http://www.economist.com/surveys/displaystory.cfm?story_id=795995&CFID=27895&CFTOKEN=48563651
Globalisation and its critics
Sep 27th 2001
From The Economist
print edition
Globalisation is a great force for good. But
neither governments nor businesses, Clive Crook argues, can be trusted to make
the case
PUBLICATION
of this survey had originally been intended to coincide with the annual
meetings of the World Bank and the International Monetary Fund, scheduled for
September 29th-30th in Washington, DC. Those meetings, and the big
anti-globalisation protests that had been planned to accompany them, were among
the least significant casualties of the terrorist atrocities of September 11th.
You
might have thought that the anti-capitalist protesters, after contemplating
those horrors and their aftermath, would be regretting more than just the loss
of a venue for their marches. Many are, no doubt. But judging by the response
of some of their leaders and many of the activists (if Internet chat rooms are
any guide), grief is not always the prevailing mood. Some anti-globalists have
found a kind of consolation, even a cause of satisfaction, in these terrible
events—that of having been, as they see it, proved right.
To its
fiercest critics, globalisation, the march of international capitalism, is a
force for oppression, exploitation and injustice. The rage that drove the
terrorists to commit their obscene crime was in part, it is argued, a response
to that. At the very least, it is suggested, terrorism thrives on poverty—and
international capitalism, the protesters say, thrives on poverty too.
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These may be extreme positions, but the
minority that holds them is not tiny, by any means. Far more important, the
anti-globalists have lately drawn tacit support—if nothing else, a reluctance
to condemn—from a broad range of public opinion. As a result, they have been,
and are likely to remain, politically influential. At a time such as this,
sorting through issues of political economy may seem very far removed from what
matters. In one sense, it is. But when many in the West are contemplating their
future with new foreboding, it is important to understand why the sceptics are
wrong; why economic integration is a force for good; and why globalisation, far
from being the greatest cause of poverty, is its only feasible cure.
Undeniably,
popular support for that view is lacking. In the developed economies, support
for further trade liberalisation is uncertain; in some countries, voters are
downright hostile to it. Starting a new round of global trade talks this year
will be a struggle, and seeing it through to a useful conclusion will be
harder. The institutions that in most people's eyes represent the global
economy—the IMF, the World Bank and the World Trade
Organisation—are reviled far more widely than they are admired; the best they
can expect from opinion at large is grudging acceptance. Governments,
meanwhile, are accused of bowing down to business: globalisation leaves them no
choice. Private capital moves across the planet unchecked. Wherever it goes, it
bleeds democracy of content and puts “profits before people”.
Who
will speak up for international capitalism? Governments and businesses. What a
pity that is. These supposed defenders of globalisation may do more to
undermine support for it than the critics.
Rich-country
governments generally present economic integration to voters as an unfortunate
but inescapable fact of life: as a constraint, that is, on their freedom of
action. For the past ten years, this has been the favourite excuse of any
government about to break an election promise.
Multinational
businesses, for their part, with their enlightened mission statements,
progressive stakeholder strategies, flower-motif logos and 57-point pledges of
“corporate social responsibility”, implicitly say that they have a case to
answer: capitalism without responsibility is bad. That sounds all right; the
trouble is, when they start talking about how they will no longer put profits
first, people (rightly) think they are lying. If, as these defenders of
economies without borders lead you to conclude, global capitalism is a cause of
democratic paralysis and a cloak for old-fashioned corporate venality, even
instinctive liberals ought to side with the sceptics.
With
advocates like these on either side of the globalisation debate—dissembling
governments and businesses in favour, angry and uncompromising protesters
against—it is natural that the general public stands firmly in support of
neither. It has no deep commitment to international capitalism, but it can see
no plausible alternative. Certainly, the protesters do not appear to be
offering one. So people are mostly puzzled, anxious and suspicious. This
climate of opinion is bad for democracy and bad for economic development.
This
survey offers a few suggestions for a more purposeful kind of discussion. It
would be foolish to suppose that consensus will ever be possible. Some of the
sceptics are opposed not just to globalisation or even to the market economy
but to the very idea of economic growth. That view has the virtue of coherence,
at least, but it is unlikely in the foreseeable future to command a large
following.
Nonetheless,
in among all their weak arguments, dangerous good intentions and downright loony
notions, the sceptics are hiding some important points. Clarifying what makes
sense in the sceptics' case, and exposing the mistaken or dishonest arguments
that politicians and businessmen are putting up against them, may serve some
purpose. And a clearer understanding of the arguments for globalisation, of the
problems it solves as well as the problems it creates, may help as well.
