Posts tagged with: globalization

Blog author: jballor
posted by on Wednesday, October 17, 2007

In answer to the query in the headline of this week’s Acton Commentary, “Who’s Afraid of Free Trade?”, I submit the following: the ecumenical movement. Note the following news item from Ecumenical News International:

Church groups mount week of action to transform global trade

Geneva (ENI). Faith groups have joined activists around the globe in calling for fair, equitable and just trade policies while urging churches to join a Trade Week of Action that seeks to promote alternatives to the global system of commerce. “During this week, the churches and other organizations will tell the world that enforced free trade is causing poverty and that there are viable alternatives,” said Linda Hartke, coordinator of the Geneva-based Ecumenical Advocacy Alliance, which has organized the 14-21 October Trade Week of Action. “When the systems we have created to buy, sell and share goods cause hunger and suffering then these systems are wrong. Every voice counts, and every action makes a difference,” Hartke told Ecumenical News International. [ENI-07-0798]

A recent NBER paper, “Distributional Effects of Globalization in Developing Countries,” by Pinelopi Koujianou Goldberg and Nina Pavcnik examines some effects of trade liberalization on low-skill workers.

Les Picker summarizes the findings, “Not surprisingly, the entry of many developing countries into the world market in the last three decades coincides with changes in various measures of inequality in these countries. What is more surprising is that the distributional changes went in the opposite direction from what the conventional wisdom suggests: while trade liberalization was expected to help the less skilled, who are presumed to be the relatively abundant factor in developing countries, there is overwhelming evidence that they are generally not made better off relative to workers with higher skill or education levels.”

There’s a lot more here to digest and the article has some predictably necessary nuances and caveats, not least of which concerns the problematic elements of trying to find a causal link between temporally related phenomena: “The authors’ findings suggest a contemporaneous increase in various measures of globalization and inequality in most developing countries, although establishing a causal link between these two trends has proven more challenging. However, the evidence has provided little support for the conventional wisdom that trade openness in developing countries would favor the less fortunate.”

It’s one thing to say that globalization proportionally rewards more highly educated and skilled workers relative to less educated and skilled workers. This by itself is not obviously unjust, and indeed, it seems to pass a basic sense of justice that jobs that require more skills and training ought to command a higher wage. Maybe a system that distributes more unevenly according to a measure of merit such as education or skill-level is more just than another system which is more equitable in purely distributive terms.

That said, it’s quite another thing to say that low-skilled workers are not made better off in absolute terms by globalization. I’m inclined to think that we shouldn’t be so concerned about relative disparities as we are by comparing in absolute terms the state of the working poor under systems of liberal versus illiberal trade.

If the working poor are better off under a liberal trade regime than an illiberal one, and higher educated workers are paid relatively more, there is a simultaneous increase in the poor’s immediate economic prospects as well as a relative increase in the economic incentive to improve their skills.

But his latter point only is effective in a situation where labor mobility is a real option, and as the NBER paper points out, “the strict labor market regulation that many developing countries had in place prior to the recent reforms is a potential source of labor market rigidities.”

So, for the promise of globalization to be realized, trade not only needs to be liberalized, but so does labor. Workers need to be free to move between sectors, both within and without national boundaries. As I’ve argued before in another context, we need both free trade and free labor.

For more on international labor mobility among low-skill workers, see this NYT piece, “Short on Labor, Farmers in U.S. Shift to Mexico.” See also, “New UN Report Underscores Ties between Poverty and Productivity.”

An op-ed in today’s NYT by James E. McWilliams, “Food That Travels Well,” articulates some of the suspicions I’ve had about the whole “eat local” phenomenon.

It seems to me that duplicating the kind of infrastructure necessary to sustain a great variety of food production every hundred miles or so is grossly inefficient. Now some researchers in New Zealand have crunched some numbers that seem to support that analysis:

Incorporating these measurements into their assessments, scientists reached surprising conclusions. Most notably, they found that lamb raised on New Zealand’s clover-choked pastures and shipped 11,000 miles by boat to Britain produced 1,520 pounds of carbon dioxide emissions per ton while British lamb produced 6,280 pounds of carbon dioxide per ton, in part because poorer British pastures force farmers to use feed. In other words, it is four times more energy-efficient for Londoners to buy lamb imported from the other side of the world than to buy it from a producer in their backyard. Similar figures were found for dairy products and fruit.

McWilliams closes with some compelling questions about stewardship of the environment, food production, and trade:

Given these problems, wouldn’t it make more sense to stop obsessing over food miles and work to strengthen comparative geographical advantages? And what if we did this while streamlining transportation services according to fuel-efficient standards? Shouldn’t we create development incentives for regional nodes of food production that can provide sustainable produce for the less sustainable parts of the nation and the world as a whole? Might it be more logical to conceptualize a hub-and-spoke system of food production and distribution, with the hubs in a food system’s naturally fertile hot spots and the spokes, which travel through the arid zones, connecting them while using hybrid engines and alternative sources of energy?

