Category: International Trade

On Friday April 11, the Vatican newspaper, L’Osservatore Romano, featured a front-page article on the progress made in international development since Pope Paul VI wrote the encyclical Populorum Progressio in 1967. The author of the article, Fr. Gian Paolo Salvini, S.J., is director of the journal La Civiltà Cattolica. He has a degree in economics and since he has lived in Brazil for many years, he has first-hand experience of development issues.

Salvini’s article is entitled “Incomplete Development” (“Uno sviluppo incompleto”) but his overall assessment of what has happened over the last 40 years is positive. He cites various statistics showing that “spectacular progress” has been made in terms of reducing absolute poverty. The number of people who have to live on less than one dollar a day has fallen from 29 to 18 per cent between 1990 and 2004. Also the data for longevity, child mortality and literacy show clear improvements.

Salvini identifies international trade as one of the key factors that has contributed to this trend. He is aware that progress has been uneven and that improvements in Asia have been far more marked than in Africa. This highlights that “the greatest success stories are due to the formula industrialize for exports”.

His most striking example to illustrate this point is that of South Korea. The fact that the country’s economic indicators were similar to those of Zaire (today the Democratic Republic of Congo) in the 1960s reflects the central importance of engaging with international trade: Korea’s achievement is largely due to its ability to export its manufacturing products to North America and Europe. This also explains why Dependency Theory, which was fashionable in the sixties and which advised developing countries to disengage with global trade, “is not taught anymore”.

The power of trade to transform poor countries is nowadays beyond doubt and Salvini notes that today it is often “the developing world which is asking for more free trade”, whereas Europe and the United States are obstructing the free flow of goods in agriculture.

But towards the end of the article, Salvini raises a more critical point regarding achievements in international development. He says that in contrast to absolute poverty, relative poverty is increasing: “The distance between those who are doing well and those doing badly, or to put it better, those who are doing well and those who are doing less well is growing.”

Salvini does not provide any data to illustrate this point and his assertion is, in fact, questionable. At the Populorum Progressio conference organized by Istituto Acton in Rome in February, Prof. Philip Booth from the Institute of Economic Affairs in London, specifically addressed the issue of relative poverty:

We should recognise that relative poverty has decreased during the process of globalisation .… Most dramatically, the gap between countries that have recently seen rapid growth and those countries that have been relatively well off for many decades has narrowed significantly … Whilst European Union countries, the US, the UK and Japan grow well below the world average (indeed disposable incomes are broadly stagnant across much of the developed world), over half the world’s population now lives in 40 countries that are growing at more than 7% per year. Development is happening and is benefiting huge numbers of previously-poor people.

Salvini may be referring to an increase in income inequality within countries but in that case he is not looking at poverty in terms of human needs and real deprivations, but as compared to an abstract “ideal”.

Reducing income inequality may seem like a noble aspiration, but it is of minor importance. Prioritizing the alleviation of relative poverty would yield the absurd situation where society as a whole is made poorer only to make it more equal. A desire for greater equality should not justify giving up the real and tangible benefits globalization has brought the poor over the last couple of decades.

Hostility towards globalization is not the exclusive territory of the left in Italy. Giulio Tremonti, a former minister of the economy in Silvio Berlusconi’s centre-right government, has written a book called Fear and Hope (La Paura e la Speranza), largely arguing against free trade and the opening of international markets.

Tremonti blames the recent rise in the prices of consumer goods on globalization and says that this is only the beginning. The global financial crisis, environmental destruction, and geopolitical tensions in the struggle for natural resources are also fruits of globalization, according to Tremonti. He identifies the main problem as a lack of international governance of the process of globalization and calls for a new Bretton Woods-like system to confront the multiple crises caused by what he calls “marketism”.

The “dark side of globalization” can only be countered by a return to European values: tradition, the family, and the nation, adds Tremonti. Europe “needs a philosophy which makes politics and not economics the primary mover [of globalization]. This can only work if we go back to the roots of Europe, these are the roots of Judeo-Christianity”.

This “cure” to the ills of globalization remains vague (as one would imagine in a book of only 112 pages). Still more puzzling is his insistence on a contrast between market principles and traditional European values. The idea that a return to values must be coupled with a stronger politicization of the world economy clashes with experience. More regulation and state interference not only tend to reduce growth and living standards but also create new opportunities for rent-seeking and corruption, and thereby undermine the traditional virtues that Tremonti supports.

