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Globalisation: More fruitful than fatal

occupy wall street wades into the globalisation debate
AP Photo/Bebeto Matthews

Several weeks ago, Stephanie Lentz wrote of the impact our consumption choices have on the welfare of others.

Justifiably, Stephanie regretted that we sometimes choose to buy products that aren’t produced in fair and ethical working environments. Humans tend to have values and ideals that motivate them to try and make the world a better place – this is a good thing.

But she is misguided in her lamentation.

Globalisation and the expansion of trade and investment, especially into developing countries, is the single most beneficial phenomenon for the welfare of humankind. It is helping lift millions out of poverty at an unprecedented rate, allowing them to enjoy luxuries and innovation that would have been unimaginable to their parents, grandparents and so on. A globalised market economy, linked together by people’s needs, wants and desires, is providing these people with previously unexperienced levels of wealth.

Events like the Rana Plaza complex collapse in Bangladesh must be put into context. When I say “context”, I don’t mean that it occurred in Bangladesh – a country where safety standards are lower than ours.  I absolutely don’t mean to downplay the significance of such a tragedy (it would be difficult to imagine a similar scenario – 1,221 workplace deaths – unfolding anywhere in Australia).  I mean that we need to look at the big picture: the broader economic context and the hugely positive trends currently experienced in Bangladesh.

Twenty four percent of the Bangladeshi population currently live below the poverty line. Compare this to over 50 percent just two decades ago. Bangladesh’s current GDP growth rate is double that of Australia’s, and primary school enrolments have increased 15 percent in a decade. Access to health services, such as immunisation and sanitation facilities, is also growing. It is a rapidly-developing economy, and the benefits are flowing through for everyone. Bangladesh is making enormous strides in its human development index – thanks to globalisation and trade.

While conditions experienced in sweatshops throughout the developing world are deplorable, workers are often far better off than in backbreaking agricultural work, or being totally out of work and living in abject poverty. Amazingly, one woman whose sister died in the disaster told NBC that she wished she had a job in a factory instead of the fields (45 percent of Bangladeshis still work in agriculture, a slowly retreating figure).

Let’s revisit history for a moment. Americans in the 1950s were particularly wealthy, but against today’s standards, the American middle class of 1955 would be classified as living below the poverty line. In 1957 Harold McMillan said the average working British man had “never had it so good”, yet he was earning less in real terms than the average person could now receive from government welfare. Today, 99 percent of Americans considered “poor” have electricity, flushing toilets, a refrigerator; 95 percent have televisions; 88 percent have telephones; and more than 70 percent have cars and air conditioning.

Extreme poverty by today’s standards has been the normal lived experience for most humans throughout most of history. Two hundred years ago, 85 percent of people living survived on less than a dollar a day in today’s value. That figure currently sits at 20 percent, and should be nearly zero by the end of the century. The world continues to become a better place to live, while our views surrounding wealth and poverty continue to evolve.

Yet we are still bogged down in what is a “fair” price for their products and services, and what “fair” working conditions should entail. A fair price is one coordinated by the laws of supply and demand; it is determined by market participants who recognise the value of a good or service to themselves and others. The expansion of trade means conditions are becoming fairer and that many workers can receive higher prices.

Critics have always been quick to highlight that when some people become prosperous before others it increases inequality. In reality, an individual becoming wealthy doesn’t create inequality – it eliminates their former poverty. China is a case in point: between 1981 and 2008, the proportion of its population living on less than $1.25 a day fell from 85 percent to 13.1 per cent, meaning 600 million people were lifted from poverty. Many still prefer to point to the inequality. Yes, the rich may be getting richer, but today the poor are doing much better. Pareto’s reference to wealth as “the circulation of elites” has now become a broken paradigm more than at any other point in history; the market is acting as a levelling process.

According to John Rawls’ “Difference Principle” – while duly accepting that working conditions in sweatshops can be utterly abhorrent – inequalities should be permitted as long as they serve the interests of the least advantaged persons in society.

This they are.

Stephanie asks whether we can redress the balance between our desire for cheap T-shirts and our ethical mores. The implicit message is that our resources and initiative are social assets that must be used to make more principled choices to others’ benefit. But if we quell our desire for cheap tees we would actually be reversing the trend that is lifting the very same people above the poverty line. Plus, the more money we save, the more we then have to spend on other goods and invest in other productive assets all over the world – or even dedicate to altruistic pursuits and charities.

It is a beautifully fruitful cycle.

Dr. Tom Palmer, Senior Fellow at the Cato Institute, explains quite clearly: “Poverty is what results if wealth production does not take place, whereas wealth is not what results if poverty production does not take place.” We need to continue to grow wealth in developing countries by expanding investment, trade and production to reduce poverty. This is what we should be focusing on. It is the most moral standpoint.

