Why is Globalization Bad? MAI, Part 2

This article explores issues raised in Pat Aller's excellent piece on the Multilateral Agreement on Investment, and the ensuing discussion.

The Multilateral Agreement on Investment, essentially, extends NAFTA's overwhelmingly friendly stance toward foreign investment to the entire global economy. It seems very clear that the MAI will prove to be an extension of "corporate welfare". The rapid globalization of the economy places developing nations at a distinct disadvantage, which has become codified under the current wave of "free trade" agreements, of which MAI promises to be the most comprehensive. Forget what little hope we had for preserving biological diversity in this brave new market-driven world at the end of history. Forget about such luxuries as the preservation of indigenous cultures and endangered species. And make no mistake about it: the poor will get poorer, while the rich get richer.

Now: are you nodding your head in increasingly outraged agreement? Or rolling your eyes at another doom-and-gloom leftist litany? One or the other, I expect, because our opening paragraph was as packed with buzzwords as I could make it. What do these statements mean? How do we evaluate claims like these? We've almost become inured to the mantra-like chant of "Globalization"; it seems inevitable, like a rendezvous with a comet. But the whole issue seems numbingly complex. Come on now: do we really understand what it's all about? Most of us, to be honest, would have to answer no; after all, we're busy people. But people who seem well-informed keep pressing their opinions on us. There is a strong temptation to seem smart by agreeing.

Foreign trade isn't a new thing, and really, it doesn't seem like all that bad a thing, either. There was a "globalized" economy in full swing back in 1886 when Henry George wrote a book called Protection or Free Trade, a work whose arguments are read and respected today. Called the most eloquent defense ever made of the free-trade position, George's book was read into the Congressional Record during the famous debates over tariff reform during the administration of Grover Cleveland.

In that book, George made a number of common-sense observations about trade. First, he reminded us that trade is not a coercive thing; it is a voluntary exchange in which both parties benefit. He went on to note that because different regions or states vary widely in natural endowment, culture and technological strengths, international trade is a sensible, natural development. An economy without trade is inconceivable. It would require each family to fashion its own food, clothing, shelter, libraries and microwave ovens itself, from the resources available on its own land.

Furthermore, there is nothing about trade per se that is predatory or exploitive. It is a voluntary process. But what if one small, let's say "developing" nation cannot produce any item, not one single thing, more cheaply than a big industrial power. Surely trade with El Norte would be bad for it, no?

But in fact, it wouldn't! Suppose the tiny Caribbean nation of La Bonita produces sugar, cutting the cane with machetes, while Uncle Sam employs high-tech machinery and thus can produce sugar more cheaply. Now, consumers in the US want both sugar and automobiles. Consumers in La Bonita also want both sugar and automobiles. Perhaps the La Bonitans could produce their own cars, but it would be fantastically expensive to build the necessary infrastructure. The US can produce sugar a little bit more cheaply that La Bonita, but it can produce cars much more cheaply. Hence, US consumers are better off buying La Bonitan sugar, and La Bonitan consumers are better off buying North American cars (except, perhaps, the ill- named Nova). That is the principle that economists call "Comparative Advantage". It works fine, of course, until Louisianan sugar growers form a political alliance and get Congress to enact a tariff on imported sugar, making everyone worse off!

George's book is considered to be the most eloquent statement of the still-unrefuted argument that trade -- whether local or international -- is nothing more or less than one of the things that allows an economy to perform better -- that allows more people to satisfy more desires with less labor. (It allows it, now, it doesn't ensure it.) Other such phenomena are: Improved technology. Better education. Cooperation. Social equality.

While we're at it, what are some of the phenomena that move economies in the opposite direction -- that make more people work harder to get less? They aren't hard to think of: Monopoly. Corruption. Isolation and polarization. War. Those are, increasingly, the things that "economic globalization" brings to mind. And yet, when we ask what that phrase means, we're told that it is simply a matter of "removing international trade barriers" -- and trade is a good thing for the economy, isn't it?

Well, it depends on what's being traded. You see, Henry George's Protection or Free Trade is a tricky book. Ostensibly it is a defense of the free trade position, and some two-thirds of the book is devoted to that. But really, the argument is not difficult. The protectionist position is shown to be just as much of an absurdity as campaigning against education, technology or public roads. But -- and here's where George gets tricky -- all of those benefits ultimately serve, in our economic system, to line the pockets of those who do not work, at the expense of those who do.

You see, it depends on what's being traded. At one time, free trade in labor -- chattel slavery -- was widely practiced. In the end, the immorality of this institution proved easier to live with than its lack of economic viability. Once the frontier was closed, there was an ample supply of laborers who had no place else to go. Why go to the trouble of housing and feeding slaves, and rounding them up when they escaped? So "free trade" in human laborers became unprofitable. (It had always been monstrous.)

