The Accidental Theorist (7 page)

T
he useful term “globaloney” was coined by none other than Claire Booth Luce. What she had in mind was gaseous talk about geopolitics, but the term applies equally well to the way many modern pundits ascribe everything that happens in the world to the vaguely defined impacts of the global economy. Globalization is, of course, a real phenomenon: International trade and investment have consistently grown faster than the world economy as a whole, so that national economies have steadily become more interdependent. But both the extent of that interdependence and its impacts are usually exaggerated. And among intellectuals, at least, there is a strong tendency to demonize the whole phenomenon—to blame it for all the evils in the world, and to deny that growing trade and investment could possibly be doing anybody except fat-cat capitalists any good.

The first essay here, “We Are Not the World,” is an attempt at a corrective—an effort to explain that America, at least, is nowhere near to being a mere pawn of global economic forces. When the original version of the piece was published, I was surprised at the vehemence of some of the responses—and also surprised that so much of the vitriol was focused not on the main argument, but on a side remark I had made, to the effect that many poor people in the Third World had benefited from globalization. I guess I had thought that was obvious—but it turned out to demand a fuller discussion, which I tried to provide in the next essay, “In Praise of Cheap Labor.”

Finally, “The East Is in the Red” deals with a view that has rapidly achieved prominence among some pundits and politicians: the view that the rise of newly industrializing economies will lead to a global glut, that these economies—China in particular—will produce but not consume, export but not import. In this essay I tried to use the reunification of Hong Kong with China as an occasion to take this view on, trying to show that it represents a misunderstanding of both the facts and the theory of the case—and along the way to give readers a quick, painless lesson in the economics of trade balances.

It is a truth universally acknowledged that the growing international mobility of goods, capital, and technology has completely changed the economic game. Nations, conventional wisdom tells us, no longer have the power to control their own destinies; governments are at the mercy of international markets.

Some celebrate this development, saying that both rich and poor nations benefit. At the same time, a growing number of journalists, union leaders, politicians of both parties, and even businessmen deplore it, blaming globalization for instability, unemployment, and declining wages.

But both sides have it wrong. They take the omnipotence of global markets for granted—not realizing that reports of the death of national autonomy are greatly exaggerated.

A certain fascination with the march of globalization is understandable. For half a century, world trade has grown faster than world output, and international capital now moves more quickly than ever before. The rapidly expanding exports of newly industrializing economies have put pressure on less-skilled workers in advanced countries even as they offer unprecedented opportunities to tens of millions in the Third World. (As discussed in the next essay, the wages of those workers are shockingly low but nonetheless represent a vast improvement on their previous, less visible rural poverty.)

But while global economic integration is increasing, its growth has been far outpaced by that of “global economy” rhetoric. William Greider’s recent book
One World, Ready or Not
is a jeremiad about the evils of unfettered economic globalism. Politicians like Pat Buchanan and Ross Perot have made careers out of assailing open markets. Even the financier George Soros warns, in the
Atlantic Monthly,
that global capitalism is now a greater threat than totalitarianism to “open society.”

Such oratory has become so pervasive that many observers seem determined to blame global markets for a host of economic and social ills in their countries, even when the facts point unmistakably to mainly domestic—and usually political—causes.

For example, critics of globalization often cite France, whose government has taken no serious action to reduce its double-digit unemployment rate, as the perfect example of how states have become powerless in the face of impersonal world markets. France cannot act, according to a recent
New York Times
article, because of the demands of “European economic integration—itself partly a response to the competitive demands of the global marketplace.”

French policy is indeed paralyzed—not, however, by impersonal market forces but by the determination of its prestige-conscious politicians not to let the franc decline against the German mark. Britain, which has been willing to let the pound sink relative to the mark, has steadily reduced its unemployment rate with no visible adverse consequences. The cause of France’s paralysis, in other words, is political rather than economic. True, the country must meet the conditions laid down by the Maastricht Treaty of 1991, which is supposed to lead to a unified European currency. But creating this currency is more a political than an economic project. Its main purpose is to serve as a symbol of European unity, and many economists think that the costs of the common currency will exceed its benefits. It would actually be more accurate to say that French politics has battered markets rather than the other way around.

