Globalization: The Third World's Best Ally
Jonathan Dingel
Anti-globalization became the trendy movement for college-age youth to join as soon as coverage of the "Battle in Seattle" in 1999 began to spread throughout the global media. Photographers captured scenes of anti-WTO protesters filling the urban streets as riot police attempted to control the crowd and halt those vandalizing store fronts. Anti-globalization activists appealed for students to join them, portraying themselves as the virtuous underdog combating the awesome power of global corporations. The movement had made use of global capitalism's infrastructure and technologies to globally network their activities and did so even more in the following years, organizing protests from Rome to Miami.
Much of the anti-globalization movement consists of young twenty year olds, who envision themselves as the voice of the world's poor in their opposition to the liberalization of global commerce. These activists believe that corporations seek to "exploit" workers and the environment and that freer trade will allow these and other "evils" of capitalism to spread to Third World nations, further harming those already impoverished by global capitalism.1 Such anti-capitalist ideas have become popular amongst members of so called "social justice" organizations on many college campuses. These activists have succeeded in slowing global trade liberalization to some degree, depriving developing nations of access to international markets and discouraging the liberalization that should accompany that integration. Tragically, economic liberalization is the cure for the diseases of illiteracy, malnutrition, and poverty. A proper understanding of political economy would lead most advocates for developing nations to push for more globalization, not less.
Self-Sufficient Poverty
Some students argue that international trade is inherently hurtful to the Third World and defend protectionism as a viable method for "self-sufficiency." They see multinational corporations that conduct operations in developing nations as "imperialists" that are taking advantage of the Third World's poverty and "exploiting" their workers. Such critics fail to see the economic reasoning behind corporations' decisions to move abroad and slander globalization in favor of a utopian ideal disconnected from economic reality.
Employment is voluntary cooperation: both the employer and the employee find the exchange of wages for work beneficial. When a poor person in the developing world takes a job, it is because that employment is the best option available to him or her. If the multinational corporation were not providing the opportunity for the poor person to earn wages, then he or she would be forced to accept his or her next best available option, such as prostitution or working extremely long hours on a subsistence farm. Taking away the best of a series of bad choices doesn't help the poor.
Critics of "sweatshops" find the disparity between relatively comfortable Americans and Third World workers engaged in hard labor to be intolerable. They believe that multinational corporations should pay much higher wages to developing nation laborers because they feel that no one should have to be poor. These critics consider globalization to be undesirable because it pales in comparison to their ideal of everyone being equally rich and suffering no discomfort. Similarly, many leftists object to child labor, arguing that kids should be in school, not at work. They ignore that the choice for poor children in developing nations is not between a job and an education, but between working and starving.
Low wage "sweatshops" are a normal and necessary step in the process of economic development. Hong Kong and South Korea had sweatshops thirty years ago; their populations have since risen above that standard of living because they were able to acquire skills and capital by laboring for low wages.2
More misleading than these critics' ignorance of economic reality, however, is their portrayal of multinationals as evil monsters out to destroy the poor individuals of the world. Corporations act out of self-interests they open factories in poor countries because they will be able to profit from selling the goods produced there. They are not seeking to sadistically enjoy the Third World's poverty. While most developing nation occupations involve back-breaking farm labor with few benefits, many jobs offered by multinationals include a regular wage, free medical coverage, free or subsidized meals and job training. These are not gifts from altruistic donors; multinationals make capital investments to raise workers' productivity and, consequently, their wages. For this reason, many of the world's poor are happy to see multinationals arrive; on average, multinational corporations pay wages twice that paid by domestic businesses competing in the same market. The earnings are even better if the multinational is American; their workers earn eight times the average income in low-income nations. As Johan Norberg argues "if this is exploitation, then the problem in our world is that the poor countries aren't sufficiently exploited."3
The alternative to this "exploitation" is for developing nations to cut themselves off from the "imperialists." Such a solution would be disastrous. While leftists might consider low wages to be a tragedy, at least globalization allows workers to exchange their earnings for important imports like food, medicine and basic technologies. Cut off from trade, poor persons would labor for the even lower wages offered by domestic corporations and then be unable to spend their earnings.