He misses the opportunity to discuss how certain values are enhanced by the market and how international competition has in fact strengthened Europe by highlighting its best qualities, both technologically and culturally, while repressing its worst.

Tremonti’s vision is inward-looking and profoundly pessimistic. Some market-oriented Italian commentators have pointed out that his ideas seem dangerously close to old-style protectionism. It is clear if Europe followed his analysis, it would be led on a path of future irrelevance both as an economic and a cultural model.

Fidel Castro

In today’s Detroit News, Rev. Robert Sirico, president of the Acton Institute, argues for the end of the trade restrictions against Cuba. Fidel Castro, recently retired from the position of el lider maximo, held the small island nation in the tight grip of his totalitarian regime, effectively stagnating all economic development for the past 50 years. The United States embargo against Cuba gave Castro a scapegoat to blame for the economic woes that oppressed the Cuban population and helped him maintain control. Now, Fidel Castro has left office and the United States has a new opportunity to reassess its foreign policy with Cuba.

So, how should we move forward? Sirico writes:

Now the United States needs to rethink its policies. A vibrant trading relationship will prevent the new regime from continuing to scapegoat its Northern neighbor. It will inject much-need cultural and political influence. It will permit growing travel, emigration and immigration. In time, normalcy will pervade.

I recently talked with a Cuban acquaintance of mine about Cuba. He expressed the growing dissatisfaction that Cubans feel for the Castro regime (I spoke with him the week before Castro retired). The nation is impoverished financially, but also emotionally. People have forgotten how to be entrepreneurial; how to act on their ideas to make change. The difficulty of travel between such geographically close locations (the United States particularly), especially by Cuban citizens, the lack of economic contact with the United States, the religious opression experienced by Cubans until recently, and the tight control of ideas allows this feeling of woe to stew in its juices. The way to change is to open up: to make travel easier, to send missionaries, to allow Cubans to attend U.S. universities, to import Cuban cigars, and to encourage tourism to Cuba. Now is the time to free the Cubans.

AGAIN Magazine has published my “Conflicted Hearts: Orthodox Christians and Social Justice in an Age of Globalization.” The magazine is produced by Conciliar Press Ministries, Inc., a department of the self-ruled Antiochian Orthodox Christian Church of North America.

Excerpt:

Just as there is no real understanding of many bioethical issues without a general grasp of underlying medical technology, there is no real understanding of “social justice” without an understanding of basic economic principles. These principles explain how Orthodox Christians work, earn, invest, and give to philanthropic causes in a market-oriented economy. Economic questions are at the root of many of the problems that on their face seem to be more about something else—poverty, immigration, the environment, technology, politics, humanitarian assistance. In the environmental area, for example, the current debate on global warming is just as much focused on how to finance the means of slowing the rising temperatures of the earth as it is on root causes. And the question always is: Who will pay?

What, exactly, is social justice? It is an ambiguous concept, loaded with ideological freight. No politically correct person would dare oppose it. To be against “social justice” would be tantamount to opposing “fairness.” Today, the term is most often employed by liberal-progressive activists and a “social justice movement” that advances an economic agenda which includes such causes as a “living wage,” universal health care and expanded welfare benefits, increased labor union powers, forgiveness of national debts in the developing world, and vastly increased transfers of foreign aid from rich countries to the poor. Because religious conservatives tend toward support for free market economic systems, they have largely shunned the “social justice” agenda and its government-based solutions.

Read the entire article here.

Blog author: jballor
Thursday, February 7, 2008
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In any period of economic transition there are upheavals at various levels, and winners and losers (at least in the short term). We live in just such an age today in North America, as we move from an industrial to a post-industrial information and service economy, from isolationism to increased globalization. There’s no doubt that there have been some industries and regions that have been more directly affected than others (both positively and negatively).

Michigan, for example, has been one of the most manufacturing-rich states in the nation for the last century, and has been running record unemployment numbers for the last decade or so, as manufacturers move to more friendly economic environments, both within the US and without. Not least of these factors contributing to Michigan’s competitive disadvantage is the high labor costs associated with a labor union-laden state.

The perception that manufacturing workers are simply being left behind in the new economy is pervasive, such that popular opinion is shifting away from free trade. As Fortune magazine reports, “A large majority – 68% – of those surveyed in a new Fortune poll says America’s trading partners are benefiting the most from free trade, not the U.S. That sense of victimhood is changing America’s attitude about doing business with the world.”

