Global studies: concepts, frameworks, and applications

¶ … nature of inequality between the north and south, he has to understand the role of technology in the international system. Someone who would say such a thing overlooks the fact that it's not the amount of technology that counts, but how you use it that matters. In the wealthiest western nations, the use of technology has been actively directed by well-regulated capital lending mechanisms. These financial instruments allow inventors, laborers, and merchants to borrow money at interest that can later be repaid within the context of a legal environment that protects property and contracts.

According to Weatherby, the tragedy of the third world has four culprits: dependence on the west, delayed modernization, increasing population, and the unequal distribution of wealth. He argues that even if all third world countries don't possess these qualities; that each possesses two or three of them. If the lack of modernization is to serve as an example, these problems can be seen as symptomatic of third world poverty rather than as causes for it, although I would argue that the people in developing countries are dependent on the west. Most such people never see the west's foreign aid dollars; they are spent instead on wasteful socialist economic schemes or at Harrods. Their governments wouldn't exist without them. It's also common knowledge that higher standards of living encourage lower population growth rates. What then of modernization?

In the 18th century, one of the most popular playthings of continental royalty in Europe was the automaton. These ingenious devices were essentially wind-up toys, and would use clockwork to mimic natural phenomena such as a butterfly, or a man playing chess. Such devices had existed in Europe since before the fall of Constantinople in 1453, when the emperor's court featured an automatic tree populated by hydraulic-powered singing birds. Despite the presence of such examples of human ingenuity, the predominant portion of European society lived as it had for centuries; illiterate and impoverished. It was not until entrepreneurs were able to borrow money at interest to develop these technologies into mills and steam engines that their existence fomented the Industrial Revolution. In much the same way, the third world exists despite vast technological improvements, such as nuclear reactors in China or the Aswan Dam in Egypt. According to noted economic theorist Hernando De Soto, "when you step out the door of the Nile Hilton, what you are leaving behind is not the high-technology world of fax machines and ice makers, television and antibiotics. The people of Cairo have access to all those things. What you are really leaving behind is the world of legally enforceable transactions on property rights." These property rights, De Soto argues, don't stem from a democratically elected regime or even from the privatization of large government-run industries, but from the ability of farmers and merchants to borrow against what they already own.

In the United States and other western countries, the greatest asset owned by most people is their home. An American homeowner has a deed to his property and he can borrow against it if he wants to start a small business. In developing countries, crippling bureaucracies and the lack of an infrastructure to support the establishment of contracts renders this impossible. In addition, the establishment of a legal business calls for private citizens to go through innumerable measures in order to establish a small business.

Instead of encouraging the development of a lending infrastructure to support the lower class, the west has responded to these matters by issuing development loans and foreign direct investment. According to the late Lord Peter Bauer, issuing development loans is worse than doing nothing because it allows governments to engage in costly social programs that do little. For instance, in Africa price controls were introduced in order to make produce affordable to the consumers that lived in large cities. Farmers answered this by growing roses, which were sure to fetch a premium in the flower markets of the west with the advent of air shipping. As a result, the massive over-production of food lead to starvation conditions in many countries. Instead of being spent on, lent to, or given away to the poor people in these countries that had an arguable need for it, this money was squandered by political leaders. Again and again, Lord Bauer saw the mis-management of money lent by the west to developing nations, whether it was spent on villas in Spain by formerly communist Russian political cronies or on an international airport in the tiny home village of Zimbabwe's late President Mobutu.

In Understanding Russians, by Matthew Maly, the laws of post-communist Russia are characteristic of undeveloped, non-contrarian nations:

1. all-encompassing, to regulate everything, so that a bureaucrat can squeeze a bribe from every inch of legal territory under his or her control;

2. vague, so that everything would depend on the interpretation and goodwill of the bureaucrat;

3. unpublished, so that one needs a bureaucrat just to find out what, if anything, one can do

4. very severe, so as to scare a citizen into giving more; not enforced, so that people could live.

According to Maly, Russian law reflects the Russian view of property: it is "suspended in air" by the conflicting claims that beset it on all sides. Only one with the power to repel all other claimants may retain real property for the sake of using it to generate a revenue. In Russia, this role is played by the countries oligarchs, which many claim were created by the west so that American businesses would have a finite and easily recognizable number of people to deal with. This explains Weatherby's vast difference between the wealthy and the poor; as apparent on Tverskaya in Moscow as it is in Mexico City.

De Soto compares the experience of third world countries to that of the early experience of the United States, where a plot of land might be alternately owned by someone who bought it from the local Indian tribe, or another to whom it was presented by the king as a part of a sea-to-sea grant, neither of whom may not have even seen America. When the dust settled, this land was owned by the federal government, which was the first organization to allow settlers to own land legally. De Soto notes that the establishment of a system of recognized and transferable ownership was developed in order to protect ownership, which is why it is hard for many to grasp its significance in the world economy: it allows ordinary men and women to borrow money against collateral.