Even in the face of these arguments, leftists often argue that developing nations shouldn't economically integrate because, although international trade may help poor nations, it helps rich nations more, widening the global rich-poor gap. It should be noted from the onset that this argument is rooted in irrational envy, not a logical objection. Even if globalization did increase the rich-poor gap, perceived disparities in incomes are not relevant to the poor's well-being; it is the absolute increase in wealth that makes the poor less likely to die of disease and starvation, not their relative position. If the liberalization of international trade is mutually beneficial, then it is good, regardless of the proportions of the mutual benefits.
However, the critics' claim that globalization makes the rich richer and poor (relatively) poorer is false. Harvard economists Jeffrey Sachs and Andrew Warner conducted a study of free trade's correlation to economic growth.4 Open developing nations averaged a growth rate of 4.49 percent annually, outpacing the open developed nations' 2.29 percent, while closed nations languished below one percent. Conclusion? The poor only get poorer if they are protectionist. In the case of free markets, the poor get richer faster than the rich. The globalizers are catching up with rich countries while protectionist nations fall further and further behind.
The Siren Song of "Fair Trade" Standards
A more popular stance amongst left-leaning college students is for democratically imposed regulation of the global economy, rather than outright opposition to trade. The two most touted planks of this platform are environmental and labor standards. These critics, believing that they defend the Third World from the "excesses" of "unchecked" capitalism, while promoting what they have dubbed "fair trade," would cut trade off almost as much as those advocating outright protectionism. Environmental critics of globalization fear a global "race to the bottom," in which multinationals seek to move their operations to the nation with the least environmental regulation so that they can pollute with impunity. These concerns are, in short, "empirically irrelevant" the race is not occurring.5 Companies guide their investment decisions based upon the stability and openness of a foreign economy, not upon the inability of a government to penalize them for polluting on others' property. Generally, foreign corporations bring cleaner technology and superior standards into a country compared to the domestic firms' performance. Even if there were empirical support for a "race to the bottom," globalization is more likely to help than hurt the environment.
Without access to trade, Third World nations are unable to import cleaner, more efficient technologies. Under globalization, developing nations can "skip" the dirty industrial stages of development that developed nations underwent and adopt today's advanced technologies. In economic isolation, however, these nations must undergo all stages of development, and are thus a much more dangerous threat to the environment.
Poverty is at the root of environmental destruction. The environment is a resource. Its usage is guided by the needs of the people that own it. Persons prioritize their short term, most pressing needs. When people are fairly wealthy, they can afford to appreciate the environment's aesthetic value or its long-term importance. The poor are unable to appreciate such concerns if they are seeking their next meal or trying to find affordable housing. Those in desperate situations will manipulate the environment to address their short-term concerns and ignore long-term impacts. Increasing the wealth of a nation is critical to protecting its environment, for only the wealthy can afford environmental conservation and protection.
First World advocates who seek to alter the Third World's priorities by refusing to trade with the poor unless they subordinate their short-term needs to the developed nations' call for environmental protection are more imperialist than any Nike factory. Citizens of developing nations should have their sovereignty respected and be able to choose between development and environmental protection for themselves. Wealthy NGOs of developed nations that declare that the global environment cannot afford for poor people to economically develop are condemning millions to suffering while retaining their own positions of privilege. The social mobility and poverty reduction brought by globalization are benefits of economic freedom that should not be denied to poor persons.
Labor standards are an even more insidious form of exclusionary market intervention. In 1999, many protestors supported President Bill Clinton's idea of using the WTO to sanction countries not meeting US-dictated labor standards. This proposal is still popular amongst Democrats and many college students today. Pakistani trade delegate Munir Ahmad explained that these "advocates for the poor" were actually hurting their cause: "Those people outside are not talking for the developing world. They say they want minimum wage for workers? How could you have a minimum wage of four dollars for workers in Bangladesh? It's not even twenty cents there."6 It is a simple matter of supply and demand. Government price floors set above the market equilibrium cause over-supply. In the labor market, this means that very few employers are willing to pay four dollars per hour for labor, but a lot of workers are willing to labor for that wage. As a result, not many employees are hired and most of the labor force remains unemployed. Employed laborers earn high wages at the expense of other workers. If the market was free, employers would pay lower wages and hire more employees. The benefits of employment would spread to many in the work force, not just a few privileged members.