As an aside, this is a perception that doesn’t quite match up with the typical caricature of globalization. After all, how can both America (as the “imperial” dominator) and the developing world (as the exploited poor) both be made worse off by international trade?

If it were truly the case that global trade weren’t mutually beneficial, that would be one thing. What’s visible on news reports everyday are the layoffs, buyouts, and unemployment levels in the US. What isn’t always so visible is the extent to which Americans depend on the low prices associated with many imported goods. One group you might think should know better than the average American about such complexities are professional economists. (more…)

The Council on Foreign Relations is hosting an online debate (in blog form!): “Policy for the Next President: Fair Trade or Free Trade” (HT).

From the introduction: “Jonathan Jacoby, associate director of international economic policy at the Center for American Progress and Robert Lane Greene, an international correspondent for the Economist, debate the shape of trade policy for the next U.S. administration and whether new trade deals should come with strings attached.”

The first two entries by each party are posted.

In one of this week’s Acton Commentaries, Ray Nothstine and I juxtapose a static, sedentary dependence on government subsidies with a dynamic, entrepreneurial spirit of innovation.

The impetus for this short piece was an article that originally appeared in the Grand Rapids Press (linked in the commentary). I have two things to say about these stories and then I want to add some further reflections on the world of agricultures subsidies.

First, I found the article’s “hook” to be quite shoddy and lame. The blatant attempt to “shock” the reader into a reaction of disgust that a billionaire like Dick DeVos, yes, “that Dick DeVos,” got a whopping “$6,000 in federal farm subsidies from 2003 to 2005.” That’s roughly $2k a year for three years.

Unsurprisingly, DeVos’ spokesperson didn’t know anything about it. It’s ludicrous to think that a guy with as much on his plate as Dick DeVos would have any time for what is essentially pocket change for a billionaire. Does the fact that DeVos got a subsidy even though he campaigned on eliminating government waste make him a hypocrite?

Judge for yourself, but I think these payments say more about the government’s inefficiency and waste than they do about DeVos’ integrity. People of all income brackets pay tax professionals to maximize their returns. For the very wealthy, it’s simply a process that’s on a bigger scale, that’s much more thorough, and with many more loopholes than when you or I go to H&R Block. The more diversified your holdings, the more likely there are a plethora of tax breaks for you to exploit. The breathless lede to this story was simply off-putting to me, especially given the rather clear political undertones of the insinuations.

“Simplify, man.”

What’s the real lesson? As a recycling hippie once told The Simpsons‘ Principal Skinner in a quite different context, “Simplify, man.” Simplify the tax code and eliminate all these special interest loopholes.

But the complaint about the story’s hook is really a minor quibble compared to my second point. In a companion piece, Lisa Rose Starner, executive director at Blandford Nature Center and Mixed Greens says that farm subsidies are essentially about “social justice.” That’s right, subsidies are about social justice. They’re about the social injustice of subsidizing a product so that people from poorer nations around the world, who would like to do more than simply engage in subsistence farming, can’t compete in a global marketplace because prices are artificially deflated. So, our subsidies are feeding the rich at the expense of the poor in more ways than one.

Of course, the pat response is that other nations are subsidizing too, so our subsidies are just leveling the playing field. To be sure, the world of agricultural business is a complex one, as many of the commenters on our piece point out. Direct farm subsidies are just one thin slice of the government’s intervention into agriculture. Perhaps they’re the most obvious, but they may also not be the most insidious. As one astute reader wrote to me, “The web of market interference in ag is broad and complex.”

Simplify, man.

Update: The Detroit News ran a version of the original piece here.

Last month the World Bank published a report titled, “Where is the Wealth of Nations?” (HT: From the Heartland). The report

describes estimates of wealth and its components for nearly 120 countries. The book has four sections. The first part introduces the wealth estimates and highlights the level and composition of wealth across countries. The second part analyzes changes in wealth and their implications for economic policy. The third part deepens the analysis by considering the importance of human and institutional capital, and by linking wealth to production. The fourth part reviews existing applications of resource and environmental accounting in developed and developing countries.

