Wednesday, March 29, 2006

 

Pete Geddes conversation: globalization

Here' the first part of the conversation with Bozeman free-market environmentalist, Pete Geddes. Check out the intro if you haven't yet. In your literature at the website of your organization, Foundation for Research on Economics & the Environment, you write that globalization actually helps eradicate poverty and promotes environmentalism. Can you explain how that is? First let’s define our terms. Here’s what I mean when I describe the process called globalization: It’s the international movement of human and financial capital. The process of globalization is not new. Indeed the dispersal from a few centers, of culture, language, political ideas, and material goods is an ancient phenomenon. What’s new is that our modern technologies (e.g., telecommunications and the Internet) combined with steep declines in transportation costs, allow individual entrepreneurs and businesses real-time access to global markets. This makes one’s physical location ever more irrelevant. Hence, industries once sheltered from competition by geographic isolation are no longer. Montana agriculture is an excellent example While consumers reap the benefits, our dynamic, open, globalized economy creates opportunity for some and hardship for others. So a key question is how can societies cope with the rapid technological and social change that a globalized economy creates? Second. We have decades of empirical measures of both human well being and environmental progress. Both strongly suggest that on balance, peoples lives and environmental quality are improving. The only tragic exception seem to be in the countries of Sub-Saharaian Africa. Speaking at the 2000 World Economic Forum, President Bill Clinton said, “We have to reaffirm unambiguously that open markets are the best engine we know of to lift living standards and build shared prosperity.” This is especially true in countries that have embraced entry into the global marketplace. A technologically robust, market-based economy raises living standards ever higher, faster, and more inclusively than any other system. Developing countries make as much progress in thirty years as industrialized nations did in a century. And here’s a key point: Economic progress is a prerequisite for improving environmental quality. The real enemy of the environment is poverty, not affluence. • 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, the number living in such extreme poverty had dropped by half. At current projections, by 2015, there will be only 19 million Asians living under those conditions. In one generation Asians will witness a 95 percent reduction in extreme poverty. • Over the past 20 years, 200 million people have left absolute poverty -- defined as living on the equivalent of less than $1 a day. • Advances in medicine, improved public health policies, and greater food supplies have lowered infant mortality and lengthened life expectancy. In developing countries in the 1950s, 178 children per every 1000 live births died before reaching their first birthday. By the late 1990s, the infant mortality rate in these countries had declined to 64 per 1000. Life expectancy increased from 44 years in 1960 to 59 years in 1999. • Child labor declines as a country’s income increases. As trade promotes economic growth, globalization results in less child labor over time. In 1960, children made up 32 percent of the labor force in low-income countries. Forty years later, following the massive expansion in international trade, child labor in the same countries had declined to 19 percent. • Though inequality remained more or less constant, or possibly increased, during the 1970s, it declined substantially in the 1980s and 1990s. As a result, the shape of the income distribution curve has changed, from a bimodal distribution with a peak of poor people and a peak of rich in 1970, to a smoother distribution in 1998, suggesting the emergence of a “world middle class.” • Increased wealth is, of course, a key predictor of environmental quality. The environmental sustainability index (ESI), produced by Columbia and Yale Universities, allows cross-national comparisons of rates of nonrenewable resource use and other environmental policies in countries worldwide. The index scores range from 0 to 100, with 100 being optimal sustainability. • Countries such as Finland, Sweden, and Switzerland, with high ESI scores (73.9, 72.6, and 66.5, respectively), also rank among the countries with the highest annual per-capita income ($25,130, $27,140, and $38,140). The U.S. has an ESI of 53.2. (Our low score is due to the index’s heavy weighting of greenhouse gas emissions.) • Countries ranking in the middle range of ESI scores (around 50), such as Algeria, Russia, and Egypt, are poorer (per-capita incomes of $1,580, $1,690, and $1,490, respectively). • At the lower end of the scale are impoverished countries such as Haiti, Ukraine, and Turkmenistan (per capita incomes of $510, $690, and $750, respectively). Driven by the rapid democratization of information, technology, and finance, globalization is turning out to be a remarkably progressive, liberating force. Globalization helps break the regressive taboos responsible for discriminating against people on the basis of gender, race, or religious beliefs. It is an antidote to the intolerant fundamentalism that oppresses