Low labor costs are the Third World's comparative advantage. Companies are willing to move production abroad because foreign labor markets are not burdened with the additional costs that American market interventions like Social Security and employer-provided health care impose. While foreign workers may be less productive than Americans, the cost of their labor is so much lower that their productive output per dollar of wages is higher than American workers' that is why multinationals move operations abroad. The ability of developing nations' workers to compete is a reflection of their poverty. Under free market conditions, as capital is shifted to the Third World, productivity and wages will rise there, while First World wages will fall until there is a global equilibrium.
Left-leaning students who fight for labor standards in trade agreements are not advocates for the poor; they are lobbyists for American union workers that want to retain their high wages at the expense of poor people in developing nations. Unions complain about free trade because they fear that they will lose their jobs to low wage workers abroad. From the perspective of the foreign poor, this development would be tremendously beneficial, as it would bring wages and capital investment. Unions want to impose global labor standards so that the Third World's comparative advantage will be wiped out and corporations will have no incentive to move away from the United States, where they have already made capital investments that make US workers more productive than those abroad.
Advocates for the poor should stop listening to American unions and start listening to their constituents the Third World poor. Instead of protesting poor labor conditions in developing nations, we should purchase more goods from countries that fail to meet US labor standards. Ms. Lopez, a Nicaraguan garment sewer earning under a dollar an hour, says, "Sometimes, at the end of the year, the factory doesn't have enough orders. Then we can't work as many hours, or make as much money. I wish more people would buy the clothes we make."7
Environmental and labor standards are means to exclude developing nations from the global trading system, making investment in them undesirable. For advocates of the poor, "fair trade" is a siren song that will crash the
hopes of economic development for the world's poor into the rocks of
protectionism.
A Promising Future
Countries that embrace free trade and open markets experience economic growth. In addition to economic studies like that of Sachs and Warner and the other chapters in this text, side-by-side comparisons of markets also demonstrate the potency of economic liberalization spurred by global trade: Taiwan, West Germany and South Korea are all better off than their less-liberal counterparts, China, East Germany and North Korea.
Economic freedom increases per capita GDP, living standards and life expectancy.8 People with more wealth are able to eat better food and live in better conditions. These improvements raise human happiness and physical well-being. Economic growth reduces infant morality, poverty and illiteracy. The benefits of growth are distributed throughout a society, not merely to the rich: "The poor benefit from growth to roughly the same extent and at the same speed as the rich. They benefit immediately from an increase in the value of their
labor and from greater purchasing power. No country has ever succeeded in reducing poverty without having long-term growth. Nor is there any case of the
opposite."9
Closed economies do not grow; open economies do. Growth is the cure for poverty. While protectionism might merely slow America's rising prosperity, it can kill millions in developing nations by slowing economic growth and thus reducing the ability of the poor to afford food, water, and basic medicine. To that extent, free trade should be considered a moral imperative.
The Call For An Equal Distribution
Given that capitalism is the cause of prosperity, left-liberals should push for trade liberalization in order to help the world's poor. Libertarians believe in equality before the law; left-liberals believe in "equality of opportunity." In this case, those causes are aligned. Johan Norberg explains: "The world's inequality is due to capitalism. Not to capitalism having made certain groups poor, but to its making its practitioners wealthy. The uneven distribution of wealth in the world is due to the uneven distribution of capitalism."
