Globalisation I'll take as opening our boundaries to trade, and the prevalence of global financial markets, though I'll focusing on loans and trade. We need to think about how it is going to affect Australia, and how affects third world nations.
A first criticism is of the principle of comparative advantage. This is the idea that if different nations specialise in what they do best, and trade, there will be more goods available for all. But, importantly, this was developed by Ricardo when capital was static, and it was reasonable to assume that capital within a nation would naturally find some other outlet if it was released from one application.
But today we have unemployment and the different nations are not operating at their potential optimums. If you make a group of people unemployed as the result of another nation overseas being able to do what they do more effectively, it's not clear that the economy will make use of the now unemployed.
Certainly, there's the potential for economies to make better use of their inputs, but that's a far cry from the "deterministic" ideal of the principle of comparative advantage.
We can try to save the principle by appealing to the notion of the "long term". But, it seems to me that there are so many short term changes; the world is such a moving target that we will rarely achieve the benefits supposedly realisable in the long term. Rather than this neat economic encapsulation, it seems better to say that changes have impacts on employment, and economies are sluggish to react.
Further, capital is mobile between nations - we cannot be assured that capital will stay in a country and find some outlet there. It will slosh around the planet - and in doing so, will probably leave some potentials for production untapped.
There's an ethical problem with the nature of the advantage. Some firms have an advantage not because they are better at what they do or because of superior geography, but through an accident of larger existing market share. For example, because the European metalworking industry have a larger customer base, they can share their overheads more broadly and charge less than Australian firms would. Australian firms are not in any sense operating less efficiently, but they lack a comparative advantage.
To be fair, at times Australian firms have operated inefficiently, and the market assessment will agree with an ethical one. In times long past, AWA had an assembly plant at North Ryde. Frequently, the executives and supervisors would go off to lunch, get a few beers into them, and not come back. During this time, the women working there would not work. They would chat, do their knitting, whatever.
It would be great if we were all able to work for half our working hours for the same benefit. But the problem here was that this situation was not sustainable and the women working at AWA were privileged. In time, the tariffs protecting AWA were dropped, and things changed. An ethical assessment of that firm agreed with the market assessment, once tariff barriers were lowered.
There are similar stories of an Australian pharmaceutical company, Drug Houses of Australia, with a senior Board member usually drunk by lunch, spending the afternoon playing pool - and endemic waste in the rest of the firm shielded by tariff barriers.
But, it does vary. During the "recession we had to have", a good number of efficient, properly run firms went to the wall - along with some which perhaps needed to. But the market mechanism was a blunt instrument, and was not ethically finessed.
So, the market assessment can correlate with an ethical assessment, but this is not necessarily the case.
One of the major consequences of globalisation are supposedly cheaper goods and services. However, this loses sight of the fact that people's life satisfaction is not just a function of being able to pay less for goods and services, but is also a function of security and confidence of their future work, and how satisfying they find their work. We are not just consumers, seeking the lowest price goods, we are also workers - seeking quality and satisfaction in employment.
The next problem with globalisation is the way it measures benefit - as a raw increase in GDP (Gross Domestic Product - the sum of all goods and services produced). GDP includes destructive and positive expenditures. So, if the economy was spending more money on therapy for people who've lost jobs, the GDP would go up.
So, increases in GDP have to be discounted because of these effects. But, it depends on what you are trying to do - are you just trying to say that globalisation makes you better off, or are you trying to demonstrate it with reference to the growth in GDP ?
A further issue is with the continued pursuit of growth as a justification for globalisation. There is the hidden assumption that we want more growth. But, my suspicion is that Australians are getting over growth in tangible wealth - they are after security and satisfaction at work and in their personal lives, rather than wealth as measured by GDP.
And, while globalisation, for the sake of argument, may increase wealth, this increase seems to be strongly correlated with a faster moving market, with less security of employment, greater casualisation and so forth. These costs may in fact exceed the supposed financial benefits of globalisation - it seems reasonable they will at least reduce the supposed benefits.
Hence, even assuming globalisation increases wealth - an important question is - why should wealth be that important ? Are we looking at it realistically ? Does it necessarily justify globalisation ?
An important impact of globalisation is the changing nature of work - it means that we have an increased service industry, and manufacturing is in decline. Further, we have found that jobs in IT are exported to places like India - and it has been known for Boeing US engineering jobs to be exported to other nations. There is a sentiment that globalisation is only exporting the dull jobs which nobody want to do overseas - but this does not seem to be the case.
I should qualify this with the sentiment that if I appreciate the joys of programming computers, who am I to deny that joy to someone working in India ? It is sad, but to the extent I am parochial - it is an issue.
A friend of a friend runs a machine shop says "It's against the law to make money with your hands". And I think that is one impact of globalisation. If services are employing more people, all well and good - but what if you like making money with your hands ? What if it's your calling ?
