GLOBALIZATION

Read the following statements about globalization and discuss the key concepts in each. What do you think
the writer thinks about globalization?

1. It doesn't matter how far apart we might be geographically, economically or culturally, we're all held
tightly together as members of the human race in an all-embracing web.
2. Jobs are leaving many of the developed nations and moving to developing nations. The money
earned helps those developing nations move forward – more jobs, cheaper goods, more profits for
research and development. Everybody wins.
3. I interact with other people who live in different countries when I’m playing computer games.
4. Countries which are open to external investment are able to develop their economies to generate
incomes from exports and raise their standards of living.
5. Of the world's 7 billion people, 214 million are migrants, a phenomenon that has 'internationalized'
many cities.
6. Young people around the world have adopted international brands and styles without
discrimination. Their clothes are influenced by their favorite bands, they sing along to songs they
don't understand and support values that don't belong to them. Culture is under siege!
7. Recently we have seen the collapse of undemocratic regimes, improvements in workers' rights, an
increase in environmental awareness and responsibility, and an increased awareness of fair trade
as a result of advocacy campaigns using social media.
8. Sixty-eight million people are served every day in McDonald’s – 33,000 restaurants in 119
countries worldwide.
9. Globalization has caused important changes in who makes decisions that affect our lives as
multinational companies have more power than national governments.
10. Differences in local conditions require local solutions rather than an externally imposed and
globally uniform ‘one size fits all’ solution. 

Ethical Dilemmas of Globalization

By Dr. Sylvain Ehrenfeld

We are in the midst of an unprecedented transformation, even larger than the Industrial
Revolution. Because of technological changes our world is becoming more and more
interconnected.

The dynamic force of globalization will continue to change our perceptions, as it reshapes our
lives, the way we make a living and the way we relate. The changes are economic, technological,
cultural, and political. Incidentally, Karl Marx, in the “Communist Manifesto,” predicted that the
relentless search for markets will alter older social structures. As he put it “all that is solid will
melt.” Some say it is a runaway world. To quote Ralph Waldo Emerson, commenting on the
Industrial Revolution in his day, “things are in the saddle and ride mankind.”

I will look at the economic impact of this story and the contentious issue of globalization in trade
and its effects on the poor as well as the rich.

The gap between rich and poor in the world is still very large. The bottom 2.5 billion, 40 percent
of the world’s population, live on less than $2 a day and receive only 5 percent of the world’s
income.

There are still too many people who die because they are too poor to live. Can trade help? Aid
and a fairer trading system are crucial. As we will see, it can be an enormous help to poor
countries. It can start them on the first steps of the ladder of progress. Tremendous changes are
also occurring in the richer countries.

Let’s examine trade and globalization. Globalization, free trade, and outsourcing are very
controversial issues. They have been much in the news but they have not been seriously
discussed in the media.

Thinking on this subject falls basically into two camps. There are the gung-ho free traders and
the anti-globalists who strongly oppose international institutions like the World Bank, the
International Monetary Fund (IMF), and particularly the World Trade Organization (WTO). The
anti-globalists come in two varieties. The protectionists, as for example Pat Buchanan, are
extreme conservatives who think American nationalism suffers from the commands of the global
economy. This approach is essentially economic nationalism. They believe that international
institutions undermine the sovereignty of the nation and make the country more beholden to
transnational corporations. Buchanan opposes multiculturalism and immigration, claiming it
leads to a moral decline of the nation.

Anti-globalist movement has grown

The opposite pole of anti-globalists are much more radical in their thinking. They oppose the
WTO, the World Trade Organization, claiming that it is undemocratic, and ignores
environmental problems and labor conditions such as child labor and workplace safety. Finally
they claim that globalization increases inequality and further impoverishes the poor. The anti-
globalist movement has grown in passion and strength. They have staged numerous protests. The
one in Seattle involved some violence, but mostly they are peaceful. The one recently in Hong
Kong however was not peaceful.

The pro-globalists claim that free trade creates wealth, and this increase trickles down and
improves the condition of the poor.
First, what is globalization? It is the increasingly closer integration of countries and peoples of
the world brought about by the enormous reduction of transportation and communication costs
and the breakdown of barriers to the flow of goods, services, capital and knowledge. Think of it
as a tidal wave of change brought about by the impact of new technologies. Television, the
internet and other forms of rapid communication have increased mobility and commercialization
of ideas. Different aspects of globalization include free movements of capital, trade, cultural, and
political differences.

