Anonymous,
Sorry if I sound "childish" ( I wish I would :-).....) though I´ve got the feeling that you did not understand the ironic twist of the post ( My fault).
I am FULLY aware of the inner contradictions of Capitalism , including its natural tendency to monopolism (as you said).
The purpose of the post was to expose the double standard ( i.e. free flow of capital , but not of labor ) which takes place in the current "globalization", but in the end is just another tool of exploitation.
However , Capitalism as an historical social order , a full implementation of its own ideas has a progressive task.