Conclusion: Government can make a difference
Larry Summers, former director of President Obama’s National Economic Council, has expressed his concern that globalization is no longer a good deal for working people. Greater global integration, he says, places more competitive pressures on an individual economy and its workers are likely to bear disproportionately the brunt of this pressure.[39]
In the developed world, markets function efficiently because they are aided by “a large cast of supporting institutions: property rules to establish ownership, courts to enforce contracts, trading regulations to protect buyers and sellers, a police force to punish cheaters, macro-policy frameworks to manage and smooth the business cycle, prudential standards and supervision to maintain financial stability, a lender of last resort to prevent financial panics, health, safety and environmental standards to ensure compliance with public norms, compensation schemes to placate the losers (when markets leave some in the cold, as they often do), social insurance to provide some insulation against market risks, and taxes to finance all these functions.”[40] These are the functions of government.
At the global level, no similar governance system yet exists. Consequently, there is a real risk that the social costs of trade (e.g., poverty, income inequality, lower wages, and environmental damage) will outweigh the narrow economic gains and spark an even worse backlash against globalization than has occurred to date. Until such mechanisms are put in place, the potential of globalization cannot be harnessed for the common good.[41] “The inevitable conclusion,” writes Rodrik, “is that financial globalization has failed us. Countries that have opened themselves up to international capital markets have faced greater risks, without compensating benefits in the form of higher economic growth.”[42]
At home in the United States, capitalism is working well but its benefits are being reaped largely by highly skilled employees of businesses well integrated into the global economy such as finance and banking. Profits have soared, but wages and job opportunities have stagnated. Summarizing two recent studies by economists Michael Spence (Council on Foreign Relations) and David Autor (MIT), journalist Chrystia Freeland concludes, “Globalization and the technology revolution are increasing productivity and prosperity. But those rewards are unevenly shared—they are going to the people at the top in the United States and enriching emerging economies overall. But the American middle class is losing out.”[43]
Alternative View: John D. Mueller, “Dollars and Sense: Proven Principles of Economic and Fiscal Sanity,” Ethics and Public Policy Center (June 24, 2011), http://www.eppc.org/publications/pubid.4500/pub_detail.asp.
Notes
[1] Speech at George Washington University, April 6, 2011.
[2] Economic globalization is the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology. Although the focus of this discussion is on its negative aspects, globalization has also brought benefits such as increased range of choice, improved quality, lower costs and better services.
[3] Sean Tully, “Fortune 500: Profits Bounce Back,” Fortune Magazine (April 15, 2010).
[4] Dani Rodrik, The Globalization Paradox: Democracy and the Future of the World Economy (New York: W.W.Norton & Company, 2011), 77.
[5] Ibid, 60.
[6] Fortune magazine’s annual listing of the richest people in the world.
[7] World Bank, 2008, Development Indicators.
[8] Since the economic recovery started in the United States, its benefits have gone almost entirely to the owners of capital rather than to workers. Following the Great Recession of 2008, profits have risen four times as much as worker wages—the first time in 50 years that profits have out-performed wages. The Economist (March 26, 2001), 75.
[9] MagnaGlobal, Advertising Forecast (2011): http://www.magnaglobal.com/wp-content/uploads/downloads/2010/12/2011-MAGNAGLOBAL-Advertising-Forecast-Abbreviated.pdf.
[10] International Monetary Fund, Foreign Direct Investment: Trends, Data Availability, Concepts, and Recording Practices (Washington, D.C., 2004).
[11] Era Dabla-Norris, Jiro Honda, Amina Lahreche, and Geneviève Verdier, “FDI Flows to Low-Income Countries: Global Drivers and Growth Implications,” IMF Discussion Paper 10/132 (International Monetary Fund: Washington, D.C., 2010).
[12] Presbyterian Church (USA), Just Globalization: Justice, Ownership and Accountability (Louisville, KY: PCUSA Office of the General Assembly, 2006), 23.
[13] “Asian Crossroads in Africa,” New York Times (December 11, 2009).