The "protection vs. free trade" argument usually focuses on trade in goods -- the products of human labor. But goods are only one of the three broad categories of Things That Are Traded. The others are labor, and land. With respect to labor, it is immediately clear that a "free trade" policy isn't as free as it could be if goods are allowed to cross borders without restriction, but workers cannot. And why do so many workers want to cross the borders of the United States and Western Europe? Because the wages are higher there! But not only do workers take home more money, they also enjoy those beyond-wage benefits that labor movements fought hard to achieve: regular work hours, workers' compensation, health and safety regulations, social security. Such benefits cost businesses money. Multinational corporations would just love to relocate to places where the costs of labor -- not just wages but all those associated costs -- are lower.

Remember -- it depends on what's being traded. The third factor of production -- land -- comes into play as well. Another thing that the relatively well-off industrial economies have chosen to do is to protect the quality of their environment. The industrialization that created their great prosperity also fouled their air and water. That scared people, and for a while, the bodies politic in the United States and Western Europe were willing to pay a price for environmental protection. But: if corporations get the chance to set up shop in countries that lack the will, or the nerve, to impose environmental regulations, well -- so much the better for them, right?

Now let's go back, for a moment, to Henry George and his tricky free trade book. He said that trade, just like all those other economic benefits such as education, roads, telephones, etc., would ultimately only serve to make the rich richer and the poor poorer. But you may have noticed that I didn't explain why.

It's simple. Education, technology, free trade, and such things make the economy more productive. They enable more wealth to be produced by the same amount of labor and capital. But there is one element that is necessary to all production: the place to do it and the materials to do it with, the natural resources -- land. And land, as you can easily observe, is fixed in supply. So, if more wealth can now be produced on the same amount of land (for there is always the same amount), then that land becomes more and more valuable, and the owners of land can demand an ever-increasing payment for access to it. Anything that makes the economy more productive tends, ultimately, to line the pockets of the owners of land.

Here is the source of the vilification of free trade (and comparative advantage). Free trade is a powerful engine of improved productivity. As such, it is an important tool for landowners -- and banks -- and the multinationals who depend on the world financial system for stability -- to consolidate their control over the economies of developing countries.

What, then, is to be done? I have a suggestion. A two-point proposal for economic health and independence for developing economies. If a nation could accomplish these two things, it need not fear globalization! I'll state the two points now, and in the next Rant I'll go into detail about them. (I hope they will generate some discussion in the meantime!)

I. Immediately institute the Georgist remedy domestically. Collect the full rental value of land for public revenue, and abolish all other taxes that hinder productive enterprise.

II. Immediately stop making any payments on interest or principal of loans from foreign banks. Make no further payments on these loans.

In the next part, we'll discuss how this could come about. In the meantime, let's hear what you think of this!

-- Lindy Davies, February 2, 1998

Go to Part III

What Folks Have Been Saying

For instance: why do you suppose the "financial wizard"
George Soros has been buying up huge tracts of land in Argentina?
Lindy Davies
Maine, USA, - Saturday, February 14, 1998 at 07:55:30 (EST)
That's the best explanation I've seen of why globalisation is ultimately pure exploitation, Lindy! By failing to make the land values connection, both free traders and protectionists miss out on the full picture. Well ranted!
Bryan Kavanagh <[email protected]>
Melbourne, Vic Australia - Saturday, February 14, 1998 at 18:25:44 (EST)
George Soros is brilliant. You want to penalize investors like him? He is ahead of the curve in a place like Argentina, and when he commits his money there, people listen!
Max Schmoo <[email protected]>
Brooklyn, USA - Tuesday, February 17, 1998 at 08:37:51 (EST)
schmoo_oooch isn't the curve destroying the planet
first grade
- Wednesday, February 18, 1998 at 15:25:47 (EST)
Iam doing a term paper on Henry George. I would really appreciate any information on him or on his quote :" The Association of poverty with progress is the enigma of our time". Thank You.
Joshua Lowy <[email protected]>
Teaneck, nj USA - Friday, February 27, 1998 at 13:34:36 (EST)
Collect the rental value of land? Developing countries are controlled by warlords behind the scenes, and the families that they represent control the land. They were successful in kicking the US out of Lebanon and Somalia, why not elsewhere? And land reform in many places like Guatemala were soon followed by a US invasion, followed by consolidation of land under the ownership of metanationals such as United Fruit, in which the Dulles family had a stake. 'Excess' population was liquidated in desired areas of agricultural land, much of which was held for its speculative value. How about this... encourage them to start by collecting a fixed percentage of land value, one that would keep the current land owners in their positions, as paid trustees? This should operate to ensure that the value of land is determined by the marketplace and not by bureucratic officials. Over time, as the incentive becomes to produce with land rather than hold it out of production, that percentage can be raised gradually without fear of outcry, because taxes on production can be eased in conjunction. Whether or not you agree with me, would you still assert that the governments of 'developing nations' have any interest at all in the long term future of these states, except perhaps as flags of convenience for the meta-nationals? Wouldn't it be more realistic to say that the government of, say, Indonesia would be self-serving enough to enact a 50% land value tax (LVT) on the consortium of ruling families (while simultaneously removing production and trade taxes allowing the same families to make a greater profit), than to encourage them immediately leap to the penultimate 99% LVT? I personally think, as a capitalist, that if LVT is adopted even partially in any country, that the market must push the LVT-to-Production Tax ratio gradually to greater and greater percentages, until land ownership itself becomes more of a trusteeship to protect capital investment over time, than a show of force to protect unearned revenue. Cheers Rob http://www.saab96.com/rwagner
Rob Wagner <
[email protected]>
New York, NY us - Monday, March 02, 1998 at 14:08:34 (EST)
At the risk of tipping my ideological hand here, Rob, I gotta say that you're quite right, if a bit naive (as, perhaps, a good capitalist must be!) You're on to something when you say that the market, as such, favors public rent collection and abolition of taxes on production. That policy is clearly in the interest of overall -- total -- economic efficiency. However, capitalism, as I'm sure you're aware, isn't about effeciency, really. It's primarily about profit. And a key element in profit, of course, is risk. I think the people who make profit under the current system find the possibility of a transition to a truly sensible, equitable Georgist system to be fraught with risk and, therefore, threatening to their bottom lines.