If you're doing work which is well - work - and perhaps you're just working with your hands out of necessity, my argument has less traction. But, I have know car mechanics who obviously get a real buzz out of what they do - it's not just work. You can almost feel the aura they give out. And how much should you be paid, and how do you relate to the stimulation you get from work compared to what you are paid ? OK, these are difficult issues - but the point is - globalisation can reduce the range of work options available for employment.
But, to be fair, I must acknowledge that the notion of the "sectional interest", put forward by capitalists - is a valid one. A given industry might be "costing" Australia a lot overall, but be trying to hide that cost.
But, equally, though a given sectional interest might be trying to hide an excessive gain, it is still possible that we might want to be sympathetic to having a range of work options available, particularly when the "comparative advantage" a local industry is competing against does not correspond to anything the local firm is doing wrong. Globalisation, and the way the market operates, does not capture this compassionate ethical notion we might have for other citizens - most all of us do work at some time - we are not just consumers - and it is a social good if more of us are able to be employed in what enjoy. If there is an effective cost to this, well fair enough - but let us measure the cost, and perhaps accept it.
Equally, another effect of open markets is on our culture - our cultural identity is diluted by, for example, overseas film and TV production whose scale dwarfs our own. There is an issue here of who exactly benefits. If we let overseas product in, its clear that TV stations benefit from cheaper product, but it is not clear that consumers benefit. Perhaps the advertising overheads on the products they buy might be less. If we guarantee some Australian content, clearly local production houses will benefit. But, we as members of Australia might also benefit from the retained integrity of our culture.
The issue here is how we might balance out these benefits. It is certainly possible to view the local industry as a sectional interest, and view it as making money while making costs in the overall economy higher, where if people really wanted Australian content, they would demand it in the open market and the market would respond.
This is logically possible. However, a survey reported in the Australian Financial Review on March 21, 2003 showed that 70% of people wanted the content limits maintained. That's a lot more than work in TV or film, so it seems we are talking about a real community interest, not a sectional interest.
But, even without this, the TV market is a limited one. We do not have a large number of broadcasters and production houses; there are large barriers to entry. This means the market is not set up to cater for niche interests; it will tend to put through overseas product for greatest profit - and will be unable to serve a need for local content.
I've used TV as an example, but the argument could be more broadly applied to anything which dilutes our cultural identity - Mc Donalds has been one such entity which has been on the nose lately - and its pursuit of the Mc Libel case illustrates the power assymetry that these corporations have in dealing with the market. I'll consider power assymetries and game theory later.
This speaks of the principle of comparative advantage, and the effects of globalisation on Australia. But, now let's look globally at the international interactions and the situation for the third world.
First, let's look at world problems. What are they the result of ?
A lot of world poverty is caused by despots and AIDS. These are mostly independent of trade and globalisation. Still, international armaments sales are relevant, as is how much profits it is reasonable for drug companies to make selling AIDs drugs in third world nations. But, I'm not going to dwell on these aspects, because they are second order effects and I need focus on effects directly related to globalisation.
In talking about the third world, it is important to distinguish three cases - the totally impoverished, for example a mostly desert and tribal country, with minimal wealth. A next case is a nation which has some wealth generating capacity, but where this wealth is diverted by an elite - perhaps a farm owning elite, or the rich people in the city adjacent a slum; and lastly, a nation which is impoverished, but has vaguely functional educational, political and other institutions and for whom the outlook is in fact positive.
It is certainly the case that nations which have managed to pull themselves out of the third world quagmire have done so through an export oriented economy. However, there's a big difference between how these few nations have done this, and the conditions which are forced on nations as a result of globalisation - in terms of the policies which are enforced, and the way loans are called in.
Those nations which have managed to get an export oriented economy have not done it according to the free market prescription - they have grown their industries behind tariff walls and with controlled interaction with world financial markets, later pulling down the tariff walls and letting the exporters operate globally in their own right.
While some nations may have managed to pull themselves into wealth through export orientation, there remains an underlying global inequity in terms of resource allocation between the first and third world. Poverty remains an ethical problem for the first world, and regardless of the possibilities for export orientation to pull a nation out of poverty, poverty is still a problem which begs for the aid from the first world separately to trade - and the supposed success of otherwise of trade encouragement should not detract from the moral obligation to share wealth more equitably.
We see this locally, where much effort is put into develop trade relationships and little into increasing our overseas aid to UN targets.
The manner in which loans have been provided to third world nations has been problematic; a nation can inherit the loans made by corrupt governments and dictatorships; it might inherit commercial loans.
In such cases, it seems clear that banks making the original loans should not have done so, and should not have any recourse to payment; if any, it should to the proportion of the money which actually made its way through the corrupt system and in fact did some good.