[14] International Organization for Migration, World Migration Report 2010 (Geneva, Switzerland: 2010).
[15] U.S. Department of State, Trafficking in Persons Report: 2007 (Washington, D.C.).
[16] International Labor Organization, A Global Alliance Against Forced Labor (Geneva, Switzerland: 2005).
[17] Rodrik, The Globalization Paradox, 194.
[18] World Bank, Paying Taxes 2010: The Global Picture (Washington, D.C.: World Bank, 2010).
[19] Rodrik, The Globalization Paradox, 193.
[20] World Bank, Doing Business Index (World Bank: Washington, D.C., 2010).
[21] Ernst and Young, Global Tax Trends: Raising and Investing Capital (2010).
[22] Rodrik, The Globalization Paradox, 193.
[23] Human Rights Watch (May 19, 2009).
[24] Danielle Nierenberg and Ronit Ridberg, “Corporate Land Grabs Threaten Food Security,” Christian Science Monitor (September 14, 2010).
[25] Through its “Mission Responsibility Through Investment (MRTI) committee,” the PCUSA has helped to shape this movement.
[26] National Intelligence Council, Global Trends 2025 (Washington, D.C.: U.S. Department of State, 2010).
[27] Mandy Turner, “Scramble for Africa,” The Guardian (May 2, 2007).
[28] United Nations Conference on Trade and Development (UNCTAD), UN World Investment Report (Geneva: UNCTAD, 2010).
[29] Transparency International, Corruption Perceptions Index (2010).
[30] American Forest and Paper Association, Illegal logging and global wood markets: The competitive impacts on the U.S. wood products industry (Washington, D.C.: 2004).
[31] World Bank, “Combating Illegal Logging and Corruption in the Forestry Sector,” Environment Matters (Washington, D.C.: World Bank, 2006).
[32] Peter Glick (ed.), The World’s Water 2004/2005: A Biennial Report on Freshwater Resources, Center for Resource Economics (Washington, D.C.: Island Press., 2004).
[34] Union of Concerned Scientists, “Deforestation Today: It’s Just Business,” Briefing Note no. 7 (Washington, D.C.: 2010).
[35] Union of Concerned Scientists, “Tropical Deforestation and Global Warming: A Solution,” (Washington, D.C.: 2011). See www.ucsusa.org/REDD.
[36] Union of Concerned Scientists, “Brazil’s Success in Reducing Deforestation,” Briefing Note No. 8. (Washington, D.C.: 2011).
[37] “2050: Will there be fish in the ocean?” American Association for the Advancement of Science Annual Meeting (2011).
[38] http://www.eia.doe.gov/oiaf/analysispaper/arctic/index.html#intro.
[39] Lawrence Summers, “America Needs to Make a New Case for Trade,” Financial Times (April 27, 2008).
[40] Rodrik, The Globalization Paradox, 22.
[41] “Our institutions of global governance were not designed to manage a closely integrated and rapidly expanding global economic system. We have global markets but we lack global institutions to govern those markets. The institutions that exist are unrepresentative, many people do not have a full voice in them, and they fail to conform to democratic ideals. Moreover, the structure of global governance is full of holes. There is woefully inadequate provision for supplying global public goods and there is no provision for financing them in a regular way.” Keith Griffin, “Economic Globalization and Institutions of Global Governance,” Development and Change 34(5) (2003), 805.
[42] Rodrik, The Globalization Paradox, 111.
[43] Chrystia Freeland, “A Failure of Global Capitalism”, International Herald Tribune (April 15, 2011).
Links,
I invite readers to also read “Good Capitalism Bad Capitalism, and the economics of growth and prosperity” available at the following URL: http://www.acton.org/pub/religion-liberty/volume-17-number-4/good-capitalism-bad-capitalism-and-economics-growt
Another good source of information on the subject of capitalism and socialism is a video presentation entitled Rev. Robert A. Sirico on Socialism and Social Justice, available for viewing online at: http://vodpod.com/watch/3357265-rev-robert-a-sirico-on-socialism-and-social-justice