Posts tagged with: multi-national corporations

Blog author: jballor
Tuesday, February 5, 2008
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From a review in the New Yorker magazine (HT) of David Levering Lewis, God’s Crucible: Islam and the Making of Europe, 570 to 1215, in which the author

clearly regrets that the Arabs did not go on to conquer the rest of Europe. The halting of their advance was instrumental, he writes, in creating “an economically retarded, balkanized, and fratricidal Europe that . . . made virtues out of hereditary aristocracy, persecutory religious intolerance, cultural particularism, and perpetual war.” It was “one of the most significant losses in world history and certainly the most consequential since the fall of the Roman Empire.” This is a bold hypothesis.

To say the least. It is of course true that in the twelfth and thirteenth centuries Muslims had been in possession of a number of Aristotle’s works in Arabic that were not readily available in the Latin West. It isn’t so clear, however, that the depth and breadth of Greek philosophy and the classical virtues were saved by Islamic philosophers during the West’s “dark” ages. There’s much more on that here, including this summary:

The Arabic translations, although they did serve as an early reintroduction for some Western Europeans to Greek thought, didn’t “save” Greek knowledge as it had never been lost. It had been preserved in an unbroken line since Classical times by Greek, Byzantine Christians, who still considered themselves Romans, and it could be recovered there. There was extensive contact between Eastern and Western Christians at this time; sometimes amiable, sometimes less so and occasionally downright hostile, but contact nonetheless. The permanent recovery of Greek and Classical learning was undertaken as a direct transmission from Greek, Orthodox Christians to Western, Latin Christians. There were no Muslim middlemen involved.

In any case, here’s the take of the New Yorker reviewer on Lewis’ book:

I can foresee a time when another matter important to us, the threat of ecological catastrophe, will prompt a historian to write a book in praise of the early Europeans whom Lewis finds so inferior to the Muslims. The Franks lived in uncleared forests, while the Muslims built fine cities, with palaces and aqueducts? All the better for the earth. The Franks were fond of incest? Endogamy keeps societies small, prevents the growth of rapacious nation-states. The same goes for the Franks’ largely barter economy. Trade such as the Muslims practiced—far-flung and transacted with money—leads to consolidation. That’s how we got global corporations.

So, the development of free market economies so often attributed to Western civilization are actually due to Muslim nation-states…and for that reason we ought to prefer European culture!

How refreshing!

No doubt feeding the fears of those who believe that global corporations pose the greatest threat to the future flourishing of humanity, such multi-nationals are beginning to hire their own economists, much like governments have their own financial and economic experts.

See, for instance, this interview on the WSJ Economics Blog with UC-Berkeley economist Hal Varian, who has taken a position as chief economist with Google, Inc.

Where will Varian be focusing his attention? In his words, “I think marketing is the new finance.”

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.