Check our Latest products!
As the film star Joan Crawford once remarked, “The only thing worse than being talked about is not being talked about.” In the converging global economy, things are not all that different: In many ways, the only thing worse than opening your borders is not opening your borders. Sure, there are disadvantages to the free exchange of goods, services, and money. But the advantages are huge. And those countries that close their borders are going to remain in the back of the pack even during times of economic crisis.
“So what?” some may ask. “Who needs the trouble and disruption and pollution and all the other side effects of a burgeoning economy?” Well, the poor, for one. Obviously, the rich have benefited a lot from the exploding global economy- and rich countries more than poor ones- but other than a swath of languishing countries in sub- Saharan Africa, almost every developing country in the world is better off today than they were a few years ago, when more than half the world’s population was forced to live on less than $2 a day. What about them? Would a return to the protected, insular ways of the past help or hurt the poor people of the world?
Let’s look at the Great Depression. We’ve all heard about the rich tycoons who lost their shirts when the stock market crashed in 1929. But it was the farmers and the workers who suffered most. And when the United States closed its borders to trade with the Smoot- Hawley Tariff Act in 1930, it not only exported its recession to the rest of the world, it led other countries to close their borders in retaliation. Soon, an American recession became a global depression. The result? Most of those fat cats who lost money in the stock market suffered, but many still had some in reserve- or were able to find new jobs. It was the poor, however, who were devastated by the depression.
All through history, it was those countries that opened their doors and traded that prospered the most: Greece, Rome, the Venetian Empire, Holland in the Golden Age, Imperial England, Japan and the United States over most of the 20th century- and now a whole raft of emerging market economies in the 21st. China, for example, before it opened its doors- albeit partially- to the world economy, was a poor, struggling, backward economy. Now it’s on track to become the largest economy in the world. And several hundred million people have been brought out of poverty in the process.
“But what’s in it for me?” many people in rich countries ask. It is true that even rich countries have workers who need to be protected from the hardships brought about by economic transition. The American middle class, for example, even during the “boom years” of the 1980s, saw real wages stagnate. Since then, the median income of America’s workers has risen by only 17 percent. During that time, the income of the richest 0.1 percent of the population has quadrupled.
Worldwide it’s even worse. By the beginning of the 21st century, the world’s richest sixty- five million people were earning over five hundred times more than the world’s poorest sixty five million. Visitors to almost any city in the developing world are confronted with gigantic slums filled to capacity with people trying to eke out a living, sometimes under the most unsanitary conditions.
So what’s the answer? Stop economic growth by putting an end to globalization? How will the poor in developing country slums fare then? And what about the middle- class workers who saw their incomes stagnate even during the boom years? Will things get any better for them during an economic downturn? Probably not. The modern global economy has to keep growing. Only then will it be able to create enough jobs to provide opportunities for growing populations.
Unfortunately, some people are against globalization for cultural reasons. The French antiglobalist José Bové, for example, once used his tractor to destroy a McDonald’s restaurant near his sheep farm, denouncing the evils of global domination by multinationals and the proliferation of bad American food. But why was the restaurant being built there in the first place? Presumably, because a certain segment of the population had found it useful, indeed desirable, to eat at McDonald’s.
Globalization, by definition, opens up doors. It gives us new opportunities- to buy, sell, and travel abroad. If it means that some ay lose their job, it also means that many more will get jobs. Statistically, trade and exchange mean economic growth. Sure, the rich tend to benefit the most when profits increase. But a growing company also means increased demand for labor- either in the form of direct employment or by increasing the demand for a whole range of goods and services from outside the company- which creates jobs.
That doesn’t mean we have to blindly accept the inequities that globalization exacerbates, but instead of blaming globalization for the unequally distributed wealth, why not blame the governments that allow it to be distributed unequally? There is something that governments use, and have used for centuries, to redistribute wealth- taxes. And the way they work is simple: You take more money from the rich than you do from the poor. Then you provide programs that help everyone. But, in the end, the poor get more. And everyone is better off.
Instead of killing the goose that laid the golden egg, why not distribute the eggs more equitably? In Sweden, for example, the government follows a policy of “protecting the worker, not the job.” This Scandinavian compromise allows a government to accept the failure of certain industries- shipbuilding, for example, which in high- wage Sweden makes little economic sense- and concentrate on helping the newly unemployed workers, providing generous social services and subsidies to help them through the difficult period after losing their jobs. The United States has a similar program called Trade Adjustment Assistance (TAA) that helps workers who have lost their jobs to global competition. Approximately $1 billion a year is spent on retraining and unemployment benefits. Compared to the estimated hundreds of billions of dollars that are gained every year from free trade, it may not be much, but it’s a start.
Some estimates of the value of free trade, in the United States alone, are more than a trillion dollars a year. How is this possible? The way trade works is simple. You usually buy from other countries only if it’s cheaper than it would be at home. The idea is to allow each country to sell what it produces most efficiently- and then allow it to import the rest. By allowing countries to export what they have a comparative advantage in producing, they can earn valuable foreign exchange- which allows them to import those goods and services that other countries are better at making.
write by Laelia