De Soto's economic foundation conducted studies of several large developing nations, including Peru, the Phillippines, Haiti, and Egypt. They found that in Peru, 53% of city-dwellers lived in illegal dwellings, and 81% of people in the country lived and farmed as squatters. If capitalized, this property would be worth 74 billion dollars; 5 times the value of the Lima Stock Exchange before its 1998 crash, 11 times the value of government industries that could be privatized, and 14 times the value of all Foreign Direct Investment spent on Peru in its entire history. In the Phillippines this property, which 57% of urban dwellers and 67% of rural dwellers live in, would be worth 133 billion dollars; 4 times the value of the Phillippines Stock Exchange, or 14 times the total amount of Foreign Direct investment ever spent there. The total estimated value of all such property worldwide is estimated at being 9.3 trillion dollars; equal to twice the total supply of money in the United States, or the total market capitalization of the 20 largest stock exchanges in the world combined.

Free trade provides a comparative advantage to different economies because it encourages products to be developed in the economies that are best suited for developing them. The lack of free trade enhances the negative effects of shortages in raw materials, which is especially inherent in agriculture. Whereas a bad crop in a country that actively engages in trade results in little more than mortgage woes for indebted farmers and the profit of commodities brokers, in a country hampered by trade restrictions it can result in famine and mass starvation. Conversely, poor countries stand to lose from trade when the international organizations that arbitrate trade disputes call for the strict enforcement of intellectual property rights, especially with respect to the un-licensed reproduction of medicines that fight life-threatening diseases.

In order to develop a thorough understanding of free trade, we must look at its origins. David Ricardo, a member of Parliament and close friend of John Stewart Mill, developed the theory of comparative advantage in the early 19th century. Using the example of two nations (Portugal and England) and two commodities (wine and cloth), Ricardo mathematically demonstrated how trade would benefit both nations even if Portugal had an absolute cost advantage; that is, England would still do better even if Portugal could produce both wine and cloth cost effectively. Ricardo argued that there are gains for trade if both countries specialized in the good which it was comparatively better at producing, and then traded with the other nation for the other good. Ricardo also argued that consumers would have more purchasing power because they would be able to purchase foreign goods at a lower cost. Ricardo's philosophy became known as the "classical school" of economics and development economists that favor trade are referred to as "neo-classical economists."

This argument is made today. Proponents argue that if third world countries produces goods in which it maintains proficiencies, that these countries will benefit tremendously from the lower cost of production. This has already transformed the economies of Southeast Asia. According to the Economist, "In 1950, the typical East Asian woman had six children. Today she has two. As a result, between 1965 and 1990, the working-age group rose from around 57% to over 65% of the total population, increasing four times faster than the number of dependants." As East Asian workers voluntarily move from subsistence farming to factory work in the textile industry, they are able not only to afford their own consumer goods, but also manage to send money back to their villages. East Asia has also benefitted from increased western tourism, another way in which western money can find new goods and services.

In The Race to the Top, Thomas Larsson gives the example of Thai prostitutes. These girls are now able to make living wages in western-style resorts such as Pattaya, rather than languishing in traditional Thai brothels, where they suffer from virtual serfdom. According to Larsson, "Foreign exploitation of Thai resources assumes perhaps its most brutal manifestation in the sex industry. But to [Thai prostitutes] - just as for the child workers of the small workshops - school and ordinary employment are not genuine options. They make their way to the Trat Inn, Pattaya, and illegal factories for lack of better alternatives. They do not end up there solely because of the demand for commercial sex and the labor of deft little fingers."

Richard Cobden, a Whig member of Parliament in the 1830's and 1840's, was the first to address trade in the context of development economics in his role as the co-founder of the Anti-Corn Law League in Manchester. At the time, the English refused to allow imported corn, which would have allowed English workers to eat more cost-effectively, much to the chagrin of Britain's protectionist grain producers (mostly landed aristocratic members of the conservative Tory party.) It was believed that normalized trade would lead to world peace, and the league adopted as its slogan "Free Trade, Peace and Good-Will Among Nations." Cobden's group was the first to recognize and condemn the Irish potato famine of the 1840's, which most argue could have been prevented if tariffs hadn't existed.

One is lead to wonder who is the driving force behind global free trade, as political theorists such as Ricardo and do-gooders like Cobden belong to another century. The exertion of economic influence in the political arena is done by manufacturing concerns on a comparative finance basis. Capital budgeting mandates that if two profitable projects are presented, a company will chose the project is more profitable after the two projects are weighted for risk. This is why corporations have found it more profitable to influence federal trade policy than other government activities in the fields of labor relations and environmental regulatory control. Immanuel Wallerstein, in an article in Foreign Policy, describes it by saying:

Domestically, conservatives tried to enact policies that would reduce the cost of labor, minimize environmental constraints on producers, and cut back on state welfare benefits. Actual successes were modest, so conservatives then moved vigorously into the international arena. The gatherings of the World Economic Forum in Davos provided a meeting ground for elites and the media. The IMF provided a club for finance ministers and central bankers...and the United States pushed for the creation of the World Trade Organization to enforce free commercial flows across the world's frontiers.

