Category: International Trade

Actonites know about all the benefits of globalization.

Most of these benefits are economic but also have much greater and often unseen social impact as well. Increased international trade in goods and services promotes division of labor and an efficient use of scarce resources, resulting in lower-priced, higher-quality products. The poor are often the greatest beneficiaries as both producers and consumers. People all over the world come to recognize their increased interdependence, not only with their local grocer or tailor, but with others in faraway lands.

Only the most xenophobic and nationalistic foes of economic and social progress would be against globalization, right?

Wrong.

In nearly every country of the world, including those who have thrived in the last 10-20 years of increased trade, globalization is under attack and in danger of being reversed.

See here for the troubles being reported in Europe, here in the United States, and here in India. And there’s plenty more out there.

This most recent backlash against globalization shows how fears of insecurity prey on mass perceptions and how arguments in favor of economic efficiency are rarely strong enough to resist these fears.

Readers of the Acton PowerBlog know how important religious leaders can be in shaping moral arguments and more of these leaders need to understand just what is at stake here. A collapse of the global economic system resulting from increased protectionism would be an unmitigated disaster for everyone.

There are reports that Pope Benedict is planning a social encyclical on work. It would be a perfect opportunity to re-examine John Paul II’s groundbreaking “Centesimus Annus” and the more recent trends the world has seen.

Blog author: jballor
Monday, March 20, 2006
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I was intereviewed for this article in yesterday’s New York Times, but I apparently didn’t make the cut. Nevertheless, in “Fair Prices for Farmers: Simple Idea, Complex Reality,” Jennifer Alsever does an excellent job bringing to light some of the dangers that are inherent with external and artificial adjustments to the price mechanism.

In the case of the fair trade food movement, the price floor is set artificially at a certain amount, determined to meet or surpass the subsistence needs of the local farmer. For coffee, this is currently set at $1.26 per pound by the fair trade community.

Alsever writes, “Despite good intentions, most consumers who shop according to their social convictions don’t know how much of their money makes it to the people they hope to help. Critics say too many fair trade dollars wind up in the pockets of retailers and middlemen, including nonprofit organizations.”

The problem is that the fair-trade certification organizations themselves, and also the retailers, can add several layers of increase into the price of a fair trade commodity. We might say that the fair trade consumer, who is presumably already willing to pay more than the market price, has a greater level of acceptable price elasticity.

TransFair USA, the certifying body in the US, “generated $1.89 million in licensing fees from companies that used the logo. It also spent $1.7 million on salaries, travel, conferences and publications for the 40-employee organization.”

“Farmers often receive very little,” said Lawrence Solomon, managing director of the Energy Probe Research Foundation, a Canadian firm that analyzes trade and consumer issues. “Often fair trade is sold at a premium, but the entire premium goes to the middlemen.”

Of course, these are the self-professed middlemen who cut out the layers of middlemen under a market based, free trade system. Those were the “bad” middlemen, while TransFair apparently represents the “good” sort of middleman.

One other aspect of this tinkering with the price mechanism is that the fair trade movement does nothing to recognize the reality reflected by purchasing power parity (PPP). So, writes Alsever, “a price that is fair in one country may not be in another. In Brazil, ‘$1.26 per pound for coffee is a fortune,’ said Kevin Knox, a coffee consultant in Boulder, Colo. ‘In the forest in the mountains of Mexico, the money barely is enough to justify doing it. Their yields are small, and the costs of production are higher.'”

These are just a few of the problems that arise when people try to artificially manage the price mechanism. When it is allowed to do its job, the market price of something provides a lot of good information. It can tell us, for example, that the supply of coffee far outstrips the demand, and so some coffee growers should think about getting into another product or industry. It would be in their best interests to do so, and the best interests of all of us, so that the world doesn’t end up with too much coffee and too little of something else.

The economic ignorance behind the fair trade movement leads me to believe that it really is just a sort of passing fad, especially popular among naïve church groups, which will at some point be replaced by far more effective methods of alleviating poverty around the world, such as micro-enterprise development (for more on this, see groups like Five Talents, Opportunity International, and Kiva). It’s hard to see real staying power behind a movement that thinks the answer to the reality of poor coffee farmers is simply to subsidize the production of commodities of which we already have an oversupply.

