In a world controlled by policies of the WTO and the World Bank, and a nation guided by the Federal Reserve, we might well ask the question. 5th in the series, “Is It Too Late.”
By Jerome G. Manis
Since the end of the Cold War, there has never been a period where the destinies of so many nations and international organizations been guided by policies from the field of economics, as opposed to politics, morals, sociology or any number of other guideposts. From a sociological perspective, some economic claims are not only false but also benefit the most affluent individuals, enterprises, and countries.
Among the oldest errors are influential distortions of economic and sociological concepts proposed by Adam Smith. Almost as old is the ongoing bias against the tariff policies of Friedrich List which enabled the rapid industrialization of the United States, Germany, and many other undeveloped countries. Both very old and very new are the unnoted inequities of globalization. All pit sociology against economics.
Adam Smith is renowned for his The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776). The former is viewed by sociologists as a notable forerunner of their field. Yet. it is often ignored by economists while the latter is considered a foundation of economics.
The first two chapters about “the moral sentiments” focus on sympathy, such as “the fellow-feeling for the misery of others” which appears in his first paragraph. To economists, self-interest, not sympathy nor “fellow-feeling,” is considered relevant to their studies. Justice was another important sentiment to Adam, also evident in the final 280 pages in the latter book on justice and government–often considered by economists as barriers to progress.
While ‘the “invisible hand” is mentioned only once in each book, it often appears linked by economists to “of the market place.” Not by Adam Smith. To economists, the market place is considered to be a self-regulating entity. That idea came about early in the 18th century when British evangelicals coined that phrase, later adopted by early economists.
Although “laissez-faire” and “free trade” are often attributed to Adam Smith, neither term appears in his books. He was critical of the limits on imports by mercantilists who believed only in exports as the only source of gold–their criterion of wealth.
While reducing wages and pensions is often recommended by economists to improve international free trade, Adam Smith had a different view. As he put it, “The liberal reward of labor…is the natural symptom of increasing national wealth.” Not apparent in contemporary economics is Smith’s contention that “Labour, therefore, is the real measure of the exchangeable value of all commodities.”
How Smith views entrepreneurs differs greatly from those of economists.To him, “People of the same trade meet together, even for merriment or diversion, but the conversation ends in a conspiracy against the public.” Nor are they likely to agree with his claim that “We rarely hear of the combinations of masters, though frequently of those of workmen.”
Contemporary “combinations of masters” are far more powerful than those of workers. Today’s most influential “masters” are not individuals but enormous conglomerates. According to Fortune 500, in 2006 America’s largest corporation Exxon Mobil had revenues of $340 billion and Wal-Mart stores had revenues of $315 billion.
In these many ways. modern economics has quite different interpretations of Adam Smith than that in his major lengthy biography by Ian Ross who described Smith’s aim “to help us to aspire to virtue rather than wealth.” These misrepresentations of Adam Smith clearly benefit business and wealth while harming workers and the less affluent.
Half of the textiles once made in the United States now are produced in China. Industry owners and workers contend that the remainder will vanish unless our textiles are protected by tariffs. Free trade advocates oppose tariffs as outdated and harmful. Still, American tariffs created the textile industry and many others during a century of protectionism. Those tariffs enabled America’s rapid industrialization. Friedrich List played a major role in the use of tariffs for the modernizing of the United States.
When List arrived in the United States from Germany in 1825, a few tariffs existed on imports. Soon afterward, he wrote his famed Outlines of American Political Economy. The “American system.” as List described it, could “grow powerful only by fostering the manufacturing interest.” For that purpose, he suggested that tariffs were necessary to the well-being and the future of the United States.
With the assistance of Henry Clay, Charles Ingersol, and Mathew Carey, he traveled about and lectured on the need for tariffs to build up American industry. Those efforts helped bring about more and larger tariffs and new factories. Large tariffs on industrial imports were retained for about a century in the United States. The last large but unneeded tariff was approved by president Herbert Hoover and rejected by his successor president Franklin D. Roosevelt.
In 1832, List was appointed American consul to several German cities. While there he wrote The National System of Political Economy. In it, he wrote that: “The power of producing wealth is therefore infinitely more important than wealth itself.” List argued that economics cannot be separated from politics, which deals with matters of state and nation. Not so, according to modern economists.
His efforts soon resulted in the unification of the separate German states, the elimination of state tariffs, and creation of national tariffs to protect the development of the new German nation. Their adoption soon put that country on the way to becoming rich and powerful. His ideas gradually spread to many other countries.
Although Germany highly honors Friedrich List with books about him and memorials to him., he is barely known in the United States. His ideas about the importance of tariffs are either neglected or derided. Instead, free trade is the dominant idea of contemporary economists.
Yet, a 2000 study by Kevin O’Rourke has disclosed that ten nations had benefitted from tariffs between 1875 and 1913. They were Australia, Canada, Denmark, France, Germany, Italy, Norway, the United Kingdom, and the United States. The author concluded that “Tariffs were positively correlated with growth in these countries.” Such reports confirm the ongoing importance of Friedrich List.