Photo credit
With these changes come many problems that cross national boundaries: terrorism, disease,
refugees, environmental problems, and rapid flow of capital. No nation can be totally immune. In
the past many people lived in small areas. Some people never went further than 20 miles from
their homes. Now if there is genocide in Rwanda and Darfur, or a suicide bomber in Jerusalem,
we see it on TV. We live more and more in a global community, and are experiencing a global
economic order.
Is globalization new? Not really. The scope and worldwide reach of our present globalization is
new. However, from 1860 to 1914 there was a significant globalization trend which was also
spurred by developments in transportation and communication. It came about because of
railroads, cars, telephone and telegraph.

World War I stopped this trend. Between the two world wars, there was much protectionism.
After World War II a major economic conference took place in Bretton Woods, a sleepy New
England town. It was there the World Bank, the International Monetary Fund (IMF) and GATT
were created. GATT stands for General Agreement on Tariffs and Trade. In 1995 this became
the World Trade Organization (WTO). By 2002 it accounted for 97% of world trade.

Ancient world knew benefits of trade

The ancient world was always aware of the enormous benefits of trade. Ships constantly crossed
the Mediterranean. The Silk Road between China and the Roman Empire had an enormous effect
on the enrichment of cultures as well as wealth.

Why is trade beneficial? If I have something you need and you have something I want–if we
bargain and come to a deal–we both benefit. Of course one of us may be in a stronger bargaining
position. Nevertheless we can both benefit.

Adam Smith, and later, Ricardo, British economists, made the case for the free exchange of
goods and services. This allows individuals to specialize in what they do best, to everybody’s
benefit. As an example–the tailor does not attempt to make his own shoes but buys them from a
shoemaker. In turn, the shoemaker doesn’t attempt to make his own clothes, but employs a tailor.
The ideal was that no country should produce anything it could import more cheaply from
abroad. Countries should concentrate on industries in which they are low cost producers or to use
economic language, they should produce where they have a relative advantage.

A classic example involved the Lancaster textile mills which exploited the climate of northern
England, and Portuguese vineyards which prospered in the southern sun. In the presence of
prohibitive tariffs of imports and exports which were prevalent at the time, England would have
been forced to make its own wine, and Portugal to manufacture cloth. This is obviously a waste
of resources. This concept is a powerful argument, and it has worked up to a point. However it
omits the effects of changing technologies. The country with weaker bargaining power remains
committed to its own industry and may be unable to develop. This has occurred in Central and
South America, which for years traded only in a few crops and were totally dependent on the
price of those crops.

There is much talk about free trade. We must remember that every free trade agreement is a
negotiated document. It involves all kinds of bargaining about different products and tariffs. For
example, for the North American Free Trade Agreement, NAFTA, the results were uneven. US
corn producers benefited, while textile workers have not. Mexican farmers were devastated by
US corn imports, and their textile workers lost out. Part of the reason is textile products from
China and US subsidies for agriculture. It is estimated that the growth in Mexico and Latin
America has benefited the upper 30% but the bottom gained little.

The great inequalities in Latin America and the lack of gains in the world trading system have
brought forth radical leaders in recent elections as Chavez in Venezuela and Morales in Bolivia.
The irony of democratic elections.

Main criticisms of World Trade Organization

There are many charges against the WTO. Here are three of the main criticisms.

1. The WTO places economic considerations ahead of concern about labor conditions and the
environment.
2. The WTO is undemocratic
3. The WTO increases inequality and makes the rich richer and leaves the world’s poor worse
off.

The WTO has a set of rules that all member states must accept. (There are about 30,000 pages of
them.) If a dispute arises, and a complaint is made about unfair practices, there is a dispute panel.
If the complaint is upheld and the nation continues to act in breach of the rules they are subjected
to severe penalties–including tariffs against its own goods and perhaps a fine of money
compensation. These are secret panels of trade organizations and lawyers.

Rulings are mostly based on the idea that a country can’t embargo a good because they object to
the process by which it is made. Only the quality or content is relevant. This has become known
as the “product” versus “process” principle. If a product is made by child labor, in unsafe
conditions, or is damaging to the environment, it cannot be rejected. This makes it difficult for a
country to impose environmental labor or health standards. WTO rules prohibits countries from
treating physically similar products differently on the basis of how they are made. So– anti-
globalists have a strong case.

However, free traders say the WTO is ill equipped to rule on labor conditions and environmental
situations. These decisions are complex. They claim that this is neither their role nor their
mission. They are only concerned with trade. Rules concerning labor laws and environmental
conditions are the province of international labor conventions of the International Labor
Organization (ILO) and international environmental treaties. Globalists say protesters should
focus their pressure on countries to abide by international laws. The final irony is that
underdeveloped countries do not want to be pressured to impose labor and environmental
standards as it will make their products more costly. They want and need the business. They also
say that many people in the west may regard low-paying jobs at Nike factories as exploitation
but for many people in the underdeveloped world factory work is far better than growing rice and
risking hunger. They also add that child labor is the only way a family may have as protection
from starvation.

