Quick Glimpse at Globalization

[Storm rising over the city]

I'll be covering globalization this week in one of my courses after introducing it last week. Globalization is a really complex issue, so there won't be time to look at all of it. Instead we'll briefly sort through a couple of main themes. Here's an overview if you keep hearing about that term and are curious. I refer a few times to a textbook I sometimes use (though not this semester) because I find the presentation or examples used by the author for certain aspects of globalization helpful.

Brief History

While there may have been (semi-)globalized economic systems in the past, our present version begins with the colonization of various societies by Western European powers from the 1600s through the early 1900s, including the colonization and integration of larger parts of North America by the former British colonies that became known as the United States of America. The exploitation or outright seizure of resources by those colonized or displaced helped to fuel the economies of these emerging Western powers while creating conditions of social, economic, and political tension in the colonies themselves which has in turn contributed to economic and political instability in many former colonies over the centuries, especially during the 20th century. While the United States and others attained liberation in the 1700s, many colonies in what is known today as Latin America weren't liberated until the 1800s. Asian and African colonies remained under European control until well into the 1900s (the scramble to colonize Africa was still going on in the first decades of the 20th century).

Those who favor modernization theory claim that the problems of former colonies are either the natural growing pains of economic development or are caused by failure to adopt certain political and economic institutions favored by the Western powers. These developing nations need guidance and funding to modernize and grow like the US and Western Europe, so institutions such as the IMF (International Monetary Fund) and the World Bank, largely funded and controlled by those same Western powers, provide economic advice and loans to help reduce poverty around the globe. Many countries are unable to pay back their loans and are saddled with debt, requiring that the terms of their loans be renegotiated. This renegotiation frequently comes with strings attached concerning efforts to combat what the lenders see as waste and corruption. 

However, some of these terms follow neoliberal ideals which see any constraints on doing business and making profit as obstructions to economic growth. Under the modern neoliberal view, markets should exist for practically every area of human life, a world in which everything becomes a commodity. This includes things such as fresh air, clean water, and environmental conservation. Markets and the market value of commodities, as determined by consumer demand and the availability of a particular item, are seen as the best guide for human activity since humans are rational actors who will behave according to enlightened self-interest. Anything truly bad or destructive will be weeded out because it is impractical, unsustainable, or offense to a sufficient number of consumers. By increasing the scope of markets and ramping up commodification (turning things into commodities -- things to be bought and sold in the marketplace), economic growth will lead to increased prosperity for all, which is turn is supposed to inherently promote democratic ideals and greater individual autonomy and choice. The best chance for solutions to human problems comes from unleashing the creativity of inventors as entrepreneurs.

Critics of neoliberal policies, such as those who favor development theory, suggest that institutions such as the IMF and World Bank are misguided or inefficient and not addressing the roots of the problems generating poverty but rather are reinforcing them. The stronger critics suggest that while such institutions and their controlling member states claim to be in favor of reducing poverty, their true agenda is to continue the economic exploitation of other nations by colonizing or re-colonizing many parts of the world by economic means. The political and economic instability of the former colonies in places like Africa are attributed largely to continued interference by Western Powers. 

The broad Marxian critique of unrestrained Capitalism is also regularly applied to institutions and laws favoring neoliberal policies. These policies include cutting public welfare or subsidies supporting education, healthcare, and local (as opposed to international) economic activity. Instead, austerity policies are favored to reduce government spending. Economic activity favoring international trade, such as allowing increased foreign investment, lifting environmental protection policies, and producing goods that can be sold on the international market (rather than being used in country) are also promoted. Those opposed to the neoliberal view of economic growth claim that these measures are cruel and frequently counter-productive, making it harder for such poorer nations to get out of debt. Criticisms of such policy call for debt forgiveness, while several governments in South America, for instance, have turned more toward a socialist stance (public or government control or ownership of national resources and spending) by privatizing things such as oil fields and placing heavier restrictions on foreign investment.