millions of the world’s poorest. When these people see how their counterparts in the West are treated, they see a better future and begin to demand it. Globalization offers hope for the world’s poorest, hope that one day they may enjoy the fruits of the West’s liberal traditions. Globalization helps break the regressive taboos responsible for discriminating against people on the basis of gender, race, or religious beliefs. It is an antidote to the intolerant fundamentalism that oppresses millions of the world’s poorest. When these people see how their counterparts in the West are treated, they see a better future and begin to demand it. Globalization offers hope for the world’s poorest, hope that one day they may enjoy the fruits of the West’s liberal traditions. In your articles, you've criticized the left for opposition to globalization. While I can't speak for everyone, I admit I have concerns with organizations like the WTO that operate without transparency, aren't democratic, and can compel member countries to overturn democratically based legislation. I think the IMF and the WTO have at times acted in counterproductive ways. For more on this I suggest these books by William Easterly: (1) The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics and (2) The White Man's Burden : Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good. The WTO seems ready to compel the European Union to accept genetically-engineered food despite local laws and regulations banning such products. To me, it seems like US and Canadian agricultural corporations are using the WTO to lower local environmental and health standards in democratic communities. How does the WTO fit into your vision of globalization? What do you think of the GE crops dispute? And I'd love to hear musings on the clash of democracy and free markets... (1) Do you believe the science behind climate change is compelling and “settled?” If so, you can’t be opposed to GE crops on any scientific grounds. The scientific consensus regarding the safety to human health and the environment benefits of GE crops is overwhelming. There is much more agreement on this issue than on climate change. (2) Opposition to GE crops from some EU member states is based partly on cultural grounds (i.e., food is very important to the French) but mostly it’s used as a trade barrier to protect EU farmers from global competition. (3) Nobel Prize winner Milton Friedman wrote, “Fundamentally, there are only two ways of coordinating the economic activities of millions. One is central direction ... [with] coercion -- the technique of the army and of the modern totalitarian state. The other is voluntary cooperation of individuals -- the technique of the marketplace.” Ironically, Friedman is denounced for lecturing in Pinochet’s Chile. But his advice was to institute market reforms, which ultimately helped undermine Pinochet’s regime. Why? Because inevitably free markets destroy centralized control. Any society with even a modicum of political freedom uses the market process to organize its economic activity. Putting aside the safety of GE foods -- which could easily consume its own interview -- your statements linking free markets to politically free societies seems to be contradicted by the imposition of WTO control over the issue of GE foods. The WTO is an organization of centralized control exerting its authority over democratic communities in the name of free markets, regardless of how unreasonable or unscientific the legislation is. This might be a good time to bring up China. The Chinese government has reliquinshed much control over its markets, but its authority has increased since the 1980s. Also American companies like Yahoo have shown that they would gladly assist a centralized government in subjegating its people if it shows a profit. And to use my own source, Mussolini said that fascism should be called "corporatism," because fascism was a blend of state and corporate power. So I reject the notion that free markets naturally lead to political freedom. Or am I misunderstanding what a "free market" is? Rebuttal? I wrote “Any society with even a modicum of political freedom uses the market process to organize its economic activity.” Can you think of a counter example? Why is this the case? (1) free markets require secure, defined, and transferable property rights. This is the fundamental bulk work protecting the weak from the strong and citizens from the power of the state. Don’t confuse the WTO as an advocate for free markets. They are much more likely to be responsive to corporate concerns rather than any free market ideal. Remember, free market capitalism is a radical, not an conservation notion. That why many business lobby to insulate themselves from the free market (and why we get so little corporate support!). Here’s a piece to consider: MLK, the Marketplace, and a Legacy of Freedom By Dwight R. Lee 01/19/2004 While commemorating the contributions of Martin Luther King, we shouldn't overlook the connection between freedom and the economic progress possible only in a market economy. The expansion in freedom brought about by the civil rights movement under King's inspiring leadership receives far too little credit for improving the prospects and prosperity of all Americans. And our free-market economy receives far too little credit for helping move us toward King's dream of freedom for all our