Read the whole thing, as they say.

On today’s Diane Rehm Show, a panel of experts discussed the pending energy policy legislation in the US Congress. Karen Wayland, legislative director of the Natural Resources Defense Counsel talked about the need to join the concepts of national security and climate change when discussing energy policy (RealAudio).

From her perspective, these two concerns are tied up together and shouldn’t be separated, in part because if you take energy independence and national security alone, you might think that reliance on coal would be the best option.

“If you go down the path of energy independence separate from considering global warming what you get is the possibility that some of the solutions to energy independence, like coal-to-liquids, actually leads you to higher global warming emissions,” says Wayland.

Wayland and the NRDC don’t want to see “is this jumpstarting of a whole new industry for coal, which is the greatest emitter of carbon dioxide.”

The linkage of concerns about climate change to international security policy is a critical part of an emerging narrative of international relations. For instance, new UN Secretary General Ban Ki-moon has said of the genocide in Sudan, “The Darfur conflict began as an ecological crisis, arising at least in part from climate change.” This is the latest in a long series of attributions of blame for global crises coming from leading international figures. Following the tsunami in the Indian Ocean in 2004, ecumenical faith leaders blamed the extent of the damage on man-made global warming.

Then, as now, I think that using tragedies and conflicts like the tsunami or the Darfur genocide to advance an ideological agenda, like the fight against global warming, is irresponsible. Ban Ki-moon may indeed be right to point out the ecological roots of the Darfur situation. When necessary commodities are scarce, it is not surprising that conflict often arises.

But to connect that particular situation, directly or indirectly, to man-made climate change (driven in large part by Western economies, most especially America) smacks more of opportunism than legitimate and responsible commentary. And if this kind of narrative becomes the dominant one politically, you can expect there to be talk of environmental economic reparations from the industrialized world to the developing world.

Last week, the Southern Baptist Convention issued a statement about global warming that acknowledges the intimate linkages between global concerns about the environment, peace, and prosperity. According to MSNBC, “The SBC statement frames the global warming debate as a moral issue with profound implications for the poor — but does so through a different lens.”

“Our concern is for the vulnerable communities as well,” said Barrett Duke, vice president for public policy and research with the SBC’s Ethics and Religious Liberty Commission. “But we think if the data is being misinterpreted, and policies are being implemented to reduce the human contributions, those policies are bound to drive up the costs of goods and services for poor and underdeveloped parts of the world.”

Increased and growing poverty and environmental devastation do indeed have profound implications for geo-political relations, and particularly so when the blame flows only one way. But against the narratives of Western oppression and victimization of the developing world, we need to better understand and articulate the positive aspects of a globalized, interdependent, and interconnected political and social economy.

Economic globalization has lifted millions out of dire poverty and is an unparalelled engine of wealth creation. But, like other economic systems, it needs the moral framework that the Church provides to guide it as a humane force for good. Brian Griffiths, vice chairman of Goldman Sachs International, examines the role of faith in a rapidly globalizing world in this excerpt from his new Acton monograph.

Read the full commentary here.

A couple weeks ago the NYT magazine ran a piece by contributing writer Tina Rosenberg, which attempts to outline some of the ways in which “everyone in a wealthy nation has become the beneficiary of the generous subsidies that poorer countries bestow upon rich ones.”

What does she mean? In “Reverse Foreign Aid,” Rosenberg asserts that there are five major forms of poor-to-rich international subsidy. The first is the tendency among poorer nations to build-up great reserves of hard currency, often in the form of T-bills. The problem here is that there is an opportunity cost in holding the low-return but ultra-secure US Treasury bills: “All the money spent on T-bills — a very substantial sum — could be earning far better returns invested elsewhere, or could be used to pay teachers and build highways at home, activities that bring returns of a different type.”

A second form of subsidy is in the WTO requirements that member nations abide by copyright and intellectual property protections. “There are good reasons for countries to respect intellectual property, but doing so is also an overwhelming burden on the poorest people in poorer countries,” writes Rosenberg.

So-called “tax holidays” form a third kind of subsidy, in which poorer nations offer tax incentives and various other breaks to multi-national corporations to entice them to bring their operations to their country. Rosenberg writes, “Since deals between corporations and governments are usually secret, it is hard to know how much investment incentives cost poorer countries — certainly tens of billions of dollars. Whatever the cost, it is growing, as country after country has passed laws enabling the offer of such incentives.”

Rosenberg also describes brain drain as a form of subsidy, in which skilled professionals who are trained in poorer nations emigrate to wealthier ones. She also points out the adverse effects that domestic subsidies of various industries, such as agriculture, can have on poorer nations. Somehow or other this direct subsidy becomes a “reverse subsidy” because “corn, rice or cotton exported by rich countries is so cheap that small farmers in poor countries cannot compete, so they stop farming.”

And finally, Rosenberg calls the disproportionate negative effects of climate change on poorer nations the “ultimate subsidy.” She writes, “American energy use is being subsidized by tropical coastal nations, who appear to be global warming’s first victims.”