Also out recently is an index of the most globalized nations by Foreign Policy (HT: International Civic Engagement). The top ten, based on 2005 data, which claims to “measure countries on their economic, personal, technological, and political integration”:

  1. Singapore (252,607)
  2. Hong Kong (NR)
  3. Netherlands (421,389)
  4. Switzerland (648,241)
  5. Ireland (330,490)
  6. Denmark (575,138)
  7. United States (512,612)
  8. Canada (324,979)
  9. Jordan (31,546)
  10. Estonia (66,769)

In parenthesis after the name of the country in the top ten, I’ve placed the total wealth estimate for the year 2000 from the World Bank report (appendix 2 PDF).

Look at Estonia, for example. Even though its total wealth score is much smaller relative to other nations on the globalization list, the majority of its wealth score (41,802) in the World Bank report is garnered from “intangible capital,” which refers to, as the From the Heartland blogger put it, “the value of the nation’s economic and political institutions,” such as the rule of law. And now compare Estonia with the Republic of Congo, which has almost the same ratings in terms of tangible capital as Estonia, but whose -12,158 intangible capital rating keeps its total wealth score disturbingly low (3,516).

Clearly it isn’t the case that countries that only have rich natural resources have something to offer the international marketplace. Strong and responsible economic and political institutions can foster intellectual creativity, technological innovation, and social capital that more than makes up for deficits in natural resources.

Costa Rica’s voters ratified the Central American Free Trade Agreement, a sign of hope against a rising tide of populist, anti-trade sentiment in Latin America — and the United States. “In short, this is not the time for Latin America to abandon free trade agendas,” Gregg says.

Read the full commentary here.

Related to Sam Gregg’s Acton Commentary today, “Free Trade: Latin America’s Last Hope?” I pass along this ENI news item: “Growing rich-poor gap is new ‘slavery’, say Protestant leaders.”

Globalization and free trade are the causes of a new class of worldwide slavery, say the ecumenical officials. Citing the foundational 2004 Accra Confession, Rev. Clifton Kirkpatrick, the president of the World Alliance of Reformed Churches, says that “an even more pernicious form of human enslavement is being wrought on millions through the process of neoliberal globalisation that is driving a dramatic and growing wedge between the rich and the poor.”

These statements come at a critical time in the history of the Reformed ecumenical movement. The Reformed Ecumenical Council and the World Alliance of Reformed Churches have joined this week to become one organization:

Reformed church groupings agree to create new global body

Port of Spain (ENI). The World Alliance of Reformed Churches has agreed to unite with the Reformed Ecumenical Council to create a new “global entity” that will group 80 million Reformed Christians. “This is a truly, truly important moment,” said WARC president the Rev. Clifton Kirkpatrick after the alliance’s executive committee, meeting in Trinidad, voted unanimously on 22 October to unite with the REC, whose executive committee had agreed to the proposal in March. The Geneva-based WARC has 75 million members in 214 churches in 107 countries, while the Grand Rapids, Michigan-headquartered REC has 12 million members belonging to 39 churches in 25 countries. Of the REC’s member churches, 27 also belong to WARC. [ENI-07-0815]

It’s not clear at this time if the conditions laid out in 2005 are those under which the union has taken place. This merger is significant in many ways, not least of which is the requirement of the Church Order of the Christian Reformed Church that its Synod “shall send delegates to Reformed ecumenical synods in which the Christian Reformed Church cooperates with other denominations which confess and maintain the Reformed faith” (Article 50). Citing Calvin once in awhile and promulgating platitudes about the sovereignty of God doesn’t mean you are Reformed.

In response to concerns from member churches from the global North that the Accra Confession is not sufficiently doctrinal, Rev. Setri Nyomi responds, “The Reformed family recognises the sovereignty of God … We do not separate whether God is sovereign in the mundane and in the spiritual realm. Therefore our stance on social issues is consistent with the doctrinal claim of sovereignty.”

Quite frankly the WARC leaderships rhetoric about income and wealth disparity as a “more pernicious form of human enslavement” is offensive on a number of levels besides its doctrinal spuriousness. It’s offensive to those who actually are slaves today (sex trafficking is a huge global issue). And it’s insulting to those whose historical legacy involves victimization by the practice of chattel slavery.

WARC is more than happy to talk about “slavery” in material terms, identifying anything other than complete egalitarianism with injustice and bondage. But the one kind of slavery you won’t hear WARC discuss is the sense in which it is put forward most prominently in the Scriptures: bondage to corruption and sin in a personally and individually relevant way.

When Christ said, “if the Son sets you free, you will be free indeed,” he didn’t have globalization in mind.