HUU Sermon Archives

Economics and Ethics of Globalization

Deb Stevens Fitzgerald
May 2, 2004

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I’m going to organize my comments today around a single theme to explore– that we are a global society. We’re all familiar with the term globalization… it seems to be everywhere. And there are many sides of globalization, so I’m not going to restrict myself to the question of globalizing markets and economies. Y’all know that I’m a teacher (not a lecturer) so you can expect me to raise more questions than I answer. And of course, I’m real comfortable being interrupted, though I don’t take too kindly to snoring.

First, we have to figure out how we feel about globalization. Look at the chart.

Integrationists: Globalization and a wired world are good or inevitable. More free trade, more e-commerce, more networking of schools, commerce, communities.

Separatists: Globalization is neither good nor inevitable, it widens income inequalities, causes job loss, homogenizes culture into a kind of mush, and leads to life controlled by nameless, faceless others.

Social Safety-netters: Globalization is good only if it is democratized, with programs designed to bring everyone into the system with the tools and resources to compete. Politically it means encouraging democratization in countries that are globalizing. No economic growth is sustainable without the growth of personal freedoms as well.

Let-them-eat-cakers: Winner take all, loser takes care of yourself. People should reap the benefits of their labor and pay the price of their own ineptitude. Shrink government, taxes and social programs. Nothing focuses the mind more than losing your job.

Chat and discuss.

One Community

After 9/11, the outpouring of support- tangible and otherwise to the families that lost their lives in the destruction of the WTC, Pentagon and the PA plane crash was heartening and reinforced the feeling of community we so strongly needed at that time. 3 months after the disaster, the total raised was $1.3 billion. New Yorkers, wealthy or not, living in lower Manhattan, received an average of about $5,300 per family after 9/11.

Sept 11, 2001 was not a special day for most of the rest of the world, especially for those living in poverty. According to UNICEF, in a report released to the media on Sept 13, 2001 about 30,000 children under five died that day due to poverty related illnesses… 10X the number that died in the WTC attacks. No outpouring of $ followed this report.

So that’s the first question I want to raise: do we have special obligations to our own kind, those nearest to us? Does distance make a difference?

Let’s do an experiment. You know I teach university level economics. Suppose I’m heading to class, walking down the road, getting ready to give a lecture to students. I see a child struggling in a shallow muddy pond, and realize she is in danger of drowning. I could wade in and pull her out; that would get my shoes and clothes wet and muddy, I’d need to go home and change, the shoes might be lost, I’d be late for class. But most would agree that I would be a grotesquely horrible person to allow such minor costs to keep me from saving a child’s life. If, clean and dry, I walk on to give the lecture, I have done a serious wrong.

So. If that’s the case, what is the substantive difference between this act and the person who can, at a small cost, save the life of a refugee child in Sub-Sahara Africa, or Latin America? Who with, say, $200 a year can purchase enough food and medicine to keep a child alive for another 12 months?

Should we assume an impartial ethic, where there is no moral difference whether the person I help is a neighbor’s child 10 yards from me or a Bengali, whose name I’ll never know 10,000 miles from here?

Or do we have special obligations to some, and not to others? Henry Sidgwick, ethicist and political economist in Victorian England of the 1800’s, said that obligations to those closest to us rise from our “common moral sense”, and are to our parents, spouse, children, other kin, those who have rendered service to us, friends, neighbors, fellow countrymen, and to “those of our own race”, and in general, “to human beings in proportion to their affinity to ourselves.”

Some partiality is rational, but how much? To what extent, for example, do we have a duty of gratitude? For example, are our compatriots a kind of extended kin- can nationalism, in the sense of charity “beginning at home,” be justified by a national identity connected by a kind of web of mutual aid that extends back in time, that creates future obligations and expectations?

Are we doing wrong if we don’t make sacrifices for strangers?

One Atmosphere

We all share the same planet. Imagine, as Australian ethicist Peter Singer does, that we live in a village where everyone puts their wastes down a gigantic sink. No one really knows where the wastes go, but since they disappear and seem to have no adverse impact on anyone, no one worries about it, even though some people pour a lot more down than others. The ability of the sink to absorb the waste seems endless, so no problem.

Here, we’re following John Locke’s “enough and as good as” principle, from his Second Treatise on Civil Government (1690); here’s what he says; the earth belongs to mankind in common. But how then can we justify the holding of private property? But when we mix our own labor with the land and its products, we make them *our* own. Locke says that as long as our use and holding of what is held in common does not prevent there being “enough and as” left in common for others, this acquisition of private property is justified.