The essay is really a bit uneven. It’s hard to fathom why, for example, cheaper imports of agriculture commodities from wealthier nations should be seen as “reverse” subsidies. Just because a certain practice or policy negatively affects a poorer country doesn’t mean that it is a “reverse” subsidy. And just because wealth is created in the first world doesn’t mean that it comes at the expense of someone in the third world, although there are good reasons to see that Rosenberg is right about the consequences on agricultural sectors in developing nations.

With respect to the second form of “reverse subsidy,” Rosenberg is really describing a kind of competition between developing nations, and the beneficiaries aren’t so much wealthier governments but large multi-national corporations. Of course, many critics of the developed world can’t or won’t distinguish between these two (all the better to fit into the picture of a growing neo-liberal “empire”).

Brain drain is a real problem for the developing world, but as is the case with so many of these instances of “reverse subsidy,” Rosenberg is pointing to a legitimate issue or concern but failing to ask the right kinds of questions, and thus providing some questionable solutions (a neo-Keynesian answer for T-bill stockpiling?). Why, for instance, are professionals leaving developing nations to work in places like the United States? In many, if not most, cases money surely is a motivation. But there certainly are other factors at work, and the potential for greater income isn’t a sufficient explanation as to why so many people leave their home, friends, and family to go live in a foreign country. Indeed, large-scale migration out of a nation is a pretty reliable indicator that something is wrong in the native country.

And maybe the fact that poorer nations don’t respect copyright and IP rights is as much a contributor as it is an effect of their lower economic status. How can you expect to be a country that fosters innovation if there are no legal protections for innovation and invention?

A recent NBER paper, “Globalization and Poverty,” examining some of these issues makes the case that globalization is a complex phenomenon and that in some cases segments of the poor can be made worse off. This is no doubt true, and the merit of Rosenberg’s piece is that it points out some of the real-world issues that a globalized economy faces. The question remains, however, whether at least some of these negative effects might be mitigated by a freer and more liberalized system of trade rather than one which relies on subsidies, tariffs, and protectionism.

A NYT editorial informs us today that retail prices for coffee products are rising (HT: Icarus Fallen). We are assured, however, that the price rise has been “relatively modest” and that an important factor is “changes in supply and demand in a global economy.”

No kidding.

The bad news in the editorial, at least for the fair trade crowd, is that these same forces of suppy and demand are raising the price for the commodity itself.

According to the International Coffee Organization, the composite price of coffee rose over 36 percent from the beginning of 2005 to the end of 2006. The organization predicts a down year for the Brazilian coffee crop, which could lead to a supply shortfall and even higher prices this year. While world demand has grown at annual rates of 1.5 to 1.8 percent over the last five years, it has been rising at a much faster clip of roughly 15 percent for smaller players like Russia and China. As more people enter the global middle class, the demand for coffee rises, putting upward pressure on the price.

I have argued previously that the very low price of coffee internationally was a pointer to the fact that we had a global glut in the bean supply.

That trend seems to be reversing and the rising commodity price for coffee is thus undermining the long-term viability, relevance, and credibility of fair trade coffee.

For an opposing perspective, check out Black Gold, a new movie on the fair trade coffee movement, which I have not yet seen (HT: The Advocate).

Why do so many clergy and religious activists reflexively attack the free market? Kishore Jayabalan takes a look at recent anti-business campaigns. “The very concepts of business and profit motive are often reason enough for religious leaders to condemn an activity as immoral and unethical, and criticisms of multinational corporations are just the same condemnations on a larger scale,” he writes.

However, large multinational corporations are one of the most able and efficient means of improving the economies of developing nations. Multinational corporations fight government corruption, establish banking and legal services, help to ensure basic eduation and are proven to raise the standard of living in the nations that they “invade.”

Read the commentary here.

From the abstract of a new paper from the NBER, “Globalization and Poverty,” by Ann Harrison:

“This essay surveys the evidence on the linkages between globalization and poverty. I focus on two measures of globalization: trade and international capital flows…. The collected evidence suggests that globalization produces both winners and losers among the poor. The fact that some poor individuals are made worse off by trade or financial integration underscores the need for carefully targeted safety nets.”

It seems that it may be possible. An interesting article from yesterday’s International Herald Tribune:

Danielle Scache tries to avoid using the term “capitalism” in her economics class because it has negative connotations in France.

Instead, she teaches her high school students about the market economy, a slightly less controversial term she started using last year after a two-month internship at the dairy giant Danone. That was an experience that did away with more than one of her own prejudices, she said.

“I was surprised to see that people actually enjoyed working in a company,” said Scache, who is 59. “Some of them were more enthusiastic than many teachers I know.”

“You know,” she confided with a laugh, “in France we often think of companies, especially multinationals, as a place of constant conflict between employees and management.”

This view of bosses and workers as engaged in an endless, antagonistic tug-of-war goes some way toward explaining the two-month rebellion against a new labor law.

Read the whole thing for an interesting look into the state of economic education in France.