Obviously labor laws and environmental rules are hard to enforce. We will say more about this
later.

Unequal bargaining power among countries

A charge against the WTO is that decisions there are usually made by consensus. Rule by
consensus can also be called rule by veto. It takes the opposition of only a single member to stop
an overwhelming majority from making changes. Developing countries make up the majority of
members of WTO. But not every country has the same bargaining power. In practice the agenda
is set in informal meeting of the major trading powers: the US, the European Union, Japan, and
Canada. Once these powers have reached agreement these are presented at a formal meeting
usually as a fair accompli. Not in the least democratic. Finally, dispute panels are not selected
democratically. Even if WTO decisions were taken by the majority of states that are members it
would not be really democratic since for example India, representing a billion people would have
the same number of votes-one- as Iceland which has 275,000,

A third charge and perhaps the most serious is that globalization makes the rich richer and the
poor poorer. It takes from the poor to the rich–Robin Hood in reverse.

Let us separate the issues into two parts. Firstly–has inequality increased? The UN reports that
gaps in income between the poorest and richest countries have continued to widen. In 1960 the
20 percent of the world’s people in the richest countries had 30 times the income of the poorest
20 per cent. In 1997, the gap has more than doubled–it is now 74 percent. This widening of the
gap is happening at a faster pace. The assets of the 200 richest people are more than the
combined income of 41 percent of the world’s people. Just imagine that visually–the 200 people
can fit into our local libraries’ auditorium.

The gap in income within countries has also widened. In the US, according to the US Census
Bureau, the top and bottom tiers are growing and the middle shrinking. The top 20 percent held
85 percent of the country’s wealth. An interesting illustration of this is the recent two years of the
holiday shopping season. Retailers that cater to lower and middle income shoppers like Walmart,
Sears, and Kohl’s had disappointing results, even with the lower prices. The higher end chains
like Marcus and Nordstrom did well.

Obviously, income gaps have widened both within countries and between countries. A recent
UN study by ILO called for a fair globalization. They show that global trade increases wealth but
the trade benefits are uneven. Like most economic changes there are winners and losers. What is
a fair division of the growing pie? This raises ethical questions.
Are the very poor worse off? The world’s population is currently a little over 6 billion. About 1.2
billion live in absolute poverty (about 1$ per day) and many more even below that. About 3
billion–that is nearly half the world’s population–have about $2 per day. About 820 million lack
adequate nutrition, more than 850 million are illiterate and almost all lack access to basic
sanitation. In rich countries less than one child in a hundred dies before the age of 5. In the
poorest countries one child in five dies. Every day three hundred thousand young children die
from preventable causes. Life expectancy in rich nations averages 77 years whereas in sub-
Sahara Africa, it is 48 years.

The number of absolute poor has decreased by 200 million. Most of the improvement has been in
China and India. In sub-Sahara, Eastern Europe, and central Asia, poverty is up. In Latin
America and the Caribbean there has not been much change. So, to disagree with both sides of
the argument, globalists’ claim that the increase in wealth has helped the poor–the trickle-down
theory is certainly not true. The claim that poverty has increased is also not true, although the
level of misery that exists already could hardly in any imagination be worse.

WTO ignores labor rights and environment

To sum up the anti-globalization charges–the WTO does ignore labor rights and the
environment. It is most certainly not democratic. Finally the changes created by globalization
taking over the world, with increasing inequalities is ultimately a dangerous situation.

What then, do we need? What we need to do is achieve some progress in halting the dangerous
increase in inequality world-wide and fair trade–not the so called free trade. Trade can be a
particular thorn in the flesh for poor countries. The developed world spends over a billion dollars
a day on farm subsidies and only one-seventh of that in development aid. Much of that goes to
rich country experts and sales of technology. Rich countries’ subsidies for their farmers make it
difficult for poor countries that rely on exports to compete. Other subsidized products include
textiles and cotton. The IMF estimates that a repeal of the subsidies would improve global
welfare by about 120 billion. If we put together interest on the debt owed by poor countries
together with trade barriers, more money flows from the poor countries to the rich, than the other
way.

A recent UN report states that rich countries trumpet the virtues of open markets and free trade
even as they put up barriers against goods from poor countries and spend hundreds of billions
that benefit large scale farmers .The recent Hong Kong meeting did not change that.

About outsourcing and out-basing–a hot issue. Because of tremendous changes in technology,
many more jobs can be outsourced. Some examples are radiologists who examine x-rays,
reservation agents, computer programming, accounting, data base management, financial
analysis, tax preparation. Companies can comparatively easily move production to other parts of
the world.
With outsourcing and out basing who gains and who loses? Some American gain: consumers
enjoy lower prices, and stockholders see profits rise. Some Americans lose: workers whose jobs
are displaced, the owners of firms whose contracts are transferred to foreign suppliers.