And what about the United States, where the continuing power of the government—or at any rate that of the Federal Reserve—to push the economy around can hardly be questioned? Critics of the global economy invariably reply that America may be creating lots of jobs but that they are tenuous because of the prevalence of downsizing, which is a reaction to international competition (a line of reasoning that also provides a good excuse for companies undertaking layoffs).

Come again? Early in 1996,
Newsweek
ran a story titled “The Hit Men,” about executives responsible for massive layoffs. The chief executives of AT&T, Nynex, Sears, Philip Morris, and Delta Air Lines were high on the list. Of course, international competition plays a role in some downsizings, but as
Newsweek
’s list makes clear, it is hardly the most important cause of the phenomenon. To my knowledge there are no Japanese keiretsu competing to carry my long-distance calls or South Korean conglomerates offering me local phone service. Nor have many Americans started buying their home appliances at Mexican stores or smoking French cigarettes. I cannot fly Cathay Pacific from Boston to New York.

What explains this propensity to overstate the importance of global markets? In part, it sounds sophisticated. Pontificating about globalization is an easy way to get attention at events like the World Economic Forum in Davos, Switzerland, and Renaissance Weekends in Hilton Head, S.C.

But there is also a deeper cause—an odd sort of tacit agreement between the Left and the Right to pretend that exotic global forces are at work even when the real action is prosaically domestic.

Many on the Left dislike the global marketplace because it epitomizes what they dislike about markets in general: the fact that nobody is in charge. The truth is that the invisible hand rules most domestic markets, too, a reality that most Americans seem to accept as a fact of life. But those who would like to see us revert to a more managed society in all ways hope that popular unease over the economic influence of people who live in far-off places and have funny-sounding names can be used as the thin end of an ideological wedge. Meanwhile, many on the Right use the rhetoric of globalization to argue that business can no longer be expected to meet any social obligations. For example, it has become standard for opponents of environmental regulations to raise the banner of “competitiveness” and to warn that anything that raises costs for American businesses will price our goods out of world markets.

But even if the global economy matters less than the sweeping assertions would have us believe, does this “globaloney,” as the cognoscenti call it, do any real harm? Yes, in part because the public, misguided into believing that international trade is the source of all our problems, might turn protectionist—undermining the real good that globalization has done for most people here and abroad. But the overheated oratory poses a more subtle risk. It encourages fatalism, a sense that we cannot come to grips with our problems because they are bigger than we are. Such fatalism is already well advanced in Western Europe, where the public speaks vaguely of the “economic horror” inflicted by world markets instead of turning a critical eye on the domestic leaders whose policies have failed.

None of the important constraints on American economic and social policy come from abroad. We have the resources to take far better care of our poor and unlucky than we do; if our policies have become increasingly mean-spirited, that is a political choice, not something imposed on us by anonymous forces. We cannot evade responsibility for our actions by claiming that global markets made us do it.

For many years a huge Manila garbage dump known as Smokey Mountain was a favorite media symbol of Third World poverty. Several thousand men, women, and children lived on that dump—enduring the stench, the flies, and the toxic waste in order to make a living combing the garbage for scrap metal and other recyclables. And they lived there voluntarily, because the ten dollars or so a squatter family could clear in a day was better than the alternatives.

The squatters are gone now, forcibly removed by Philippine police in 1996 as a cosmetic move in advance of a Pacific Rim summit. But I found myself thinking about Smokey Mountain recently, after reading my latest batch of hate mail.

The occasion was an op-ed piece I had written for the
New York Times
(“We Are Not the World”), in which I had pointed out that while wages and working conditions in the new export industries of the Third World are appalling, they are a big improvement over the “previous, less visible rural poverty.” I guess I should have expected that this comment would generate letters along the lines of, “Well, if you lose your comfortable position as an American professor you can always find another job—as long as you are twelve years old and willing to work for two dollars a day.”