citizens. The more freedom people have, the better markets work. Market prices convey information on what people most desire as consumers and how they can best serve others as producers. This market communication is distorted when some are denied opportunities to shop where they choose, get the education they need, and take jobs for which they are qualified. Markets depend on freedom. Freedom also depends on markets. We can tolerate the freedom of others when market prices are informing and motivating them to pursue their own interests in ways that promote the general interest. No one argues that this "invisible hand" of the market works perfectly, or that it eliminates restrictions on freedom motivated by senseless prejudice. If it did, we would not have needed the civil rights movement, and few people would have heard of Martin Luther King. But neither can sensible people deny that freedom is best served in economies that rely on markets. Does any one really believe it is accidental that the freedoms we take for granted in market economies are routinely suppressed, often brutally, in economies relying on state ownership and socialist planning? Not just minorities are denied basic freedoms under socialistic regimes. Except for the politically privileged few, freedoms to travel, get the type of education one chooses, pick one's occupation, shop where one wants, express political opinions, read what one wants, and worship as one chooses don't exist. Market economies disperse authority, making it less likely that, as happens under socialism, power will become concentrated in the hands of a few who use it to suppress freedom and perpetuate their control. Markets also make it easy to extend and protect freedom by making it a force for general economic prosperity. This explains why Martin Luther King and the civil rights movement enriched America economically as well as morally. The civil rights movement expanded freedom for African Americans who had long been denied opportunities taken for granted by most of us, opportunities to pursue their goals and dreams by making the fullest use of their talents and energies. This expansion of freedom deserves national recognition because it benefits us all far more than most of us realize. We all recognize the value of having more opportunity for ourselves. What is often ignored is that in a market economy it is not just our freedom that enriches us, but the freedom of others as well. In fact, most benefits we receive from expanding freedoms are not from those we take advantage of ourselves, but from those taken advantage of by others. When African Americans -- or anyone else -- take advantage of freedom to get the education, work in the jobs, and start the businesses that do the most to improve their own lives, they are also improving the lives of the rest of us. It's not just additional wealth that we realize from expanding opportunities for minorities, although more wealth is always welcome. But more important, the opportunities we each have to realize our full potential as human beings increase in market economies as the same opportunities are increased for others. We are all diminished, economically as well as morally, when some are denied those opportunities. We may disagree on some of the legislative and policy details that have evolved from the civil rights movement, but we should all agree that King's legacy both enhances and is enhanced by the tremendous benefits we all realize from freedom and markets. Dwight R. Lee is Ramsey Professor of Free Enterprise, Terry College of Business, University of Georgia. Interesting stuff. I guess, then, I'm confused by exactly what you advocate. What exactly is a "free market"? What company or industry do you see as working closest to your ideals? I certainly understand the benefits of free markets -- in some cases. In others, like in the case of WalMart, I see a giant conglomeration creating a monopoly to reduce competition, set prices, and pay low wages. Or like Microsoft, which uses its size and power to create a monopoly apparently used to protect its inferior product. In some cases, the free market seems to create more bureaucracy and ineffeciency than a centralized industry, like with health-care insurance. Many of the countries you identify as having the highest ESI and per-capita income also have socialized medicine... And then there's China... Maybe this clarification about free markets and etcetera should have started the interview, which I guess will now have to be called a "conversation"! Briefly: (1) China is terrified of free markets (2) Very few situation of monopoly exist-you most likely to find them as a result of government protection, e.g., the USPS. Microsoft and Wal-Mart are in the two most competitive market around. They simply can’t “reduce competition, set prices, and pay low wages.” (3) The free market is a process, not a thing. Rather its the result of million of individuals expressing these desires and produces scrambling madly to meet these demands.
Comments:
Definitly a lot to ponder here. I like your comment on how poverty is the enemy of the environment. I think that is always true and I think it is true of China. I think many elements in Beijing are not afraid of a free market and some actually seek it as a way to reduce the power of the rural bosses.

China Law
 
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