For more on some of the emotional and psychological reasons people are willing to pay more for fair trade items, see “Absolution in Your Cup: The real meaning of Fair Trade coffee,” by Kerry Howley. The fair trade movement currently lack the ability to enforce their pricing schemes through the coercive power of the state, so they must rely on other tactics.

Here’s a brief note about a recent National Bureau of Economic Research working paper, “Service Offshoring and Productivity: Evidence from the United States.”

According to the NBER digest, “service outsourcing is doing more than fueling an economic boom in the tech-savvy provinces of India. It is also playing a major role in one of the big economic stories of the last decade: the surging productivity of American manufacturing firms.”

For more on this, check out Anthony Bradley’s commentary, “Productivity and the Ice Man: Understanding Outsourcing.”

Richard Longworth

An interesting news story on local Grand Rapids television last night concerning the long awaited closing of an Electrolux plant. While the story was fair and optimistic, I got a bit of a kick out of soundbite from Chicago writer Richard Longworth who said: “A wonderfully decent way of life is now just being undermined by productivity, by the global economy.” Now, losing a job can be a terrible thing (its worth noting, though, that one of the workers in the story seemed glad to have the chance to “do something new” with his life–so sometimes change can be good as well). But regarding the idea of lives being undermined by globalization, I couldn’t help but thinking of the insight of former President of El Salvador Francisco Flores, who will be featured in our next issue of Religion & Liberty:

Francisco Flores

[S]ome people say that they’re against trade because they will be losing jobs. What these critics don’t realize is that the choice is not between giving a job to a Salvadorian or giving it to an American citizen. That’s not the choice. The choice is whether you will allow your enterprises to survive or not. If you allow your enterprises to create a more efficient division of labor and become more competitive by creating alliances throughout the world, then your corporations will survive. If you keep them closed in, then what will happen is that other corporations throughout the world will construct these alliances, you will lose the competitive edge you have, and you will not only lose jobs, you will lose the companies.

Stay tuned for more from Flores and others in this quarter’s R&L.

If you’re looking for more insight on, or perhaps simple confirmation of, the economic agenda of the ‘ecumenical’ movement (the World Council of Churches [WCC] the World Alliance of Reformed Churches [WARC], et al.), here’s an insightful little tidbit from Ecumenical News International:

Pacific islanders are a source of hope for other Christian communities seeking a culturally-based communal economy based on sharing and cooperation, participants at a global church gathering have heard. During the 14-23 February ninth assembly of the World Council of Churches some participants have identified Pacific island communities as an alternative to the type of economic globalisation that happens under regulations adjudicated by the World Trade Organization (WTO). [523 words, ENI-06-0186]

For more on the WARC view of economics, check out this article I co-wrote awhile back, “Ecumenical Economics: Confessing against the Empire,” about the ultimately abortive efforts by radicals to get the alliance to declare a status confessionis regarding the global economy.

Blog author: jballor
Thursday, February 9, 2006
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The traditional formula for understanding the relationship between the developed and the developing world is the following: Aid = Economic Growth. That is, foreign aid spurs economic development in poorer nations.

A new study released by the National Bureau of Economic Research challenges this wisdom, however. “Aid and Growth: What Does the Cross-Country Evidence Really Show?” by Raghuram G. Rajan and Arvind Subramanian shows that “regardless of the situation — for example, in countries that have adopted sound economic policies or improved government institutions — or the type of assistance involved, aid does not appear to stimulate growth over the short or long term.”

Findings like this should cause advocates of aid-oriented programs like the ONE Campaign and the Micah Challenge to reassess their efforts. One way to change things would be to focus on actual outcomes rather than simply looking at the inflow of aid. The ONE Campaign by definition is focused on the front side, the supply of aid, rather than any actual effects of the aid: “We believe that allocating an additional ONE percent of the U.S. budget toward providing basic needs like health, education, clean water and food, would transform the futures and hopes of an entire generation of the poorest countries.”

A summary of the NBER paper states, “Challenging the simplistic but seductive view that increased assistance from rich countries is likely to put many poor countries on the path to prosperity, a new study on the impact of foreign aid finds ‘little evidence’ that it ever has a positive effect on economic growth.” So the real-world formula looks something like this: Aid ≠ Economic Growth.

“Rajan and Subramanian observe that there is a tendency in analyzing the impact of aid for economists to take sides and conclude that it is good or bad for growth. But the authors argue that neither assertion is valid because the data supporting either argument is so ‘fragile’ that with only minor tweaks, it can yield the opposite result. For example, they take an analysis.”