But, back in the village, let’s imagine a change occurs. The village grows, and now the sink’s capacity is full; sewage and waste is seeping up over the rim. It smells, and it’s contaminating local ponds and creeks and the water supply. It’s an example of the “tragedy of the commons”, an old idea. Aristotle long ago observed that "what is common to the greatest number has the least care bestowed upon it”. You may have heard it expressed as the doctrine which insists that we will always add one too many sheep to the village commons, destroying it. In other words, when many individuals own a resource in common, we tend to opt for the immediate benefit at the expense of less tangible future ones (such as the availability of the resource later). No one takes individual responsibility for things that everyone owns.

The commons tragedy is an incentive for acting together. The sink, in the above example, belongs to us all and if used without restriction, we will deprive others of using it without bringing results that no one wants.

Well, concerning our own atmospheric sink, we know that the average American uses 15X as much of the global atmosphere as, say, the average Indian. If poor nations were to develop along the lines that rich nations now do, we would destroy the “sink”, accelerate global warming and bring about environmental catastrophe. So how do we share the sink in some equitable way?

Now, one advantage of being married to someone who has different color hair is that you know who’s responsible for clogging the bathroom sink. “Get your own hair out of the tub” is a reasonable household rule. So one basis for deciding who pays the plumber when the drain gets clogged is to see whose hair is causing the problem and divvy up the costs that way.

Is this a reasonable ideal for global cleanup? This is a kind of historical standard, one looking to the past, a kind of environmental version of the Pottery Barn Rule: the developed nations broke it, they (we) fix. One study reported that, for the period 50’s- 80’s, the US (with 5% of the world’s population) was responsible for 30% of global atmospheric emissions. India, with 17% of the world population was responsible for 2% of the emissions. Requiring the developed nations to bear the brunt of the cost of the clean up -polluter pays- would be a heavy burden indeed.

But, when developed nations contributed most of their polluting gasses into the atmosphere, little was known of the capacity of the atmosphere to absorb these gasses, and less about the resulting effects on the environment. Would a better solution be to wipe the slate clean and start from scratch? In 1990, the first report on hazards associated with emissions was published by Intergovernmental Panel on Climate Change. So, a more forward looking strategy might ask the question, “Should anyone have a greater claim on a part of the global atmospheric sink than any other?”

No? If not, then allowable emissions should be tied to population or population growth. Developed nations would have to reduce emissions, while developing nations would be able to industrialize with more freedom. Add emissions trading, and you have a solution that is equitable and effective. Is that more fair?

One Law

Here’s the next point I’d like to raise; to what extent should ethics stop at national boundaries? For centuries, nations have often had an important role in promoting peaceful relationships between countries, with relationships generated here acting as a kind of rule of thumb that sums up the hard-won experiences of many generations in avoiding war.

What are the limits of sovereignty? It’s a debate that balances an international community’s “right to intervene” against its “responsibility to protect”? Should the power of a state be mostly a matter of controlling what happens within its borders? Or is that power expanded by a state’s ability and willingness to protect its people?

Domestically, crimes such as murder, rape, etc, are limited by law enforcement. Law enforcement at an international level starts, in modern times, with the International Military Tribunal, set up after WWII to try leading war criminals at Nuremberg. It had jurisdiction over 3 types of crimes: crimes of peace, war crimes, and crimes against humanity. The allies had much history to draw on in justifying the claim that crimes against humanity were already against international law, but WWII gave new meaning to the idea that certain acts are so horrible that that they are crimes, no matter where they are committed and what the law is in the country at the time.

Sometime later, the UN asked the International Law Commission to formulate principles of international law dealing with crimes against humanity similar to those dealt with in the Nuremberg trials. The 1984 Commission Against Torture, signed by 110 states, ratified these principles.

So, to what extent should international law recognize universal jurisdiction? Extradition of Auguste Pinochet to Spain by the UK for crimes committed while in Chile… should any state have the right to prosecute crimes of international law, regardless of where they occur?

And what about the issue of military intervention?

Kofi Annan said, in a 1999 The Economist piece, “Military intervention is justified when death and suffering are being inflicted on a large number of people, and when the state nominally in charge is unwilling or unable to stop it.”