Such moral outrage is common among the opponents of globalization—of the transfer of technology and capital from high-wage to low-wage countries and the resulting growth of labor-intensive Third World exports. These critics take it as a given that anyone with a good word for this process is naive or corrupt and, in either case, a de facto agent of global capital in its oppression of workers here and abroad.

But matters are not that simple, and the moral lines are not that clear. In fact, let me make a counter-accusation: The lofty moral tone of the opponents of globalization is possible only because they have chosen not to think their position through. While fat-cat capitalists might benefit from globalization, the biggest beneficiaries are, yes, Third World workers.

After all, global poverty is not something recently invented for the benefit of multinational corporations. Let’s turn the clock back to the Third World as it was only two decades ago (and still is, in many countries). In those days, although the rapid economic growth of a handful of small Asian nations had started to attract attention, developing countries like Indonesia or Bangladesh were still mainly what they had always been: exporters of raw materials, importers of manufactures. Inefficient manufacturing sectors served their domestic markets, sheltered behind import quotas, but generated few jobs. Meanwhile, population pressure pushed desperate peasants into cultivating ever more marginal land or seeking a livelihood in any way possible—such as homesteading on a mountain of garbage.

Given this lack of other opportunities, you could hire workers in Jakarta or Manila for a pittance. But in the mid-seventies, cheap labor was not enough to allow a developing country to compete in world markets for manufactured goods. The entrenched advantages of advanced nations—their infrastructure and technical know-how, the vastly larger size of their markets and their proximity to suppliers of key components, their political stability and the subtle-but-crucial social adaptations that are necessary to operate an efficient economy—seemed to outweigh even a tenfold or twentyfold disparity in wage rates.

And then something changed. Some combination of factors that we still don’t fully understand—lower tariff barriers, improved telecommunications, cheaper air transport—reduced the disadvantages of producing in developing countries. (Other things being the same, it is still better to produce in the First World—stories of companies that moved production to Mexico or East Asia, then moved back after experiencing the disadvantages of the Third World environment, are common.) In a substantial number of industries, low wages allowed developing countries to break into world markets. And so countries that had previously made a living selling jute or coffee started producing shirts and sneakers instead.

Workers in those shirt and sneaker factories are, inevitably, paid very little and are expected to endure terrible working conditions. I say “inevitably” because their employers are not in business for their (or their workers’) health; they pay as little as possible, and that minimum is determined by the other opportunities available to workers. And these are still extremely poor countries, where living on a garbage heap is attractive compared with the alternatives.

And yet, wherever the new export industries have grown, there has been measurable improvement in the lives of ordinary people. Partly this is because a growing industry must offer a somewhat higher wage than workers could get elsewhere in order to get them to move. More importantly, however, the growth of manufacturing—and of the penumbra of other jobs that the new export sector creates—has a ripple effect throughout the economy. The pressure on the land becomes less intense, so rural wages rise; the pool of unemployed urban dwellers always anxious for work shrinks, so factories start to compete with each other for workers, and urban wages also begin to rise. Where the process has gone on long enough—say, in South Korea or Taiwan—average wages start to approach what an American teenager can earn at McDonald’s. And eventually people are no longer eager to live on garbage dumps. (Smokey Mountain persisted because the Philippines, until recently, did not share in the export-led growth of its neighbors. Jobs that pay better than scavenging are still few and far between.)

The benefits of export-led economic growth to the mass of people in the newly industrializing economies are not a matter of conjecture. A country like Indonesia is still so poor that progress can be measured in terms of how much the average person gets to eat; since 1970, per capita intake has risen from less than 2,100 to more than 2,800 calories a day. A shocking one-third of young children are still malnourished—but in 1975, the fraction was more than half. Similar improvements can be seen throughout the Pacific Rim, and even in places like Bangladesh. These improvements have not taken place because well-meaning people in the West have done anything to help—foreign aid, never large, has lately shrunk to virtually nothing. Nor is it the result of the benign policies of national governments, which are as callous and corrupt as ever. It is the indirect and unintended result of the actions of soulless multinationals and rapacious local entrepreneurs, whose only concern was to take advantage of the profit opportunities offered by cheap labor. It is not an edifying spectacle; but no matter how base the motives of those involved, the result has been to move hundreds of millions of people from abject poverty to something still awful but nonetheless significantly better.