So does that mean there's no hope? No, I think there is still hope of our economic system becoming so untenably fouled up that real reform will become attractive. But we've a ways to go (having just won the cold war, after all) til we get there...
Lindy on the Edge
Jackson, ME - Monday, March 02, 1998 at 20:23:00 (EST)

Naive... I hope so. It means I'm still thinking in not only in terms of what is, but also what COULD be. Maybe a romantic more than a capitalist... Yes, if I wanted to maximise the profit on my investment under the current land tenure and tax system, I would get a bit of land and then go rallying, because I could borrow on the projected increase in the value of the land and then put that money into a high yield high risk investment. I would not invest one penny in capital imporvement because that would place me in an unfavourable tax situation. My Wall Street office is on the 21st floor, with a wide angle view to the east, encompassing four or five financial district buildings. They are almost totally empty, the windows whitewashed or boarded or I can see through to the other side to confirm that the floors are empty. Only the lower few floors are occupied, as in Ayn Rand's 'Atlas Shrugged'. Put that in yer pipes and smoke it... Cheers Rob
Rob Wagner <[email protected]>
Brooklyn, NY us - Tuesday, March 03, 1998 at 14:24:37 (EST)
Your suggestions are nice, but I think they evade the question. Is it better to have flawed trade or no trade? I think flawed trade has been so overwhelmingly superior to no trade that it almost needs not to be discussed. If you disagree, break up the USA into fifty independent states, each with a no trade policy. Then come and see me in my straw hut. Don't stay too long, because I have very little food. -- Sorry if this sounds too strident.
John Kelly <[email protected]>
Peoria, IL - Tuesday, March 03, 1998 at 17:46:40 (EST)
Not that it sounds too strident, John, but it is dangerously close to missing the point. Trade is good! Education is good. So is technology. So is sobriety and positive mental attitudes. Yet: all of those things serve, in the current state of political economy, to increase rents at the expense of wages.
Lindy, Stridently
- Tuesday, March 03, 1998 at 20:41:43 (EST)
flawed trade=no trade=free trade
- Wednesday, March 04, 1998 at 15:31:43 (EST)
flawed trade begets good and evil unlike free trade
i forget
- Friday, March 06, 1998 at 15:28:10 (EST)
I'd love some feedback from any quarter about my earlier point, that it might not be a bad idea for a prospective government to collect the _partial_ land rent instead of the full value. This would keep government as far out of the land speculation business as possible, and would also allow the price to be set by the marketplace rather than by the bureaucracy. If the current land owners find it profitable to stay on as virtual trustees, they might be less likely to ring up Langley and complain, whereupon the Marines move in or the harbours get mined. Rob http://www.saab96.com/rwagner
Rob Wagner <[email protected]>
Brooklyn, NY I Didn't Inhale - Friday, March 06, 1998 at 16:12:03 (EST)
Right...sorry Rob. That's a good point, anticipated by George in P & P and generally conceded by most advocates: that it would be better to collect a bit less than the total rent on land, generally, so as to leave a small amount to be capitalized by the landowner, and thus preserving a market-based integrity of land value. However, I think the figure would be way less than 50%. It would be analogous to the commission due to a real-estate agent in handling a deal: more on the order of ten per cent or less.

But I'm not sure that was really your point! Would a 50% land value tax stop the Marines from storming, where a 100% wouldn't? I don't think so. Developing countries are in a radically bad plight re: their land tenure policies and external debt. The solution must be as drastic as the problems, I'm afraid. More on this, very soon, in Part 3!
Lindy Davies <[email protected]>
da world, - Friday, March 06, 1998 at 16:39:51 (EST)

Why would US consumers buy La Bonitan sugar when US sugar was cheaper?
Stewart Goldwater <[email protected]>
- Monday, March 09, 1998 at 20:37:03 (EST)
Well, they wouldn't, Stewart. However, the only reason US sugar is cheaper is the tariff applied to the import. The point about comparative advantage is that US producers wouldn't supply sugar if they could supply other products that were more profitable for them.
Lindy in transit
- Tuesday, March 10, 1998 at 11:09:45 (EST)
kill the MAI !
wynn burke <[email protected]>
seattle, wa usa - Wednesday, March 11, 1998 at 18:41:26 (EST)
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