Importance of Globalization

Going Global
Daniel L. Hicks
(this was originally published in the shortrun weekly)

A famous economist, Joseph Schumpeter, once discussed the nature of capitalism. To him, capitalism is creative destruction, a way of responding to major waves of technological change. The United States has represented the incarnation of this ideal and will continue to do so in the future. Capitalism relies on the free flow of information and goods. This is key not only to domestic economies but to the global economy as a whole. This week there will be a meeting of both the IMF and the World Bank. Just as Seattle was lined with protesters that did much to hamper any progress that could be made at the WTO meeting last November, protests are planned at the IMF and World Bank meetings.

Most protestors come with a purpose; to protect the environment, to prevent child labor, to protect industries. Others claim that globalization will exploit weaker nations or steal markets from the richer. The sad thing about all of this is that the protests do little to aid their causes and in most cases, actually end up hurting the world in general. To see what I mean, let me give my take on each of these issues. (Granted, I am strongly biased in my opinion.)

The environment. Let me start off on the right foot, I strongly believe in protecting the environment, and I hope I can make this evident. Increasing trade will hurt the environment. Where's the argument? Businesses tend to hurt the environment so we should make sure that growing nations like China will not grow so they won't hurt their environment. There is some truth to this argument. The industrial revolution in Britain churned up so much smoke and soot that the trees were lined with black soot. It had disastrous effects for the environment and for the health of the English population. What happened? Progress happened, simply put,and the British passed a certain level of income. This development led them to stop worrying about the bare necessities like food and clothing, and they began concerning themselves with other goods such as clean air and water (yes clean air and water can be thought of as goods; they are called public goods.). Economists can show that for pretty much every country, this is true. Once individuals in the country reach a certain level of income (now it is around 4-5 thousand), they began to spend more on public goods. It makes intuitive sense that if I can provide for my family, I am more willing to spend to protect the environment. This trend pushes the idea that we should allow all nations free access to the global economy so that they can grow and develop. The richer a nation is, after this 4,000 to 5,000 income level, the more concerned it will become about protecting the environment. Therefore it is vital that the developed nations aid the undeveloped through freer markets.

What about child labor and the world's poor? Globalization is not to blame for the domestic policies of one nation. The Chinese government should be responsible for making sure that its citizens are safe and healthy. Trade is often used as a bargaining chip, but what people don't realize is that it's a costly chip. Not only for the US, but for the world's poor as well. Why use economic sanctions and trade barriers to force a government to change its domestic policies towards the impoverished? These sanctions themselves hurt the poor. I am not a politician, but there has to be a better way. In a recent article, the Economist magazine was quoted as saying, "Governments are apologizing for globalization and promising to civilize it. Instead, if they had any regard for the plight of the poor, they would be accelerating it, celebrating it, exulting in it - and if all that were too much for the public, they would at least be trying to explain it." (Which is what I am attempting to do.)

Capitalism is creative destruction. Some industries are inefficient, and sometimes resources are re-allocated with freer flows of trade. What people have to realize is that international trade doesn't represent a threat, it represents an opportunity. Short term losses are always outweighed by the long term gains from trade. This opportunity is for increased gains from trade and a more efficient and productive economy. This is not a new concept. It was introduced hundreds of years ago by a man named David Ricardo as comparative advantage, and today it is the cornerstone of all international economics. The idea is simple, that increased trade will lead to higher productivity and more prosperity.

Often the argument is made that globalization exploits developing nations or globalization will hurt the developed countries as jobs will be lost to cheaper working competitors. Ross Perot mentioned a "great sucking sound" as NAFTA would cause US jobs to make a run for the border. NAFTA's been around. Neither Mexico nor the US has experienced either of these two effects. In fact, the economic effects of NAFTA have been positive, if anything. Economics can show that freer trade, if it has any effect, will have a positive effect for both nations. Developing nations, where economic growth is so important, especially should gain from freer trade.

International cooperation is key to the success of the world's economy. The purpose of this article is to attempt to dispel some misinformation in one of the most pressing economic issues of the day. Globalization is a source of progress and not harm. Countries are nothing but lines on a map. People are people, and there's no reason why in today's world a large proportion of the world's 6 billion should have to live below the poverty line.