Recently, Paul Samuelson the renowned economist and very much for free trade has revised
some of his ideas. He pointed out that free trade can hurt an advanced country. When a poor, but
ambitious nation, is trading with a wealthy advanced economy free trade can undermine the
wage level in the advanced economy. He cites the example of China and the US. This explains
why the US hourly wage, discounted for inflation, has been stagnant for many years and has
aggravated inequality in the US. Monthly wages are 11% lower than in 1973 adjusted for
inflation in spite of rising productivity. A revealing statement by Wal-Mart’s chief executive,
urging Congress to raise the minimum wage:

“Our customers simply don’t have the money to buy basic necessities between paychecks,” an
ironic remark coming from Wal-Mart.

Other gainers are employees abroad who get jobs. Still, as we said, other gainers are US
consumers who get cheaper goods, It is estimated that since the 90’s cheap imports have saved
US consumers around $600 billion and US manufacturers many billions in cheaper parts and
services for their products. We have a conflict here. Consumers are saving money but at the
expense of US jobs. Wal-Mart has set the standard by their drive for cheap prices using imports
from China. They give their workers low wages and minimal benefits. To compete other
companies are driven to do the same thing. We are both consumers but also citizens, this presents
us with a conflict. Another concern is the growing trade deficit which may become a serious
problem.

Gainers have moral obligation to losers

Overall is this good or bad? What criteria should we use to judge? Some economists talk about a
compensation principle. If the gainers can compensate the losers the economy gains. Of course,
the compensation is never made. It leads me to think that the gainers have some moral obligation
to the losers.

In any case the process seems unstoppable. We can however ease the bounce and provide springs
for a rough ride. Income support and retraining for workers outsourced can help. This may not be
effective for older and less educated workers. Another suggestion is wage insurance which
companies resist. For this we need governments and international agencies with some moral
clout and power. Other policies which would help much are: public investment in education,
universal affordable health care and more federal financing for research in the sciences and
engineering which has declined in recent years. China and India are now graduating more
engineers and computer scientists than from all American and European universities.
A story to illustrate. Recently Toyota decided to put up a new assembly plant in Ontario Canada.
Why there and not in the US? One reason cited is the comparative quality of the work force,
compared to the south. Unionization may also be a factor.

Another reason was Canada’s National Health System. To support this consider the GM claim
that it pays $1,525 in health-care costs for each car that comes out of its assembly line- more
than it pays for its steel. Recently GM, like many other companies, has made deals with unions
to cut benefits, lay off workers and cut pensions. Even well off companies like IBM are doing
the same thing. Times are getting tough for working people. I find it difficult to understand why
companies do not support universal health care as it makes them more competitive.

Globalization could be an engine for growth and great benefit to all groups if guided with some
attempt at fairness. I am reminded of the early stages of industrialization in England, US and
Europe. Working conditions were horrible. After much struggle laws regulating worker safety,
child labor, and the right to form unions were developed. The question arises–how well can a
global free market–an essentially unregulated market–function in the absence of a global
authority to set minimum standards on issues like child labor, worker safety, union rights, and
the environment? What we have now on the international scene is early capitalism in the raw.

What to do?

All trade agreement should include minimum ILO (international labor organization) standards.

International conventions on these issues exist. They can be checked by rapporteurs, a method
now used in the human rights area. The WTO can enforce these standards as they do now in
trade disputes. If a country cannot afford to meet the standards they should be helped.

For the well-being of our society and the health of our economy we need a universal health-care
system.

Supporting fair-trade movement

We should support the growing fair-trade movement. They support more than 5 million people in
Africa and Latin America in socially responsible trade. We should buy these products like fair
trade coffee. It costs a little more but we are not only shoppers but also citizens. Oxfam America
has a campaign for fair trade. They have a website providing much information
(www.maketradefair.com) on how to get involved.

We are in the historic process of becoming one world. There are precedents in which
governments come to relinquish some of their sovereignty for the benefits of cooperation.
Regional organization already takes place in the form of WTO and the European Union. Such
groupings are likely to increase in the future because of the necessity of avoiding the chaos and
suffering of the vast disparities between the haves and the have-nots, and perhaps the side effects
of competition between the great economic powers.

Globalization can be a great boon. It is not globalization per se, but the unfairness and damaging
results from the way it is developing that is the moral and humanitarian problem.

In the meantime, we need to hang on tight because there’s a rough ride ahead of us.

Dr. Sylvain Ehrenfeld, member of the Ethical Culture Society of Bergen County, is International
Humanist and Ethical Union Representative to the United Nations.