Neoliberalism / Economic Globalization
This is not an economics course, but we can discuss the basic principles of what is sometimes known as “Anglo-Saxon” or “Anglo-American” or “laissez-faire” capitalism, and its transformation.
Adam Smith: the “invisible hand” of the market provides goods and services for all of us.
Free trade is good because, since individuals are rational and self-interested, and tend to negotiate and trade and bargain, and because whenever people trade or buy goods or services both parties must gain (most of the time), governments should allow free trade. Governments should not interfere in the market.
Economic liberalism thus gave priority to economic freedom over economic equality
Liberal capitalism was the official economic system, and the economic backbone, of the British Empire, and it was the dominant global system until the early 20th century and the rise of communism and socialism, and crises of capitalism including the 1929 stock market crash.
The result of these crises and threats, in advanced capitalist democracies, was that the state sought to smooth out the volatility of markets, and sought to make capitalism serve social purposes – equality and welfare.
The result was not communism, but rather the “welfare state” in which states taxed citizens, and taxed the wealthiest citizens more than others, in order to provide health insurance, unemployment insurance, retirement benefits, and other benefits to vulnerable citizens.
The welfare state was the dominant economic-social model in the world from about 1945-1975(ish). This period also saw the growth of labor unions, which were generally not communist/socialist, but that demanded guarantees of social security and benefits from states.
In the 1970s the welfare state and unions faced their own crises and also sustained intellectual/ideological criticism from “neo-liberal” economists and other writers.
The welfare state was, and is, threatened by global economic competitition, by economic globalization and the incorporation of countries like China into the global economy. States that tax businesses and citizens for social reasons lose because businesses and citizens can more easily move. E.g. Germany and France today.
Thus economic globalization / neo-liberalism directly threatens the welfare state, and in so doing it threatens the welfare of millions of people in advanced democracies. For these and other reasons, we should not be surprised to find anti-globalization social movements, and anti-globalization and anti-immigration sentiments among voters in advanced democracies. And yet economic globalization / neoliberalism continues to advance, and welfare states continue to shrink. Why? Peter Martin and Martin Wolf argue that there is a strong moral case for economic globalization. Their arguments are classical arguments of free-traders and economic globalizers, and most business executives would strongly agree with them. Their arguments are rooted in neoclassical economics and in observations of the world, particularly since the 1990s.
Peter Martin “The Moral Case for Globalization”
This article was originally published in the Financial Times, a highbrow business newspaper. For Martin, economic globalization is morally good. In fact it is great, because it has integrated previously marginalized, poor people into the world economy and provided them with higher standards of living.
Economic globalization is better and more powerful than bureaucratic elites and their “North-South dialogues”. Economic globalization is real, powerful, and beneficial because it will transfer power from developed countries to developing ones.
Leftist critics of globalization (the anti-globalization movement) are in fact conservative, they want to retain the status quo.
Economic globalization refers to the lowering of trade barriers and the liberalization of economic policies and labor laws.
Economic globalization creates losers, but it creates more winners than losers.
Economic globalization creates jobs. Millions of jobs. Maybe not great jobs, but a job in a factory is better than no job at all.
Globalization can be stopped, but this requires a more powerful state that can repress individual rights and freedoms. This is undemocratic.
Economic globalization / liberalization is associated with democracy. Where we have free trade, we will generally have democracy and more freedoms.
This is a “mainstream” view of globalization. For evidence it relies on the economic development of southeast Asia – Taiwan, Thailand, South Korea, Vietnam
Martin Wolf “Why this Hatred of the Market?”
Technology has made the lives of millions of people much better. It is easier to travel, to communicate.
Governments are forced to open their economies to the world economy, although this leads to a loss of power and control. Why do they do this? Because choosing economic isolation leads to disasters, e.g. East Germany, North Korea, and Maoist China (poor, isolated, militaristic) versus West Germany, South Korea, and Taiwan (rich, successful, not militaristic).
Still, some people resist economic globalization. Why?
Hatred of markets
Fear of foreigners
Concern about wages and jobs
These fears are unfounded, “mythical”
What is not mythical is the economic prosperity of … east Asia
Other criticisms of economic globalization
Neoliberalism / economic globalization weakens unions and the welfare state, both of which are institutions that gave millions of citizens opportunities to attain a middle-class standard of living, and to live and grow old free of the fear of poverty or destitution. These institutions created an important “safety net” for citizens of advanced democracies, and now it seems that this safety net is weakening.
There are other criticisms of economic globalization that are less focused on the wealthy democratic societies.
- Economic globalization increases inequality in the world
- Economic globalization increases poverty in the world. Or at least, it does not decrease it.
