Globalisation: More fruitful than fatal

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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