Good old invisible
hand
The
strongest case for globalisation is the liberal one. It is almost never heard,
least of all from governments or businessmen. International economic
integration, on the liberal view, is what happens when technology allows people
to pursue their own goals and they are given the liberty to do so. If
technology advances to the point where it supports trade across borders, and if
people then choose to trade across borders, you have integration, and because
people have freely chosen it this is a good thing. Also, again because people
have freely chosen this course, you would expect there to be economic benefits
as well.
By and
large, theory and practice confirm that this is so. Adam Smith's invisible hand
does its work. People choose what serves their own self-interest, each of them
making that judgment for himself. The result is that society as a whole prospers
and advances—spontaneously, not by design of any person or government.
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All
kinds of qualifications and elaborations are needed, obviously, to fill out the
argument properly. This survey will offer some of them in due course. But it is
essential to understand one point from the outset. The liberal case for
globalisation is emphatically not the case for domestic or international
laisser faire. Liberalism lays down no certainties about the requirements of
social justice in terms of income redistribution or the extent of the welfare
state. It recognises that markets have their limits, for instance in tending to
the supply of public goods (such as a clean environment). A liberal outlook is
consistent with support for a wide range of government interventions; indeed a
liberal outlook demands many such interventions.
But the
starting point for all liberals is a presumption that, under ordinary
circumstances, the individual knows best what serves his interests and that the
blending of these individual choices will produce socially good results. Two
other things follow. The first is an initial scepticism, at least, about
collective decision-making that overrides the individual kind. The other is a
high regard for markets—not as a place where profits are made, it must be
stressed, but as a place where society advances in the common good.
Why
then are governments and business leaders rarely heard to put this case?
Because for the most part they are not liberals. Perhaps it goes with the job
that politicians of left and right, traditional and modern, have an exaggerated
view of their ability to improve on the spontaneous order of a lightly governed
society.
It
would be even more naive, and contrary to all experience, to expect business
itself to favour a liberal outlook. Businesses are ultimately interested in one
thing: profits. The business-bashing NGOs are right about that. If businesses
think that treating their customers and staff well, or adopting a policy of
“corporate social responsibility”, or using ecologically friendly stationery
will add to their profits, they will do it. Otherwise, they will not.
Does
that make market capitalism wrong? On the contrary, the point of a liberal
market economy is that it civilises the quest for profit, turning it,
willy-nilly, into an engine of social progress. If firms have to compete with
rivals for customers and workers, then they will indeed worry about their
reputation for quality and fair dealing—even if they do not value those things
in themselves. Competition will make them behave as if they did.
Here,
then, is where the anti-business NGOs get their argument completely
upside down—with genuinely dangerous consequences for the causes, sometimes
just, which they hope to advance. On the whole, stricter regulation of
international business is not going to reduce profits: the costs will be passed
along to consumers. And it is not going to diminish any company's interest in
making profits. What it may well do, though, by disabling markets in their
civilising role, is to give companies new opportunities to make even bigger
profits at the expense of society at large.
For
example, suppose that in the remorseless search for profit, multinationals pay
sweatshop wages to their workers in developing countries. Regulation forcing
them to pay higher wages is demanded. The biggest western firms concede there
might be merit in the idea. But justice and efficiency require a level
playing-field. The NGOs, the reformed multinationals and
enlightened rich-country governments propose tough rules on third-world factory
wages, backed up by trade barriers to keep out imports from countries that do
not comply. Shoppers in the West pay more—but willingly, because they know it
is in a good cause. The NGOs declare another victory. The
companies, having shafted their third-world competition and protected their
domestic markets, count their bigger profits (higher wage costs
notwithstanding). And the third-world workers displaced from locally owned factories
explain to their children why the West's new deal for the victims of capitalism
requires them to starve.
If firms ruled the
world
A
fashionable strand of scepticism argues that governments have surrendered their
power to capitalism—that the world's biggest companies are nowadays more
powerful than many of the world's governments. Democracy is a sham. Profits
rule, not people. These claims are patent nonsense. On the other hand, there is
no question that companies would run the world for profit if they could. What
stops them is not governments, powerful as they may be, but markets.
Governments
have the power, all right, but they do not always exercise it wisely. They are
unreliable servants of the public interest. Sometimes, out of conviction, politicians
decide to help companies reshape the world for private profit. Sometimes,
anti-market thinking may lead them to help big business by accident. And now
and then, when companies just set out to buy the policies they want, they find
in government a willing seller. On all this, presumably, the sceptics would
agree.
But
they miss the next crucial step: limited government is not worth buying.
Markets keep the spoils of corruption small. Government that intervenes left
and right, prohibiting this and licensing that, creating surpluses and
shortages—now that kind of government is worth a bit. That is why, especially
in developing countries with weak legal systems, taming capitalism by
regulation or trade protection often proves such a hazardous endeavour.
If NGOs succeeded in disabling markets, as many of them say they would like to, the political consequences would be as dire as the economic ones. It is because the sceptics are right about some things that they are so wrong about the main thing.