COLUMN: In defense of greedy capitalists

From David Kim's, "Aspirin for Your Postmodern Headache," Fall '98 From David Kim's, "Aspirin for Your Postmodern Headache," Fall '98Last week, Anthony Smith wrote a well-written, provocative article questioning the merits of globalism ("Our global (dirt-poor) village," The Daily Pennsylvanian, 11/9/98). Many of his frustrations are understandable and valid. In both theory and practice, international labor exchanges have contributed significantly to the well-being of both Americans and Third World workers. In application, Ricardo's theory of comparative advantage maintains that a country's ability to produce goods at low wages can often create mutually beneficial trade. When, for example, the production of a certain good can take place at a lower cost in Southeast Asia, those working in that industry in the United States might lose their jobs. However, this temporary loss of employment will actually create more jobs at home in industries where the United States has a comparative advantage (service and high-tech industries), thus raising productivity and incomes in both countries. While the western employers in Southeast Asia do not carry out business in these foreign countries out of good will, but rather to make money, they nevertheless pay their workers the minimum acceptable wage in order to bring workers into their factories. Although these wages are shockingly low (especially by our First World standards), they are still measurably better than the workers' previous jobs (or lack thereof). Thus, the workers have already begun to gain by this industry's entry into their country. The more important effect, however, is what Massachusetts Institute of Technology economist Paul Krugman calls the "ripple effect." The workers on the land, previously over-abundant, now see their wages rise as well, since they are now more productive per capita (and in higher demand), and industries who had moved their factories to the country because of lower wages now begin to compete with each other for the urban workers, who now also find themselves in relatively high demand, thus raising their wages even more. Although those giving these jobs may very well be unfeeling multinationals and local entrepreneurs who only want to take advantage of profit opportunities offered by cheap labor, the result of these jobs is, even in the earliest stages, an improvement from total poverty to something significantly better. For example, the daily calorie intake of the average person in Indonesia has risen from 2,100 to more than 2,800 since 1970. And while in 1970 Japan was frequently accused of keeping its workers in "rabbit hutches" in order to pursue its relentless export drive, by the early 1990s Japanese wages were actually higher than those in the United States were. Furthermore, the result of efforts to force developing countries to our labor standards would at best create a privileged labor minority, leaving the remaining people just as poorly off as they had previously been. More likely, however, the result would be the stealing away of any potential growth or rise in living standards. Developing countries are usually competitive only because of their cheap labor (or generally cheap cost of production). To deny these workers the right to earn cheap wages would be to deny the countries their attractiveness as exporting countries. Thus, if it were a question of good jobs and wages by our standards or no jobs at all, it would most likely have to be the latter. The above having been stated, why is a public case for free trade so seldomly made, in contrast to the barrage of protectionist propaganda put out by both nationalists and intellectuals? To begin with, the benefits of free trade, although substantial, are so thinly spread that it is simply not in the interest of any individual to spend any money or energy promoting the cause. On the other hand, protectionism offers benefits to concentrated interest groups -- namely American factory owners such as South Carolina billionaire textile baron Roger Milliken. People such as Milliken stand to gain immensely from protectionism and therefore lobby for it heavily in Washington and provide financial support to back their cause. And protectionists have employed the rather clever tactic of creating their own intellectual and academic legitimacy by funding and founding plausible-sounding people and institutions that supply intellectual rationales for the policies they want. Milliken alone contributes more than 10 percent of Clyde Prestowitz's Economic Strategy Institute's budget, one-third of the budget of Pat Choate's Manufacturing Program and is the most important contributor to the United States Business and Industrial Council, a lobbying group that devotes its energies largely to opposing free trade. Furthermore, free trade is, in many ways, simply very easy to attack because of our own perceived involvement and guilt in the matter. Workers in Third World factories earn "slave wages" producing shirts and sneakers for our benefit. It is therefore fairly easy for the general population to be convinced that they shouldn't buy those products, lest they actively take part in the implementation of slave labor. Of course, all this does not imply that we should let global capitalism work freely without restraints. On the contrary, the increasing use of foreign labor necessitates the compensation of American workers who are left temporarily unemployed during the transition from one industry to another. Another legitimate concern is the maintenance of what former U.S. Secretary of Labor Robert Reich calls "core labor standards" such as freedom of association, the right of collective bargaining, the prohibition on forced labor, non-discrimination in employment and the prevention of the exploitation of young children. Yet even Reich warns against the use of core labor standards as a political tool for protectionism: "What it ought not to mean is the use of core labor standards to pursue an agenda of protectionism, or as a method to counter legitimate comparative advantage based on lower wages. Such an agenda would be wrong and would be self-defeating." I do not, however, envy those whose job it is to implement and enforce such standards, especially with the controversial issue of state sovereignty and the often-legitimate differing notions of minimum core standards. In closing, let me stress that this article was written in order to push the discussion to another level, bringing in some of the economic foundations upon which the system has been created. Don't get me wrong. Global capitalism inadvertently creates many problems and necessitates many more precautions than we've been implementing. These are urgent issues that should be addressed as soon as the existence of the present system -- whether we like it or not -- is accepted. Just as important in our reconsideration of "globalism," however, is a careful analysis of its alternatives. So when Pat Buchanan tells us Americans should only be driving American cars or the Asian financial crisis is a justification for his xenophobia and economic nationalism, take a closer look into the world he's promoting. For our sake, I hope it's just a pile of populist rhetoric, and not a serious proposal for America's future.