Monday, December 03, 2007

Globalisation Not the Problem: Absence of Markets is the Problem

Stan Sorscher, guest columnist for the (here)and a labor, trade and health care activist who lives in Seattle, writes that ‘Even powerful, efficient markets fail’:

More than 200 years ago, Adam Smith explained how markets create broad-based well-being. The self-interest of the butcher, baker and brewer brings them wealth, which is ultimately invested or shared in their communities. Of course, 18th-century merchants were strongly connected to their communities.

Globalization breaks that connection and decouples the powerful and efficient market forces from the public interest. Today's baker, butcher and brewer are multinational companies, which proudly regard themselves as global companies. Their obligation is to their global investors, not to local communities.

This local community interests idea is becoming quite popular, as if it is different now from what is was in Adam Smith’s day. Of course the scale has changed dramatically but in essence it was discernable in the 18th century too.

In the lesser known example of the manufacture of the common labourer’s woolen coat, Smith adds another dimension to the pin making example of the division of labour, and possibly a more important example because it illustrates the benefits of specialization and round-about-methods of production.

Living off locally produced food in the shape of butcher’s meat, beer and bread, may have had advantages in that without distant trade that was all there was to consume. Some extremists even recommend going back to locally produced food only (no more scotch whisky in Seattle then!) and, interestingly no more coarse woolen coats. The wool may have come from local sheep but the processes that turned wool into wearable costs involved many trades and merchants who did not live locally.

In the table I have summarized the individual contributors to the manufacture of a woolen coat in the 1750s (from Wealth Of Nations, Book I, chapter 1, pp 22-4):

"Manufacture of a Coarse Woollen Common Labourer’s Coat

Direct Trades: Shepherds, Sorters, Pickers, Wool combers or carders, Dyers, Scribblers, Spinners, Weavers, Fullers, Dressers, Taylor, Wool Gatherer, Grazier, Clippers;

Merchants and Carriers: shipbuilders, sailors, Sail Makers, Rope Makers, Navigators;

Machines and tools: Complicated machines for sailing, Mill of the fuller. Loom of the Weaver, Shearer’s Sheers;

Indirect Trades: Builders of the Furnace, Fellers of Timber, Burners of Charcoal, Brick Layers, Furnace Attendants, Mill Wrights, Forgers, Smiths, Bakers, Brewers, Glazers, Tool Makers, Workmen Producing all Convenience, Coopers, Tanners, Sowers, Reapers, Tree fellers;

Conveniences of Life of Labourer: Coarse Linen Shirt, Leather shoes, Bed, Kitchen Grate, Coals, Kitchen Utensils, Table Furniture, Knives and Forks, Earthen delft or Pewter Plate."

Most of these people did not live and work locally and some were in distant lands. In short, living standards, basic as they were, depended on distant markets. Globalisation is not that new. When markets were absolutely local living standards were dire.

British colonies in America were prevented from developing local manufacturing by mercantile policies enforced by the British government, which Adam Smith criticized, though he advised the newly independent United States not to impose tariff barriers to keep out imports of manufactured goods in pursuit of a dash for self-sufficiency, but to allow time for a domestic manufacturing capability to take root and grow naturally by engaging in distant trade itself.

Becoming self-sufficient is to go backwards to the world that was left behind, with world population levels close of the hunter-gatherer societies of 11,000 years ago, and living standards to match. It took the best part of 10,000 years to lift per capita consumption above bare subsistence to continual increase for the majority of the population of European countries (principally, Britain and its American colonies) in the 16th century, and towards sustained growth in consumption, knowledge, sanitation, health, medicine and technology from the 1800s.

That the rich are the main beneficiaries of growing GDP is nothing new; it has ever been so, right through the shepherding, farming and commerce millennia. The rich have hived off surplus GDP from the beginning of the modern ages. Apart from personal consumption levels much greater than the average (poor) majority, they also created what we know of recorded, literate, history. If there was another way to achieve these gains it never happened anywhere in the world at any time.

Commerce changed all that. For the first time ever, per capita growth enabled the poor majority to reach per capita income levels unprecedented in all history. This was not market failure; it was market success. The fact that there is widespread inequality is not new: it was unequal once humans left the equality of the hunter-gatherer mode of subsistence. The price of opulence was paid largely by the poorer majority, but from the 1800s, in Europe and North America, the steady march towards opulence has resulted in the living conditions that enable Stan Sorscher to send his views over the Internet to people like me in Edinburgh, Scotland, and for me to comment upon them.

Income inequalities are real problems, though I am bound to say that the real problems of relative and absolute poverty are not those between Stan Sorscher and the ultra-rich of North America (5 billion people would gladly change places with him); they are between Stan Sorcher and the poor of the non-developed (and non-developing) countries outside the ambit of the country that Stan lives in. Smith made exactly the same point in Wealth Of Nations (1776) in the contrast between the gap between the poor labourer in Scotland and the rich European prince, which was smaller than the gap between the poor labourer in Scotland and ‘that the absolute master of the lives and liberties of ten thousand naked savages’ in Africa (WN I.i.11: p 24).

If that problem concerns Stan (it does me) then the solution is not to return to self-sufficient living standards in Seattle (or Scotland). The cause of the differences is not racial, nor geographical, or such like. It lies in the success of the division of labour in markets in the developed countries, and their undeveloped state in Africa (or wherever).

Markets do not cause these problems, they are part of the solution, but most decidedly the absence of markets most certainly does cause poverty.


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