The important thing to realize is that past aid programs have had no provable positive effect. The conclusion is not that aid has no part to play in future development, but simply that it cannot be the only answer, and as part of the solution, “the aid apparatus (in terms of how aid should be delivered, to whom, in what form, and under what conditions) will have to be rethought.”

Blog author: kschmiesing
Wednesday, December 21, 2005
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A while back I mentioned a new book coming out questioning conventional wisdom on the “brain drain” problem caused by emigration from developing nations. The book will not be out for a while yet, but the author, Michele Pistone, has a long post on Mirror of Justice describing her findings and how they relate to traditional moral concerns raised by Catholic social teaching.

Blog author: jballor
Tuesday, December 20, 2005
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Fr. Philip De Vous, chaplain of Thomas More College in Crestview Hills, KY and an adjunct scholar of public policy at the Acton Institute, writes of a recent trip to see operations of the Doe Run Company in Lima, Peru.

It seems that the Doe Run Company has been accosted by “criticism from certain journalists and certain sectors of the Catholic Church and other Christian denominations” regarding its practice of business ethics.

What Fr. De Vous experienced in Peru, however, caused him to question the complaints against the company. “What I heard and saw was completely different from what I had read in various news stories or was told during two meetings with some of those critics,” he writes.

Blog author: dphelps
Tuesday, December 20, 2005
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2015: “Sorry guys! My bad!”

Predictions, anyone? Chavez continues to flex his socialist muscles as he has now given ExxonMobil an ultimatum: either give him the controlling interest in their company, or lose their Venezuelan operation altogether. This story is notable because ExxonMobil is the only company who has thus far refused Chavez’s “offer they can’t refuse.”
Now, I don’t think anyone had any misconceptions that Chavez would be a ‘nice socialist’, but what was that proverb about being doomed to repeat history? What worries me about the Venezuelan situation is when their economy gets even worse (as it inevitably will), whom do you think Chavez will blame? I suspect he won’t apologize then for his own policies.

Blog author: jballor
Tuesday, December 13, 2005
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Much attention is on the World Trade Organization summit in Hong Kong. Here are a couple of ENI briefs on the WTO:

Food, agriculture, subsidies grip faith groups as well as WTO

Hong Kong (ENI). Participants at an interfaith conference on economic justice have urged the World Trade Organization to respect people’s food sovereignty and halt the current negotiations on agriculture and the production of food. “People’s food sovereignty is being undermined by the WTO’s Agreement on Agriculture,” a declaration said after a meeting held in Hong Kong.

Southern Africa faith groups urge: End barriers to farm exports

Blantyre, Malawi (ENI). Southern Africa faith-based groups and non-governmental organizations are urging developed countries at world trade talks in Hong Kong to stop subsidising agricultural products and to remove barriers to agricultural exports from poor countries. “The highly industrialised countries must immediately stop subsidies for their domestic production and exports that result in the dumping of their excess agricultural production in our countries,” the groups stated.

Regarding the first item, I take “people’s food sovereignty” to mean the right to grow whatever you want at a profit regardless of the world supply and demand. This is the same logic at the heart of the “fair” trade movement: I should be able to grow what I choose when I choose and make a living off of it. Who cares if we already have too many coffee beans? I know my rights! Respect my food sovereignty!

This looks like it will be one of the growing buzzwords for the anti-global market crew. Here’s a group, People’s Food Sovereignty, formed in 2001, “a loose global coalition of peasant-farmer organizations and NGO’s working on food and agriculture issues.”

Food sovereignty is defined here as “the RIGHT of peoples, communities, and countries to define their own agricultural, labor, fishing, food and land policies which are ecologically, socially, economically and culturally appropriate to their unique circumstances. It includes the true right to food and to produce food, which means that all people have the right to safe, nutritious and culturally appropriate food and to food-producing resources and the ability to sustain themselves and their societies.” (Apparently, if you put the word “right” in all caps and bold, it makes whatever you say after it true.)

There’s a kernel of truth in this, insofar as it manifests some respect for the principle of subsidiarity. But here the RIGHT of the grower here is opposed to the rights and freedoms of the buyer…the world is compelled to pay a set price, rather than letting a system of free exchange, respecting both the rights and responsibilities of buyer and seller alike, do the job.