It would be foolishly optimistic to think that left-liberals can be convinced of all of capitalism's merits upon their first encounter with libertarian arguments. Instead, free market advocates should seek to convince advocates for the poor that capitalism is the best way to finding "lasting solutions to poverty, suffering and injustice."10 Left-liberals ought to follow the lead of Oxfam International, a global non-governmental organization dedicated to fighting poverty, and lobby First World government to open their markets to Third World exports so that developing nations can work their way out of poverty.11
Developed nations are guilty of protectionism that is devastating to the world's poor. Agricultural subsidies and textile tariffs are EU and US market interventions that destroy the ability of developing nations to compete in the markets where they have comparative advantages. On average, developed nations place trade barriers four times higher against developing nations than those placed upon goods incoming from other developed nations. The campaign to defeat agricultural subsidies represents the potential for free market activists and left-liberal poverty reduction advocates to align themselves against First World corporate welfare.12
Most of the trade liberalization that occurred in the latter half of the twentieth century was unilateral. Nations pursued economic liberalization when it was in their self-interest, often to keep up with the liberalization pace set by the United States, which was outperforming other nations due to its freer markets. In the twenty first century, the United States can again play an important role by liberalizing its trading policy so as to drive global economic liberalization.
Equally importantly, free trade and poverty reduction advocates need to push for developing nations to liberalize their own trading policies. The total tariff burden on developing countries' exports is twice their share of the global GDP, but they are not merely victims of First World protectionism. A significant amount of trade occurs between developing nations, although they place tariffs upon each other that are two and a half times greater than the tariffs imposed by the First World. Seventy percent of the import tariffs paid by developing nations' citizens are imposed by other developing nations.13 First World nations certainly ought to liberalize their trade policies, but the Third World must also heed the call of free markets so as to stop starving itself.
It is truly tragic that anti-globalization has become the trendy intellectual position for college students to adopt. Globalization, if allowed to genuinely progress, will unlock the economic development potential that is currently suppressed by government interventions in many of the world's poorest countries. But economic liberalization is far from a sure thing. It needs passionate advocates that can stir up public support to overwhelm the lobbying power of particular interest groups that benefit from protectionism, such as corporate
agro-businesses and steel workers. Leftist attempts to halt globalization will only help these protectionists, resulting in an uneven distribution of capitalism and thus, an uneven distribution of poverty-induced suffering.
Footnotes
1 The terms "Third World" and "developing" will be used interchangeably in this essay; they refer merely to the state of a nations economy and do not reflect a sociocultural judgment of the country or its people.
2 David R. Henderson,"The Case for Sweatshops", 2000.02.07, http://www-hoover.stanford.edu/pubaffairs/we/current/henderson_0200.html
3 Johan Norberg, "The Noble Feat of Nike," The Spectator, 2003.06.07. http://www.johannorberg.net/?page=articles&articleid=53
4 Relevant results are summarized in Johan Norbergs In Defense of Global Capitalism. Cato Institute: 2003. p.129-130
5 Jagdish Bhagwati dubbed the fears "empirically irrelevant" in his Free Trade Today. See "Champions of trade" from The Economist, 2002.02.07. http://www.economist.com/finance/PrinterFriendly.cfm?Story_ID=975917
6 Quoted in Llewellyn H. Rockwell, Jr, "WTO Meltdown," 1999.12.7. http://www.mises.org/fullarticle.asp?record=346&month=15
7 Glenn Garvin, "We Need These Jobs," Miami Herald, 1997.11.30. p.1F http://www.aworldconnected.org/article.php?id=507&print=1
8 Johan Norberg, In Defense of Global Capitalism. Cato Institute: 2003. p.74-75
9 Johan Norberg, In Defense of Global Capitalism. Cato Institute: 2003. p.81
10 Oxfam Internationals mission, as stated at http://oxfam.org/eng/about.htm
11 See Oxfam’s website at http://www.maketradefair.com/en/index.htm
12 Se "Kick All Agricultural Subsidies" at http://kickaas.typepad.com/kickaas/2003/08/
abolish_all_agr.html
13 Thomas W. Hertel and Will Martin, "Would Developing Countries Gain from Inclusion of Manufactures in the WTO Negotiations?" 1999.09.11. p.4ff http:// www.itd.org/wb/hertel.doc