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My Thoughts

Modern Globalization or New World 2.0

When the lands of the Western Hemisphere were discovered by the Europeans more than 500 years ago it unleashed a wave of imperialism the likes of which the world had not known since antiquity. Fueled by dreams of avarice and riches beyond compare the European imagination was lit aflame and the New World was set upon lustily by treasure seekers, adventurers and visionaries. But at a time when many European societies, particularly Britain, were on the cusp of capitalism’s ascent and the rise of the working-class, the fights over access to new markets seemed vitally important to win. Indeed imperialism was seen as necessary by classical political economists. Theorists and learned men of the day presumed that the tendency for the rate of profits to decline in a capitalist system could be checked by annexing more of humanity into markets. Today the forces of free trade and economic liberalization are the status quo and the annexation of the poor into the global economy continues enthusiastically. As the consumption appetite of formerly poor people expands so will the penetration of markets into the third world. My concern for the time being is with a particular effect that this expansion is having: the growth of the global middle class is accompanied by growing income inequality in the developed world as it moves through its second Gilded Age and how this inequality if being justified.

To begin with the latter, the justification for the growing economic inequality seems to boil down to what I perceive to be libertarian capitalism; a sort of secular conception of the workmanship ideal and a hardline stance on individual liberty. On its face the idea that ownership rights are derived from making, from manufacturing, from possessing “maker’s knowledge” seems reasonable enough. Yet we must consider carefully where we place the boundaries of ownership and take seriously the idea that the true costs of production are greater than that bore by the manufacturer alone. Consider artistic creativity and artistic production. It was said by Picasso that “good artists copy, great artists steal.” Most any artist will tell you that the way to get started is by emulating those artists whom you admire (which most aspiring creative people do even if they are not aware of it). Yet we also have a legal system that claims that it is illegal and immoral to steal the intellectual property of others. So how does one explain the proliferation of artists and genres we are lucky to enjoy these days? Either the vast majority of modern producers of creative and artistic material are immoral criminals or our legal framework with regard to intellectual property does not track the realities of artistic development and production. The truth is that not just creative output, but all manufacturing is a process of appropriating both material and immaterial goods from the commons and profiting from the additive refinement of what has been procured. Profiting from one’s own labors in the refinement is morally correct, but one must remember that they stand on the shoulders of those who came before oneself. (I think technology will make the concept of intellectual property defunct one day, but this is outside the scope of this piece.)

Yet a libertarian conception of capitalism affords the commons neither protection nor recognizes its scope and depth. In a world of finite resources, where new and innovative products and services are built upon the foundation and rubble of that which preceded them, the commons are in fact our most important resource. The constituents of the commons are not only the concrete commons of natural resources and labor but also the immaterial commons of ecological stasis, culture, creativity and knowledge. The things which have been built, refined and destroyed by preceding generations are the prerequisites for what we have today. Recognition of the full nature by which ever greater economic efficiency and prosperity is made possible remains missing from the libertarian capitalist mindset. The greatest expansion of material wealth and well-being the world has ever known is not the apotheosis of free markets alone. It is the harvest of compassion and fairness legislated and enacted; evolving organically towards an ever purer manifestation. Sowed into the commons seeds blossomed into not only a technological revolution but also a revolution in our conception of the components of human rights. Unfortunately in our modern thinking we often construe compassion and fairness as being opposing forces; homo economicus versus homo reciprocans; Locke versus Rousseau.

Today people tend to be divided between two visions of the state of affairs globally: some see a world of poverty and suffering being exploited and subjugated by the powerful, others sees a world of underdogs yet to secure their rights and build successful societies and economies. Some argue that the wealthy nations of the world ought to leave the rest of the world be, while others think that we should engage in trade deals and security arrangements with poorer nations. In my opinion we ought to engage with the developing world economically despite the abuses of economic power and human rights that will – and have – occurred. Whatever your view, the economies of the developed world seek resources and new markets. The lands of the contemporary underprivileged are now the breeding grounds of aggressive new economies; flourishing markets that are awash with foreign investment capital. One should not be blinded by the idea that the spread of capitalism today is driven by vastly different motives than those of our colonizing ancestors – treasure-seeking, adventure and the fulfillment of visionary goals. Our modern thinking assumes that treasure-seekers, adventurers and visionaries motivated by their own self-interest will integrate the impoverished into the global economy, thus lifting them out of penury. And while free trade is responsible for the nascent global middle class, income inequality is worsening. Why? Obviously the formerly non-developed world is experiencing a Gilded Age, but what of the developed world?