Put simply, it costs less for an American company to normalize trade relations with a country to which they can out-source something that is only done at great expense in the United States due to the "progressive" legislation of the 20th century. This acts to the benefit of places that have never experienced a domestic need for manufactured goods, although living standards remain low by western standards.

This is nowhere more evident than in the maquiladoras south of the Rio Grande River on the U.S.-Mexico border. According to a 2001 article in the Economist, "Border-state maquiladoras now employ over 1m people, an increase of 150% since 1990." Despite this, "On average, an American border worker makes three to four times what a Mexican does, up from 2.5 times in 1990. In certain jobs, it can be 12 times as much...it would cost $2 billion-3 billion just to get all the Mexican border towns equipped with basic water and sewerage services." NAFTA and other free-trade agreements are advocated by capital lenders and manufacturers because these organizations realize that the cost of transporting industrial goods from a region like Mexico, coupled with the expense of hiring lobbyists to advocate the legislation, is less expensive than the cost of intra-national transportation, if coupled with wage and regulatory costs. John Boli in The Globalization Reader notes that the idea of global outsourcing predates Smith, and was instrumental in determining mercantilist policies for what were to become the great powers in the 16th century.

Higher real incomes in developing countries would be augmented by greater purchasing power, while unprofitable companies in both countries would risk capital flight. Similarly, skilled workers in developing countries would have a market for their labor, which one can see in the emerging computer programming industry in India. Because of the mitigating effect of a lower real income on purchasing power, unskilled general laborers in first world countries would not reap the full reward of globalization if companies lowered wages to remain competitive. The chief beneficiaries of both countries would be the owners of capital that sought a diverse portfolio. If taken together, these effects of free trade demonstrate the Ricardian principle of comparative advantage.

Robert Zoellick, a devout Ricardian who serves as the United States Trade Representative, was invited by the Economist to write an article several weeks ago on the Doha round of World Trade Organization talks. In this article he excoriated the opposition to trade, which is comprised of "protectionists, special interests, anti-globalisation nihilists and partisanship against the president."

One argument of Zoellick's anti-globalization nihilists and partisans that of dependency theory, which was proposed by neo-Marxists in the 1960's and gave rise in Europe to the concept of "Brazilianization."

To the critics of modernization, the nature of dependency between northern countries and southern countries is one whereby industrialized nations develop core manufacturing and technological proficiencies while outsourcing peripheral functions to the south, which in turn becomes dependent on the consumer products of the north. This concept may seem intuitive to Americans, who suffered under the mercantilist policies of the United Kingdom in a series of events that precipitated the American Revolution. Problems associated with westernization occur when indigenous cultures are not able to adapt to western lifestyles. A cited example is that of the emergence of eating disorders in Polynesia, which accompanied the introduction of American televisions and magazines.

According to dependency theorists, the only way people in traditional cultures can pay for their new western toys is to allow American and European manufacturing concerns to relocate to their countries. In doing so, the manufacturers are able to forswear the accreted legal mandates of their home countries, which have been implemented on behalf of trade unions and environmentalists. A notorious example is that of the disaster caused by a massive leak at the Union Carbide plant in Bhopol, India. If such a plant had been in the United States, its maintenance would have been subject to the mandates of the Toxic Substance Control Act.

Dependency in the international system is predicated on the existence of foreign direct investment, the continuing influence of western governments, and the softer effects of the western media. It has increased dramatically in the past 50 years due to the aforementioned capital budgeting decisions of manufacturers, and the desire of corporations to expand sales into foreign markets. Together with the traditional procurement of raw materials, which occurs from the diamond mines of South Africa to the offshore oil wells of the north Atlantic, these global initiatives result in Foreign Direct Investment and as some would argue, dependency. However, it is important to look at these phenomena separately as some encourage a broad-based increase in the wealth of foreign countries whereas others don't.

In many African countries, trade is limited to the sale of commodities and profit in trade is limited to the owners of those commodities, who often act in collusion with the local governments in order to maintain the stability of their operations. Two notorious examples of this process are South African mining concerns: DeBeers and Anglo-American Platinum, which actively supported the Apartheid regime. Fortunately, bad press has lead Anglo-American, a platinum mining company, to rethink its policies. According to the November 10th edition of South Africa's Sunday Times, "Angloplat runs its own education and healthcare programmes for communities in the Limpopo and North West. It also supports the development of small and medium black enterprises through its procurement policy, while a comprehensive HIV / AIDS programme is in place at all its operations and in the surrounding communities."

In other countries such as Saudi Arabia, Egypt, Cuba, and Jamaica, the stolid reluctance of western raw material procurers has lead to nationalization.