Canada’s International Commission on Intervention and State Sovereignty, 2001 develops 2 justifications:

1) Large scale loss of life, either actual or apprehended

2) Large scale ethnic cleansing, either actual or apprehended with further emphasis on the following: It is not only the right, but the responsibility of nations to protect the current and future victims of acts of violence

OK, there are some ideas and standards. Next question. Who decides? The UN?

UN Charter requires a balance between:

Article 55(c ) respect human rights

Article 2(7) not to interfere with internal matters of another state in

its choice of political, cultural, social and economic systems

But Rwanda’s genocides were the result of world *and* UN inaction. Kosovo’s ethnic cleansing involved regional intervention of NATO, certainly action without a world mandate. Similarly, the war in Iraq has not been backed by the UN.

Is the UN up to the job? The Security Council was set up after WWII, by the Allies, who were, not surprisingly, motivated to retain firm control. There are 189 member states at UN, 15 in Security Council. 10 elected by General Assembly for a 2 year term, plus US, UK, France, Russia and China. Many have called for structural reform at UN.

Ideas:

1. Do away with veto in Security Council. Majority rules

2. Change permanent members of Security Council. Why no Latin American or African countries?

3. Adopt an old UK debate proposal to “complete” UN. Pair Security Council and General Assembly with “World Assembly” by which minimum standards are set for membership. Representation would work like the House of Representatives, proportional to population. If country declines to submit to the membership criteria, they are allowed one representative to the World Assembly, that’s it.

Should member organizations give the UN the means to fill this mandate in the next millennium? The question here is: should UN become a true law enforcement power, a protector of last resort? If not the UN, who?

One Economy

Let’s indulge for a moment and talk about Wal-Mart, which bothers many of us for a lot of reasons. Last year, 7.5 cents of every dollar spent in any store in the United States (other than auto-parts stores) went to the retailer. Wal-Mart now has more than 300 permanent buyers in China, and last year imported $12bn of Chinese goods, with the commendable aim of keeping consumer prices down – Wal-mart alone accounted for a tenth of total U.S. imports from China. Now, U.S. companies have been moving jobs offshore for decades, long before Wal-Mart was a retailing power. But there is no question that the chain is helping accelerate the loss of American jobs to low-wage countries such as China. One way to think of Wal-Mart is as a vast pipeline that gives non-U.S. companies direct access to the American market. "One of the things that limits or slows the growth of imports is the cost of establishing connections and networks," says Paul Krugman, the Princeton economist ad NYT columnist. "Wal-Mart is so big and so centralized that it can all at once hook Chinese and other suppliers into its digital system. So--wham!--you have a large switch to overseas sourcing in a period quicker than under the old rules of retailing."

One example is Carolina Mills, a 75-year-old North Carolina company that supplies thread, yarn, and textile finishing to apparel makers--half of which supply Wal-Mart. Carolina Mills grew steadily until 2000. But in the past three years, as its customers have gone either overseas or out of business, it has shrunk from 17 factories to 7, and from 2,600 employees to 1,200. Carolina’s customers have begun to face imported clothing sold so cheaply to Wal-Mart that they could not compete even if they paid their workers nothing.

How can it be bad for things to come into the U.S. cheaply? How can it be bad to have a bargain at Wal-Mart? It's held inflation down, and it's great to have bargains. But you can't buy anything if you're not employed. Are we shopping ourselves out of jobs? Has Wal-Mart has lulled shoppers into ignoring the difference between the price of something and the cost? Its unending focus on price underscores something that Americans are only starting to realize about globalization: Ever-cheaper prices have consequences. We want clean air, clear water, good living conditions, the best health care in the world--yet we aren't willing to pay for anything manufactured under those restrictions.

More generally, we all engage in capitalistic acts between consenting adults- for us, the benefits of trade are familiar. Trade means an increase in wealth and income, and freedom; choice and opportunity, especially for women, to decrease the traditional sort of dependency on the husband. In 1920, the poorest Americans devoted 75% of their incomes to food. Today, it’s roughly 1/3.

Free trade – economic globalization- requires that countries have open economies, meaning that they do not put up barriers to trade and investment, such as quotas and tariffs on imports, and that their major industries are privatized and deregulated. Having an open economy exposes businesses to competition and induces them to stay profitable and efficient to survive. Those businesses that are inefficient will be less profitable. Less profitable businesses will fail and be replaced by more efficient and innovative firms, leading to better, high paying jobs. Joseph Schumpeter, called this the “creative destruction” of capitalism. Creative destruction drives innovation, efficiency, and economic growth- but it causes job losses and displacement of workers in the short run.