- Economic globalization creates a “race to the bottom” in terms of workers’ rights, wages, environmental standards, and child labor.
- States and regions and even towns compete to attract mobile businesses
- Econ glob’n is un- or anti-democratic (Barber)
- Transnational corporations are immune from voters
- Econ glob’n strips power away from democratic institutions
- Econ glob’n is racist and/or sexist
- EG generally privileges white male executives (e.g. exec salaries)
- EG generally punishes people of color and women
- Advocates of EG are mostly white men
- Critics of EG are often people of color, people from poorer countries, women
- Econ glob’n is basically a new form of colonialism and exploitation
- Econ glob’n destroys traditional cultures that have develop ed over millenia
Hugo Radice “Neoliberal Globalisation: Imperialism Without Empires”
This chapter is from a book that is generally opposed to neoliberalism / economic globalization. The packet we are using in this class is generally in favor of it.
HR focuses on political power, on imperialism or “Empire”
He argues that economic globalization isn’t opposed to states, it doesn’t weaken states, but rather it complements state power, and thus states encourage EG (compare this position with Ohmae’s later on)
“North-South” language, much like Wallerstein
Wars by the North are done to protect Northern interests
2nd-to-last page: argues against the “weakening” or “rolling back” of the state – different in the North and South (he does not expand on this here)
Essentially, he sees neoliberalism as something that the rich and powerful North does to the poor and weak South
Kenichi Ohmae “Putting Global Logic First”
Ohmae is a highbrow business writer (for the Economist)
He is famous as a “regionalist”
We will read him again later
He would disagree entirely with Radice, I think, and he also disagrees at several points with Huntington
He argues that today it is economic activity, not nation-states, that defines the landscape on which all other institutions must operate
The nation-state is an “artefact” of the 18th and 19th centuries
The N-S is “crumbling” because of:
ethnic tensions
religious hatreds
political resentments
“Devolution” in Germany, Spain, UK, Canada, France
This is not only due to the end of the Cold War (Huntington)
The crumbling of the N-S is due to international flows of capital, e.g. in currency markets, which cannot be controlled by states
Global flows of information, models of consumption, create pressures on states to open markets to foreign goods and services
The N-S does not support economic growth, it inhibits it (against Radice and others) because politicians must meet the extortionate demands of labor unions, farmers, fishermen, other groups
States must provide an equal “civil minimum” of services for all citizens, regardless of economic logic
e.g. they send cash to rural areas for unneeded projects
(e.g. expensive bridges to small islands in the US, Japan)
The invisible hand of the global market will inevitably punish this kind of behavior
So N-Ss are “unnatural” and even “dysfunctional” in the global economy
If Coca-Cola or Nike acted like states, they would go bankrupt
Region-States do make sense
e.g. Seattle-Vancouver, Silicon Valley, expanded Hong Kong, northern Italy, San Diego-Tijuana
These are “growth regions” incorporating several cities, 5-20 million people (but not 50 or 100 million), with an airport and an international seaport
Unlike states, region-states must be “open” to global economic realities
welcome foreign investment
foreign ownership
foreign products
Region-states do not protect the “civil minimum” or protect uncompetitive industries (as do irrational nation-states)
Region-states are the present and the future because they are rational and open to global realities, because they put “global logic” first
Robert Hunter Wade “The Disturbing Rise in Poverty and Inequality”
R.H. Wade is a professor of political economy at the LSE
Counterposes the arguments of economic liberals (globalizers) and anti-globalizers
Suggests that liberal optimism (of Peter Martin, Martin Wolf, others) is probably wrong
problems with how the world bank calculates income and poverty
it is possible that the proportion of the world population in poverty has decreased over 20 years because of economic growth in China and India
Inequality of wealth and income is also hard to measure and calculate. It is usually done with a GINI index:
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In US dollars, global inequality has certainly increased. But this is not meaningful due to differences in purchasing power (lower prices for goods and services in poorer areas)
If we use PPP measurements, world income inequality has increased over the last 20 years (the ‘neoliberal era’), both across and within countries
More people are living at the ends of the world income distribution, and more money is going to those at the top
Inequality between nations may not be important if everyone is better off overall (who cares?)
But inequality between states may matter more than we think
leads elites in poor states to compare themselves with elites in rich states
leads elites to buy more high-end foreign products
leads to elite corruption
leads to emigration by educated elites
The world economy is more regionalized than globalized – most Fortune 500 companies have a regional, but not global, focus
They can pay higher labor prices because they need skilled workers, but relatively small numbers of them
These high-wage (high-tech) companies are clustered in regional networks, in which valuable technical and tacit information flows relatively freely
Even in non-Japan East Asia, there is almost no R&D today