November 2000

THE G-FORCE OF DISINTEGRATION

The Aspen Institute of Aspen, Colorado, describes itself as a global leadership forum seeking to improve the conditions for human well-being. To mark its 50^th anniversary, the Institute held a conference in August on ‘Globalisation and the Human Condition’. Speakers included former US President Jimmy Carter and World Bank President James Wolfensohn, and the meeting was heavily populated with the top brass of large corporations. Most of them had only good things to say about globalisation. One of the few beating a different drum was Prof. Herman E Daly, who should have won the Nobel Prize for Economics years ago but who is content (we hope) with the alternative. This article is a summary of what he told them.

By Herman E Daly

The newspapers and TV say that if you oppose globalisation you must be an ‘isolationist’ or even worse a ‘xenophobe’. Nonsense. The relevant alternative to globalisation is internationalisation, which is neither isolationist nor xenophobic. The media don’t know the difference, so let us define the terms clearly:

Internationalisation refers to the increasing importance of relations between nations: international trade, international treaties, alliances, protocols, etc. The basic unit of community and policy remains the nation, even as relations among nations, and among individuals in different nations, become increasingly necessary and important.

Globalisation refers to global economic integration of many formerly national economies  into one global  economy,  by  free trade,  especially by  free capital mobility, and also, as a distant but increasingly important third, by easy or uncontrolled migration. Globalisation is the effective erasure of national boundaries for economic purposes. National boundaries become totally porous with respect to goods and capital, and increasingly porous with respect to people, viewed in this context as cheap labour, or in some cases cheap human capital.

In sum, globalisation is the economic integration of the globe. But exactly what is ‘integration’? Integration is the act of combining separate albeit related units into a single whole. Since there can be only one whole, it follows that global economic integration logically implies national economic disintegration - parts are torn out of their national context (disintegrated), in order to be re-integrated into the new whole, the  globalised economy.

As the saying goes, to make an omelette you have to break eggs. The distintegration of the national egg is necessary to integrate the global omelette. This obvious logic, as well as the cost of disintegration, is frequently met with denial.

Denial aside, all that I have just said was expressed with admirable clarity, honesty and brevity by Renato Ruggiero, former Director-General of the World Trade Organisation: ‘We are no longer writing the rules of interaction among separate national economies. We are writing the constitution of a single global economy.’ This is a clear affirmation of globalisation and rejection of internationalisation as just defined.

Mr Wolfensohn, President of the World Bank, told the audience at the Aspen Institute’s Conference that ‘Globalisation is a practial methodology for empowering the poor to improve their lives.’ That is a wish, not a definition. It also flies in the face of the real consequences of global economic integration.

One point the World Bank misses is whether what it calls ‘the increasing transactions between people living in different countries’ should take place across national boundaries that are economically significant, or within an integrated world in which national boundaries are economically meaningless? Do we really want to give up national monetary and fiscal policy, as well as the minimum wage?

Does economic integration imply or entail political and cultural integration? I suspect it does over the long run, but I honestly do not know which would be worse - an economically integrated world with, or without, political integration.

Consider a few consequences of globalisation, of the erasure of national boundaries for economic purposes. Briefly, they include:

(1)  standards-lowering competition to externalise social and environmental costs to achieve a competitive advantage - the race to the bottom in terms of both efficiency in cost accounting and  equity in income distribution;

(2)  increased tolerance of mergers and monopoly power in domestic markets in order to be big enough to compete internationally;

(3)  more intense national specialisation according to the dictates of competitive advantage with the consequence of reducing the range of choice of ways to earn a livelihood, and increasing dependence on other countries. Free trade negates the freedom not to trade;

(4)  world-wide enforcement of a muddled and self-serving doctrine of ‘trade-related intellectual property rights’.

Let us look at each of these in a bit more detail.

1.   Globalisation undercuts the ability of nations to internalise environmental and social costs into prices. Economic integration under free market conditions promotes standards-lowering competition (a race to the bottom).

The country that does the poorest job of internalising all social and environmental costs of production into its prices gets a competitive advantage in international trade. More of world production shifts to countries that do the poorest job of counting costs - a sure recipe for reducing the efficiency of global production.

2.   Fostering global competitive advantage is used as an excuse for tolerance of corporate mergers and monopoly in national markets. It is ironic that this is done in the name of deregulation and the free market.

More and more resources are allocated by within-firm central planning, and less by between-firm market relationships. And this is hailed as a victory for markets! It is no such thing. It is a victory for corporations relative to national governments.

3.   Free trade and free capital mobility increase pressures for specialisation according to competitive (absolute) advantage. Therefore the range of choice of ways to earn a livelihood becomes greatly narrowed.

In Uruguay, for example, everyone would have to be either a shepherd or a cowboy in conformity with the dictates of competitive advantage in the global market. Everything else should be imported in exchange for beef, mutton, wool and leather.

4.   Of all things knowledge is that which should be most freely shared, because in sharing it is multiplied rather than divided. Yet, our trade theorists have rejected Thomas Jefferson’s dictum that ‘Knowledge is the common property of mankind’ in exchange for a muddled doctrine of ‘trade-related intellectual property rights’ by which they are willing to grant private corporations monopoly ownership of the very basis of life itself - patents to seeds and to knowledge of basic genetic structures.

Once knowledge exists, its proper allocative price is the marginal opportunity cost of sharing it, which is close to zero, since nothing is lost by sharing it. This is not to say that we should abolish all intellectual property rights - that would create more problems than it would solve. But we should certainly begin restricting the domain and length of patent monopolies rather than increasing them so rapidly and recklessly.

Let me close with my favourite quote from John Maynard Keynes, one of the founders of the recently subverted Bretton Woods institutions:

‘I sympathise therefore, with those who would minimise, rather than those who would maximise, economic entanglement between nations. Ideas, knowledge, art, hospitality, travel - these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible; and, above all, let finance be primarily national.’ - Third World Network Features

About the writer: Herman E Daly, a former senior economist of the World Bank, is currently Professor of Economics at the University of Maryland in the USA.

The above article first appeared in Cornerstones (No. 14, October 2000), published by the research office of the Right Livelihood Award Foundation.

2119/2000