In Fareed Zakaria’s enlightening book The Future of Freedom he notes that in the West we tend to assume that democracy and liberty are synonymous. But this assumption does not actually stand up to scrutiny. His most striking example of what he calls illiberal democracy is the death of Socrates. Socrates lived in a democratic society in the ancient Greek city-state of Athens. The leadership of the town democratically voted to sentence Socrates to death for “corrupting the youth” and generally being an unhelpful gadfly. Here we have a striking example of a democracy which had no concern for the rights and liberty of one of its citizens. Other examples of illiberal democracy (and states where autocrats get elected) are Russia, Singapore, Venezuela and many African nations. “The tension between constitutional liberalism and democracy centers on the scope of governmental authority. Constitutional liberalism is about the limitation of power; democracy is about its accumulation and use” (101-2). I think there is an analogy to be made here between economic liberty and economic prosperity. Economic compassion is about limiting the power of the economically powerful to disadvantage others via externalities and favorable political concessions generated by economic growth; unregulated property rights are about acquiring and using economic power. Many people today think that economic liberalization and widespread prosperity are synonymous and therefore inevitable, but I have my doubts about this.

Think back a couple of years to 2009. In late March of that year the Dow Jones Industrial Average (DJIA) reached a 10-year low of 6,547.05. At the same time the unemployment rate in the United States was at 8.7% according to the Bureau of Labor Statistics. As the recession wore on two things happened: the unemployment rate and the DJIA continued to rise. U.S. unemployment reached a peak of 10% in October 2009. On October 2, 2009 the DJIA closed at 9,487.67 and has not fallen below that point since then. While the DJIA was recovering, unemployment failed to fall below 9% until March of 2011 when it dropped to 8.9%.

Source: http://stockcharts.com/freecharts/historical/images/djia2000s.png

How can it be that the stock market (represented here by DJIA) can continue to rise without the rest of the economy recovering as well? I think this has become possible because financial markets don’t rely on the well-being of the industrial and service sectors for their own prosperity as they once did. A report by the Kauffmann Foundation claims that the large size of the financial sector in the U.S. economy is in fact responsible for degrading entrepreneurship: finance buys up talent that could be used elsewhere in the economy. The financial and industrial sectors have experienced a significant change in the nature of their relationship which may no longer be symbiotic, but is now aposymbiotic with the financial sector occupying a more advantageous position in the relationship. This has created a situation where it is possible to appear to have a strong economy while not actually improving the quality of life for most citizens. America has adopted economically liberal policies (classical liberalism that is: deregulation) without actually increasing widespread well-being. Similar to the way in which democracy and liberty do not necessarily go hand in hand, economic liberalization does not guarantee widespread prosperity.

“Look more closely at the data, though, as economist Emmanuel Saez did, and it turns out that average Americans were right to doubt the economic comeback. That’s because for 99 percent of Americans, incomes increased by a mere 0.2 percent. Meanwhile, the incomes of the top 1 percent jumped by 11.6 percent. It was definitely a recovery—for the 1 percent.” – Plutocrats

References:
http://oyc.yale.edu/political-science/plsc-118/lecture-13
Zakaria, Fareed, The Future of Freedom. New York: W.W. Norton & Company, 2003.
Freeland, Chrystia, Plutocrats. New York: The Penguin Press, 2012.
http://data.bls.gov/timeseries/LNS14000000
http://www.google.com/finance/historical?cid=983582&startdate=Mar%201%2C%202009&enddate=Nov%201%2C%202009&histperiod=weekly&num=30&start=0
http://www.kauffman.org/uploadedFiles/financialization_report_3-23-11.pdf
http://www.epi.org/publication/ib331-ceo-pay-top-1-percent/
http://elsa.berkeley.edu/~saez/saez-UStopincomes-2010.pdf

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