Sunday, June 24, 2007

I think they'd better think it out again.

The basic liberal argument in support of globalization is that if individuals are free to follow their selfish goals within the structure of a market, the force of competition will organize production in the most efficient way. Producers will try to maximize their profits, while consumers will look to minimize their costs. If consumers are concerned about the ethical conditions of production, than producers will be forced by competition to do so as well, or lose market-share. Nations will benefit from their comparative advantage, producing what they produce best and poorer regions of the world will be the greatest winners as they gain access to the large markets of richer regions. Capital will flow from the global north to the global south. Sounds like one big happy family.

Capitalists, the brave defenders of social good through the market. Or is there something wrong with the picture?

However, in reality things do not turn out quite the way that this theory says it out to. First of all, within the same liberal logic, the actual process of globalization has not meant complete free trade. Countries of the global north are highly protective of parts of their economies such as agriculture, the principal source of exports of many of the poorest countries. Secondly, markets are not the ideal free markets exposed by liberal theory. Monopolies, corruption, political influence, price fixing and other imperfections exist in the race to accumulate capital. In small economies, this tends to be the norm rather than the exception. Thirdly, not all export goods have the same demand elasticity. As incomes rise, technological and service exports of richer countries have greater demand than the primary goods exported by poorer countries, increasing disparity. Added to that, poor nations compete with each other to sell the same primary goods and gain foreign direct investment through their maquilas, offering ever lower salaries, environmental and labour regulation and ever longer tax holidays. Finally, the market does not value public goods such as environmental costs, social investment and social stability that are essential for long term economic growth. To misquote Faigan in musical version of Dickens Oliver Twist, “I think they’d better think it out again.”

"I think I'd better think it out again"


Aaron A. said...

Time to think it over alright.

I hope the Banco Del Sur does succeeds.

Graeme said...

Very good. I agree 100 percent.

Renegade Eye said...

Really good post.

Banco del Sur has much potential to help Nicaragua.

Renegade Eye said...

It must be confusing having a leader as Daniel Ortega. He sends mixed signals lately.

Sontín said...

Banco del Sur is an interesting idea. A similar project in Asia never materialized largely due to presure from th US. However, like all loans, the nation should be very clear in what it will use the money to do, and the benefits (both social and economic) should permit payment of the loan and long term gains for the nation.