Let’s also remember that the US textile industry moved from New England to the Southern states when wages became too high after World War II. When wages became too high in the South, the industry moved to Asia. The net amount of jobs weren’t lost anywhere. In fact, more jobs were created and the region became a wealthier place. It is still growing faster than anywhere else in the world.

As Nobel Prize-winning economist Friedrich Hayek wrote in The Constitution of Liberty, “Once the rise in the position of the lower classes gathers speed, catering to the rich ceases to be the main source of great gain and gives place to efforts directed toward the needs of the masses. Those forces which at first make inequality self-accentuating thus later tend to diminish it.

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5 Comments

  1. Rainer the cabbie said:

    Thanks for your reply Alexander, I appreciate it.
    The point you make about my contradiction is duly noted, its just…………..I wish I had your faith about the power imbalances that are so ingrained in the culture of developing nations.
    We shall wait and see I guess.
    ——————————————————————————————————————————
    To the editor of The Big Smoke
    I have only recently found out about this great site, believe or not from Julia Lester of ABC Classic FM.
    Best of luck with the great future this site deserves, I hope you will get a pro bono marketing person on board soon to publicise the good job you are doing and to gain a greater readership.
    Thanks
    Rainer the cabbie

  2. Alexander Thomas said:

    I absolutely agree with the first point you make. If I had more space I would have liked to discuss exactly that: markets are impeded when corruption, bureaucracy get in the way – as you say, ‘a few people controlling the economy’. But it’s also a cultural thing. The companies that outsource to developing countries have little to no control over what happens in sweatshops – whether in Bangladesh, China, or wherever else. And I’m certainly not blind to the awful hours, conditions, abuse etc. that takes place in these areas. So you are correct, Rainer – that is the biggest problem in developing countries.

    This piece focuses on the solution. What I’m trying to argue is that globalisation and trade is actually slowly breaking down these imbalances in power. Changes tend to start from the bottom up. Right now there are riots in Cambodia over factory workers’ pay. Developments like this mirror the birth of union movements in every country that has them, including Australia over a century ago. It’s a sign that conditions will improve.

    The second point you make contradicts the first. Do you support lifting people out of poverty in developing countries or would you prefer to maintain the (changing) power imbalance that you disagree with? The global economy is very dynamic. Sure, the ‘first world’ is losing out in some traditional areas like manufacturing (and there have been some overly protectionist responses to this over the years e.g. the Australian car industry), but different jobs are being created in other areas to replace them. We are still getting wealthier and more jobs are being created. Poor fiscal policy hasn’t helped in Australia recently, either.

    The New England example used in the original piece is an interesting one. After the textile industry moved to the Southern states a lot of computer and technology industry began to take its place. Now that, too, has moved to Asia. But New England is still one of the wealthiest parts of the world because its economy evolved and adapted.

    Plus, once developing countries grow more wealthy, they will provide an enormous export market opportunities for countries like Australia. More importantly, they’ll also be able to import from other developing countries. Again, a fruitful cycle. We hear ad nauseam about capturing the Asian century. This is what it’s referring to; the rise of the Asian middle class and our ability to cater to their growing demand. Not only does this refer to agricultural products (the beef export market to Indonesia alone is growing rapidly), but also the broad services sector. This is particularly important as we move away from the mining boom. Implementing policy that encourage and facilitate entrepreneurship will be vital in this area too, as well as a much more flexible industrial relations system.

  3. Rainer the cabbie said:

    Not too sure if I agree with all of your points made Alex.

    No doubt improved trade in impoverished Nations help relieve some poverty but the process for the workers, twelve hour shifts seven days a week with no benefits or security is somehow questionable. There is anecdotal evidence of workers in China turning up to a closed factory with wages owed and no right of dispute or compensation.

    The problem in developing countries is and always has been a few people controlling the economy and reaping all the profits. This is nothing new, nineteenth century western countries endured the same set up.

    IMHO, there should be enough money going around in the third world to build a good society for all if it wasn’t for the fact of ingrained corruption by the ruling elite. In any case, the workers are being paid a pittance for what they produce and the people getting rich are the middlemen, here in our world and in their home country.

    The other difficulties that globalisation is bringing about now faster then ever is the damage done to industry and workers in the first world. There is no way we can ever compete with developing country as our price structure, eg the cost of living, demands jobs and adequate compensation to service our needs.
    I see this being threatened daily and fear that the distribution of wealth is being endangered with the argument that we need to be competitive .
    This simply is impossible, so as much as I like to look after people in developing countries, considering their ruling parties greed, I’d rather look after the people at home and give this particular model of globalisation a wide berth.

    Thank you for your article.

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