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 )

Free Markets and ( free ) Immigration

The phrase “There is no such thing as a free lunch” ( M.Friedman) is for economists an equivalent to the Law of Gravity. However, the first phase of the current economic crisis with its massive injection of public money seemed to defy Friedman´s rules. Policy makers were seduced by the idea that generous outflows are capable to relieve any social pain and even cure the economic malaises without real pain FOR NO ONE. Unluckily, as the dust sets it becomes clearer that Alchemy is unable to replace good Economics.

The prolongation of the crisis is evident or better put, it´s becoming dear experience for some of us. Let’s analyze some of the last week news : The Financial Times website admitted that “US banking sector picked up pace in the second quarter with lenders’ profits rebounding to pre-crisis levels amid falling loan losses”, whilst on Friday August unemployment figures are close to record levels ( August 2010 Jobs report announcing the loss of 54 k jobs in the US was considered as a “ good news …) . Another title from the FT says : ” Former Chancellor of the Exchequer Alistair Darling said the UK's supertax on bankers bonuses he introduced last year amid outcry over bankers' pay failed to correct the industry ….. Well as far as I know HM government is very efficient when it comes to realize deep cuts in social rights. Perhaps M. Friedman´s phrase should be modified to“ There is such a thing as a free lunch as long as you get someone to pay for it”.

As the failure of the “recovery” measures become evident, the task of maintaining the delicate balance between social pressures while maintaining the existing economic power structure becomes an even harder mission than before. It is becoming evident that someone must pay …..

The question who is going to pay is already generating a few interesting answers : One of them is the call to restore the dominance of market forces in the economy, since the only instrument capable to restore the path of sustainable growth and employment is the market . The free marketers offer a menu that includes for “Entree” delicacies as tax cuts, reduction of public expenses, flexibilization of labor markets, surplus budgets etc. True, there is some debate about the tastiness of such menu, though the question whether, how and who will manage to reach dessert is “blowing in the wind”. In any case, the burden will fall on those who benefited less from the pre crisis prosperity, the lower classes.

The second position to be noticed is the resurrection of xenophobic discourse, not as a marginal topic but as another component of mainstream policies of “respected” institutions . The xenophobia is linked to the economic crisis ( for example “to fight unemployment”) : France has already deported thousands of Romanian Gypsies, Italian authorities established anti immigration policies, Arizona´s immigration laws are still debated, Spain hardened its policy on immigration etc. In that case the bill is served to the foreign workers and immigrants (at first phase.... others will come later)

The irony is that both lines are generally held by the same people. Why irony? Because the two lines contradict each other . In the case of market fundamentalism , the economic models that justify them assume a free and unrestricted flow of ALL production factors (Capital, labor, and raw materials), products and services. If the flow of labor is constrained (as the xenophobes want) , the whole intellectual edifice of free markets becomes irrelevant or becomes not more than another ideological instrument applied in accordance to the particular interests.

A few examples should explain the last point : Under a genuine global free market it would be inconceivable that a Brazilian from Sao Paolo is “allowed” to make use (and pay ) for Telefonica´s privatized services ( held by Spanish Capital ) but not allowed to work freely in Barcelona… or an East European working at car making industry , generating profits for American funds but not allowed to offer his work in the US without a Green Card… or an Israeli government which approves generous grants to major enterprises in the name of the free markets but decides to expel Israeli kids just because they were born to illegal foreigners.

The intellectual coherence demands that whoever support free markets should also favor free and unlimited flow of people as well. If the incoherence is explained by the need to impose certain restrictions on markets ( to preserve social cohesion etc...) , than why only limit immigration? Why not to question privatization? Shouldn´t market forces be restrained when social equity or other common values are under threat ? If the challenge presented in these simple questions is accepted, than market economy will be hopefully expelled from its quasi sainthood status and exposed to social scrutiny as it should have been from the very beginning.