Why, then, the outrage of my correspondents? Why does the image of an Indonesian sewing sneakers for sixty cents an hour evoke so much more feeling than the image of another Indonesian earning the equivalent of thirty cents an hour trying to feed his family on a tiny plot of land—or of a Filipino scavenging on a garbage heap?

The main answer, I think, is a sort of fastidiousness. Unlike the starving subsistence farmer, the women and children in the sneaker factory are working at slave wages
for our benefit
—and this makes us feel unclean. And so there are self-righteous demands for international labor standards: We should not, the opponents of globalization insist, be willing to buy those sneakers and shirts unless the people who make them receive decent wages and work under decent conditions.

This sounds only fair—but is it? Let’s think through the consequences.

First of all, even if we could assure the workers in Third World export industries of higher wages and better working conditions, this would do nothing for the peasants, day laborers, scavengers, and so on who make up the bulk of these countries’ populations. At best, forcing developing countries to adhere to our labor standards would create a privileged labor aristocracy, leaving the poor majority no better off.

And it might not even do that. The advantages of established First World industries are still formidable. The only reason developing countries have been able to compete with those industries is their ability to offer employers cheap labor. Deny them that ability, and you might well deny them the prospect of continuing industrial growth, even reverse the growth that has been achieved. And since export-oriented growth, for all its injustice, has been a huge boon for the workers in those nations, anything that curtails that growth is very much against their interests. A policy of good jobs in principle, but no jobs in practice, might assuage our consciences, but it is no favor to its alleged beneficiaries.

You may say that the wretched of the earth should not be forced to serve as hewers of wood, drawers of water, and sewers of sneakers for the affluent. But what is the alternative? Should they be helped with foreign aid? Maybe—although the historical record of regions like southern Italy suggests that such aid has a tendency to promote perpetual dependence. Anyway, there isn’t the slightest prospect of significant aid materializing. Should their own governments provide more social justice? Of course—but they won’t, or at least not because we tell them to. And as long as you have no realistic alternative to industrialization based on low wages, to oppose it means that you are willing to deny desperately poor people the best chance they have of progress for the sake of what amounts to an aesthetic standard—that is, the fact that you don’t like the idea of workers being paid a pittance to supply rich Westerners with fashion items.

In short, my correspondents are not entitled to their self-righteousness. They have not thought the matter through. And when the hopes of hundreds of millions are at stake, thinking things through is not just good intellectual practice. It is a moral duty.

A Note on Globalization

My favorite concrete example of the driving forces behind globalization is the recent and rapid rise of Zimbabwe’s vegetable exports. In recent years, truck farmers near Harare have got into the business of supplying fresh vegetables to London markets. The vegetables are picked and trucked immediately to the airport, flown through the night to Heathrow, and are there on the shelf in Tesco the next morning.

This export business depends on at least three things. First, it depends on cheap air transport—the beat-up old Boeings that have become the tramp steamers of modern commerce. Second, it depends on modern telecommunications—the vegetables are delivered to order, which means that messages must be sent to the farmers in a way that used to be possible only in advanced countries with good phone systems. Finally, of course, the trade depends on an open British market. It could not happen if import quotas or high tariffs prevented the sales.

Now how do you feel about all of this? Here are some facts: The vegetables are produced using “appropriate technology”—that is, they are hand-grown and handpicked, using labor-intensive methods with relatively little machinery. As a result, the truck farms create quite a few jobs in an economy that desperately needs them. They are nonetheless cost-competitive because the workers are paid low wages, which they are happy to get given the lack of other opportunities. And, oh yes, the workers are black—and not only are their British customers white, but the farmers who employ them are white colonial settlers who have chosen to stay on under the new regime.