The World Systems Theory was developed to try to place such competing views in context. Core nations (also known as first world or developed countries) control most of the economic capital and influence the focus of economic activity, whereas peripheral nations (a.k.a. developing or third world countries) have less influence and tend to provide labor and raw resources at low cost. Semi-peripheral nations occupy the space in between. The issue for this view isn't which policies promote economic growth or the welfare of people, but how the global economy is interconnected.

 Fiat Currency and the Need for Growth

The transition from commodity money to fiat money (a.k.a. debt or credit money) in the US and in other places around the world took place over decades and had important consequences. One is that the varying values from place to place of the commodities used to back money (usually precious metals like gold) no longer mattered. Hence fluctuations in the prices of those commodities could no longer directly affect the value of printed and coined money. Another is that money had value to buy goods and pay debts because it was backed by the full faith and credit of the issuing government rather than on how much of a particular commodity a government had to back the value of its currency. Which is all well and good except for two competing concerns: the welfare of the average citizen and the pursuit of wealth.

According to neoliberal economic theory and related views, the pursuit of wealth leads to an increase in the welfare of the average citizen. The opposing view suggests that more often than not the pursuit of wealth mostly favors those who are already privileged and wealthy to begin with. The responsibility of the state for the welfare of its citizens, known as governmentality, therefore places the state in a bind. There are potential advantages for most or all citizens if there is increased economic growth, but without redistribution mechanisms such as taxes, social protections such as workplace regulations, and public welfare programs and initiatives like public schools, public roads, public police and fire services, etc, these benefits will reach fewer people. In the US, what is known as "conservative" politics and its economic view is largely synonymous with neoliberal economics (the latter named for freedom of the markets) while progressive (and to some extent liberal) politics tends more toward focusing on public welfare. 

This isn't to say that only one side is concerned with either economic growth or the public welfare, it's just a matter of how one sees relationship between those two concerns. Nor do these views align completely with political parties in the US. While there are few if any progressives left in the nationally elected members of the contemporary Republican Party, the party has had more progressive leaning members in the past. There are quite a few economically "conservative" members of the Democratic Party holding national office. Much of the current political fighting around the US is centered largely on which political and economic decisions will best balance promoting economic growth while adequately benefiting the nation's citizens.

Growth policies, which tend to be rooted in promoting the desire to accumulate wealth, require that people spend money on commodities. The more money there is, the more people can buy. No problem, because the government can just print more, right? Yet people need a reason to spend that money, like more commodities to spend that money on. Or debt with interest to pay off. Or maybe both. Because if people don't spend money in a fiat currency system the economy doesn't grow. Besides, the money itself has no value if it can't be spent on things that people see as valuable.

What if we print more money anyway without more reasons or opportunities to spend it? There will be more money around without more stuff to use it for, and since money only has value because it is spendable, it loses value. That in turn means it takes more money to buy stuff than it used to. What was once a 50 cent gallon of milk now costs a dollar. Then two dollars. Then three. And so on. This is called inflation. Inflation can also be caused by having the same amount of money but far fewer things to spend it on. The opposite effect, which for a time increases the buying power of money within a society, is called deflation. Monetary policies are concerned with managing the value of currency, and in the US such policy is determined by a private institution known as the Federal Reserve (a.k.a. "the Fed"). 

To give an example of why this matters, when inflation increases and money is less valuable, those who hold debts and are collecting interest may be paid back but they are being paid back with dollars that are worth less than the ones they lent. People repaying loans benefit in some ways, but may suffer from higher prices. Yet policies to control inflation have consequences and not all effects of inflation are negative. To give a related example, by lowering interest rates you can attempt to give banks to use their money for something other than lending, but you also reduce the rate at which people with savings accounts are rewarded for placing their money in the bank.