Accelerating this creative destruction now is that the world is taking advantage of what we might call a global division of labor. The microchip makes it possible for a kind of electronic movement of the labor force to occur across international borders that was never possible before. Americans are much more likely to lose a job to a microchip than to a Mexican. American workers now compete with workers in South Africa, India, Singapore, and more. In one sense, the developed world is turning into a big post-industrialized service economy, while the developing one industrializes with all the sweat shops, child labor, and health and safety problems that come along with it. We went through it, the story goes, in the early and mid 1900’s. Now it’s the developing nation’s turn.

So globalization can bring an increase in incomes, but also increases in inequality and job loss. How to deal with this and cope? First, let’s acknowledge that any kind of trade requires rules. Free trade is a fantasy, and we live in a political world. Those who advocate completely free trade are hypocritical at best, as are American policymakers. E.g., in the US: an American firm offshores it’s customer relations department to India… moving jobs offshore cuts costs because Indian workers cost less. But India’s pharmaceuticals make drugs for a fraction of the cost that US firms do, and it’s illegal to import those very same drugs into the US. According to the UN, since the 1990’s, developing countries have dropped trade barriers at 3X the rate of the industrial countries of North America and Europe, and face demands about labor and environmental standards, while the US and Europe pay farmers to remain in unprofitable businesses. We dump subsidized goods in foreign markets, while restricting foreign firm’s access to ours. So, politically, “free” trade means different things to different countries- it’s the old problem of rhetoric vs. action. So we need rules. Who makes them, who enforces them, and what do they look like? Who determines the trade-offs, between production and the income it brings, environmental protection, living standards, and poverty reduction? The global economy is like a very large ocean. Small countries are like small boats; even if sound and well-captained, they just can’t sail well in all parts of the sea. Hit broadside with a wave, and they capsize. Who determines the terms under which countries engage in the global economy?

Conclusion

So how do we react to these changes in the US? Globalization can lead to a sense of over-connection, where nothing can be heard above the roar. Globalization is too hard, too fast and too long. Acquire new skills, become competitive, get with the program… and then the program changes in 6 months. Globalization is unfair- it spreads its blessings very unevenly. Globalization can be deeply alienating and deeply intrusive. Can we do more than fasten our seatbelts and put our seatbacks and put our trays in an upright position?

Let’s think broadly about 2 types of strategies to help friends and neighbors cope with the inevitable. The race is on, we’re in it, and it’s getting faster every year. Following Thomas Friedman: we try to balance the benefits of swinging high and far in this new, risky, wide-open environment, with the costs of falling to the jungle below. So said, we need:

1) Trapezes; Encourage risk taking in the open global economy, but democratize the access to funding. Don’t just let free markets rip—private markets tend to especially fail those at the bottom of the income ladder. Mainstream banks don’t tend to seek out poor communities because that’s not where the money is, and that creates a clear market failure, where large groups of people are deprived of the opportunity to lend or save. Let’s, for example, revive an expanded version of the 1977 Community Reinvestment Act, enacted by Congress to encourage banks to help meet the credit needs of the communities in which they operate.

2. Trampolines: catch people before the splat on the ground. Winner take all, losers take care of themselves can’t be the way to go here. They have to be strong enough to catch you before you hit the ground, but not so comfy that you can live on it forever. First, there’s no better safety net than a healthy economy with low unemployment. Don’t shield people from the effects of globalization- lost jobs, in particular, but help them deal with the consequences. A hand-up rather than a hand-out. Not a redistribution of income, but an expansion of the winners circle. And there’s no better trampoline that life-long learning. In this world—one without walls, economic security doesn’t come from the welfare state or holding a union card – it comes from holding a report card. In this rapidly changing world, knowledge in the knowledge economy has a shelf life. Now, we don’t earn a living, we learn a living. It’s impossible to be shielded from this reality, but government’s job is not to leave workers to cope with it on their own.

The 15th and 16th centuries taught us that the world was round, the 1700’s saw the first proclamations of human rights, and the 20th century’s conquest of space let us see for the first time the world *as* one world. Now our challenge is to figure out together what it means to be, as the ancient Greek philosopher Diogenes said, a citizen of the world.

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