In the 2004 edition of Governing The Market, Robert Wade described how east Asian governments aided the industrialization and modernization of their economies. This was by blocking free trade through tariffs placed on imports, especially of manufactures. Winning an award in political economy, the book offers a stinging critique of free market theory.
The bias against tariffs and Friedrich List is prevalent in contemporary economics. That bias is evident in American politics and policy. Its dire consequences mostly effect workers and small business owners. They are most beneficial to multinational corporations and their control by the wealthiest shareholders.
In The Life of Reason, philosopher George Santayana wrote; “Those who cannot remember the past are condemned to repeat it.” Friedrich List based his recommendations for tariffs on careful historical research. Modern economics is ahistorical, basing its policies on theories. Also, the
economic case for globalization has ignored the costs, damage, and inequities of an earlier globalization.
Especially harmed during 16th to 18th century globalization were millions of slaves brought from Africa to the Americas. That slave trade has been called Globalization of Forced Labor, the subtitle of a 1996 book on colonization. Slave trade and profitability took place under a system called mercantilism. Not free trade, but barring imports and acquiring gold, were believed to be the main source of wealth. Slavery was a major source of such wealth and a major cause of America’s Civil War.
Marc Ferro’s Colonization: A Global History describes a several-centuries-old globalization process. It is a detailed, analytic report of colony founders, nature, eras, and outcomes. In its “First the Portuguese,” he points out their early colonization efforts, soon followed by Spain and Great Britain. Ferro’s book contains much data about the damaging effects of colonization upon many nations. For the United States, only its early revolution and tariff protections avoided their many losses.
Many of the first media reports about today’s globalization were quite favorable. Still, the objections began early with demonstrations by environmentalists and unions. Then, serious criticisms were raised by journalists and especially by such books as Globalization in Question, Globalization and Its Discontents, and The End of Globalization.
When contemporary globalization was said to have begun its sudden increase in the 1980s, governments, corporations, and economists were its prime advocates. Their viewpoints and goals played a dominant role in the globalization process. Yet, its advocates paid scant attention to prior globalization with similar founders and their interconnected actions.
A 1998 book on corporate crimes notes that multinational corporations are being transformed into transnational corporations which are “everywhere abroad and nowhere at home…have no specific national identity.” The 1999 book Globalization in Question states that the TNCs “would be genuine footloose capital without specific national identification.” Or oversight. Another 1999 report on “The Globalization of Crime” reports that it takes “the form of fraud, environmental pollution, market interference, corruption, occupational health and safety offenses, or tax evasion.”
The bestseller The World is Flat by journalist Thomas L. Friedman makes the misleading claim “How the World Became Flat,” the title of his over 200 page first chapter. It lists ten “flatteners” equalizing nations which begins with his experiences at a golf course in India. He described many buildings and other signs of American enterprises, scant evidence for flattening. In his mentions of the World Bank, he does not cite their data about the dozens of stagnant nations and the harmfulness of modern globalization.
World Bank reports, ignored by economists and Friedman, reveal the international damage that has resulted from a mere twenty-odd years of this free trade globalization. According to its 2002 report, 3l out of the 42 countries designated as “heavily indebted poor countries” have failed by the HIPC process standards. That applies to about two billion people “becoming marginal to the world economy.”
That comprehensive report dealt with conditions responsible for the hazardous future of nearly one-third of the world’s total population. As the World Bank has been a strong supporter of this current globalization movement, their estimate is not likely to be an exaggeration. In addition to such billions of people, however, are job and income losses in affluent nations also being marginalized by ongoing free trade globalization.
Many of the marginalizations and civil wars are taking place among the former colonies of the prior globalization. Typical of both is Bolivia, a Spanish colony for 300 years. As an outcome of past, as well as of current free trade, Bolivia remains among the the poorest countries in South America. Yet, it obeyed the stringent, and apparently harmful, requirements of the International Monetary Fund.
In Africa, 3 million people are believed to have died from recent civil wars and related diseases in the Democratic Republic of the Congo. Another former colony, that nation lost over five million lives during the early 20th century under the control of Belgium. It also has been bypassed by the last twenty years of contemporary globalization.
The benefits of globalization have not been the poorer nations or the low paid workers of industrialized nation. Rather, the profitability of free trade has gone to rich nations, corporations, and individuals.
Economists are responsible for many distortions, omissions, biases, and inequities about economic matters. Those misconceptions have benefited the wealthiest and harmed the rest. Economists strongly endorse the unregulated, uncontrollable hedge funds and private equity funds which mainly benefit the very rich while recommending reduced wages and pension funds for workers.
Who benefits most from globalization? The free trade agreements that are favored by economists mostly harm the poorest two billion human beings for the benefit of the more affluent ones. The evidence is substantial and incontestable.