Further, while loans are repaid, changes in commodity prices and currencies can exacerbate the debt. In this case, this is a risk which should not have properly have been borne by the debtor government, and should more properly be borne by the lending bank.
It is important to acknowledge two things : first, populist but democratic governments might spend loans on consumption rather than investment, and nations might put systems in place which are effective tarrifs but pretend to be otherwise.
But, equally, loans going awry could be the result of factors outside the control of the debtor governments, where they end up having to spend loans on consumption; and nations might have very good reasons for regulations which incidentally become like tarrifs.
Hence, an ethical judgement might not mesh with the doctrinaire way that conditions have imposed by IFIs. Laws which are imposed merely to prevent imports, as phantom protection, are wrong and should not be implemented; but on the other hand we must acknowledge that laws which apply uniformly and protect cultural, ethical or other positions of principle should also be allowed, even if they might impact on trade and the supposed increase in wealth.
An example of this was the want of Europe to introduce labelling on foods to indicate genetic modification. The US wanted to challenge this as a restraint on trade. But, in fact I would see it as a very reasonable democratic initiative to protect particular values.
Then you have the case of a prohibition against a toxic fuel additive (MTBE) being challenged on free trade principles because fuel tanks could have liners added to contain the fuel additive, in this case under NAFTA rather than the WTO. Fortunately, the relevant authority recently decided in favour of the Californians.
MTBE was exported by a Canadian company to Canada, and required the government to install liners in the fuel tanks. While technically possible, it is the prerogative of government to make decisions about what is the best expenditure on behalf of its citizens. It is, so to speak, not banning it arbitrarily, but rather making a commercial decision not to use the product because it is too expensive. This represents a constraint on the very real prerogative of a government to legislate in the name of public health in the light of the costs of public health maintenance. The Canadian firm claimed that the evidence of MTBE being a carcinogen was not substantiated, and the ban had the hidden agenda of supporting the subsidised ethanol industry. And, indeed, few agencies have labelled MTBE as definitely causing cancer. However, it is of concern for its ability to contaminate groundwater, and it is definitely a pollutant.
Then we have the privatisation of water - including rainwater - which is a gross violation of civil principles, regardless of how we might rationalise through market operation.
It is this doctrinaire approach to international trade - the same one which was naive about the transition of the Soviet Union from Communism to Capitalism - which is a gross abuse of the small amount of truth which does exist in free trade principles. Further, these agencies are so far removed from the democratic scrutiny of countries they supposedly represent that their decisions go awry and they have no legitimacy in the countries where their laws are implemented.
These doctrinaire principles, far removed from principles of trade, are applied to nations by the WTO and other IFIs. Countries are forced to privatise and limit public spending - something which should be the prerogative of sovereign governments representing the will of their citizens, rather than will of capitalist creditors.
We also have assymetry between trading partners. While trade supposedly occurs only when both sides benefit, game theory informs us of a concept called the "balance of threats", where while both parties benefit from a transaction, the more powerful party receives a disproportionate and unfair share of the released benefit. While in a technical sense, both parties have benefitted from the transaction and otherwise would not have participated, an ethical analysis informs us that something is wrong.
In more tangible terms, this presents itself as investment which does not transfer technology or knowledge, and keeps locals constrained to simple menial tasks.
This yields itself into the claim that the first world, as particularly represented by financial players and the US - coerces third world nations into agreements whose terms are more a function of the power disparity than the consent of the third world. This has been made more tangible in that the US can field more people at WTO conferences and better resource them than the third world nations are able to do.
Further, you have the situation where the US supports its agriculture through subsidies while lobbying other nations to drop their tariffs.
Certainly, it is possible for third world nations to be special pleading rather than stating a case. It is easy to see that the US does use agricultural subsidies - as does Europe - but, equally, the US does provide a market for international production, too. I'm not sure on the detailed numbers, and I'll listen to an argument. But, regardless, it is still possible to identify a power differential between the US government and the third world nations it trades with.
I am lacking numbers, and it would be an improvement to look at a balance sheet. I admit that trade and export orientation have been benefits - but feel that the costs along the way have been significant, and should be better identified.
Further, for expensive "brand" shoes (eg. Nike), it is clear that they are made cheaply overseas, and are still sold at high prices locally - its not clear that there has been any price benefit for consumers - rather an increased profit margin for manufacturers.
Globalisation also provides tax havens - which means that firms can much more easily structure themselves to avoid taxes.
Globalisation means a greater usage of transport, and it is not clear whether the benefits of centralised production exceeds the additional transport cost. Given that oil should be used less, it then makes sense to charge a carbon tax on its use.
A further issue was the ability of rich countries to export their pollution and other enviromental impacts like cutting down forests to other countries, something that globalisation was seen to facilitate.
John August