So, we can't just print more money for economic growth. We have to have more spending, which tends to mean more stuff to sell and new markets for that stuff (more people to sell it to). And we can't forget debt. People borrowing money to buy a house, a car, a college education, to start a business, to pay for hospital bills, and so on. And don't forget that companies and various levels of government borrow too. Our current economy grows as a kind of bet on the future, including the bet that we can keep finding new commodities and markets to make up for the debt we've already accrued. The modern economic system can't work without such growth. In fact, individual businesses as well as national economies must continue to grow at a minimal rate every year (~3%) in order to avoid default. Using credit to buy stuff allows the economy to grow, but it means you have to try to create additional wealth to pay it back (due to inflation as well as any interest you may owe). And besides, even if we didn't have debt and inflation, without spending there isn't new wealth, and remember, the system is meant to produce more and more wealth.

This is where capital conversion comes in -- converting things into "stuff" that people will spend money on. And because we humans live in a partly artificial social reality, we can readily attach meaning and value to things that have none or believe that trading things of high intrinsic survival value (forests, clean air and water, etc) into products that only have value as a convenience or status item, an item that may even have a harmful side effect, is a good deal. In his book "Cultural Anthropology: A Problem-Based Approach" Richard Robbins refers to social, political, and natural forms of capital (capital = resources of value) that can be converted into economic capital (i.e. money). He includes reciprocity, social networks, and family/community functions under social capital, access to information, access to government, and freedom of expression under political capital, and forests, water, minerals, and air under natural capital. 

Robbins uses the work of sociologist Robert Putnam to suggest that social capital is being converted into economic capital because people spend more time on TV, video games, and the internet than family time. People live further apart and spend more time driving to work for their jobs, further reducing community and family involvement. With more family members working more hours, there is again less social capital in favor of producing more economic capital (more of which goes to the employer than to the worker). The conversion of political and natural capital to economic capital is a bit easier to see.

Think about the "stuff" people try to sell that doesn't even require much physical material, such as insurance policies or those custom avatars on internet games. The point isn't that these things are bad, but rather than new commodities and market to support them can be as varied as the human imagination will allow.


The Consequences of Economic Growth and Development

There are consequences, though, to growth-based market economies based on fiat currency and a desire for wealth. In order to keep consumers from being upset and to make products cheaper, companies often exeternalize their costs. That means that the production, distribution, or consumption of a product has additional costs in social, political, or natural capital that aren't paid for by either the seller or the consumer (and is part of the capital conversion process mentioned above). It is up to nature or society to absorb those costs. If you sell fast food, you don't have to pay extra for the medical costs of obesity. That cost is externalized. If you dump pollution from your factory, you are externalizing the cost of a cleaner manufacturing process or proper disposal. And speaking of disposal, who pays for all of the garbage created by all of the "stuff" we buy and throw away?

Other costs include the effects of the economic system on other societies and their workers who may face long hours and dangerous work environments. And again with the natural world, which either to make profit or as a consequence of poverty is often degraded and polluted as another externalized cost of doing business. The effects tend to be more severe in peripheral nations, who may face economic sanctions for maintaining environmental protections (see the discussion of neoliberal policies above). Yet nation-states feel they must keep economic growth increasing even as it means the costs of growth conflict more and more with the welfare of citizens and environmental sustainability. In his textbook Robbins suggests that lip-service to protecting the poor and the environment, deferring to international institutions like the World Bank, and allowing corporate media to spin and confuse the issues involved are three ways democratic states avoid tackling the negative consequences of growth. Do you agree with him? Can you think of other ways states may dodge their responsibilities to their citizens?

And even if a state does what is best for its own citizens and environment, what about other people and places around the world? This is another often over-looked aspect of globalization. In an already inter-dependent planetary ecology and an increasingly inter-dependent social and economic world, thinking strictly in national terms is inadequate. While solutions must be implemented regionally and locally, they must be coordinated globally. Yet competing concerns over economic growth continue to hamper things like meaningful climate treaties (see the current protests over climate talks in Poland).

This is where it is important to remember that the values upon which the current world economic system is based isn't inherent to all people. It is culturally based. There are and have been societies that value more than material wealth and even shun excess material wealth. Our political and economic systems are socially constructed, and we accept them because we collectively believe in the assumptions upon which they are based. So changing the world must start with changing people's worldview.