Intentional Morality

Adam Smith’s notion of the invisible hand is often applied in modern day economics, as it denotes that free-markets are the most efficient economy and nothing else need be considered. In a perfectly competitive market where businesses are small and run by individuals, this notion succeeds. However, in our current global economy, multinational corporations do not fit this mold, so “individuals are often not easily held responsible for the consequences of [their] decisions” (Stiglitz, 193).

The introduction of limited liability and incentives such as bribes result in an imbalance of power that prevent the invisible hand from correctly guiding the economy. While Wolf may be correct in saying that competition is not driving a race to the bottom, but a race for incentives, we still must be wary of detrimental effects from these incentives. Multinationals may provide higher wages or living standards relative to the domestic countries, but that does not mean they will avoid bribes or other incentives that serve their self-interest.

As Stiglitz says, community based companies drive down the success of incentives because “individuals often take some moral responsibility for their actions,” (Stiglitz, 196) but when multinationals are operating overseas, they don’t see anything morally wrong with paying $500 for a death compensation.

When Smith wrote Wealth of Nations, morality did not need to play an intentional role because self-interest promoted the general welfare; individual action promoted both. However, large corporations have extrapolated this theory in a dangerous way. They have taken their responsibility to involve shareholders rather than society, their employees, the environment, and their communities (Stiglitz, 190). Smith’s ideology must be adapted to fit the current global economy or corporations will continue to heighten the inequality between corporations and consumers and place morality on the backburner. 

Political Agendas

In trying to parse out what both the Obama and Romney ads are attempting to say, I’ve stumbled upon mostly large political agendas accusing the other side of being hypocritical. The Obama white house is currently charging China with their “subsidies for auto parts” (NPR), while Romney claims they are also stealing our technology and intellectual property.

The Romney campaign has declared that Obama is letting U.S. jobs slip away by Chinese technology, while the Obama campaign retaliated with stating that Romney has simply sent China our jobs in manufacturing. Romney has ironically continued to invest in Chinese companies that are on the receiving ends of outsourcing from the U.S. Both sides of the political spectrum are blaming the other for letting China take advantage of us, and they are both doing so hypocritically.

However, the amount of manufacturing jobs has grown in the U.S., meaning that Obama hasn’t let the number of U.S. jobs be compromised by technology and/or outsourcing isn’t occurring to the extent we assume; neither are in the right.

Regardless of whose rhetoric is more correct, the very end of this article was most surprising to me. China’s new incoming president, Xi Jinping, is expected to prove that “he’s not soft on the United States” (NPR) while both U.S. political spectrums are arguing that they will be tougher on China. These two economies are the largest in the world, and if both become tougher towards the other, a trade war is likely to emerge. This toughness implies raised tariffs by the U.S., which will undoubtedly lead China to increase its tariffs as well. This story plays well in Krasner’s article, even though it is dated to 1976. When there is a hegemonic power such as the U.S., we experience free and open trade as other states depended on us and modeled our behavior. However, when hegemonic states decline or do not assert their power, trade becomes more restricted and closed off. As we see U.S. hegemony declining and other states arising, such as China and India, trade is likely to decline. Our world leadership is becoming ambiguous and Krasner has predicted our fate; as China and India grow, “these large but relatively less developed states are unlikely to accept an open trading structure” (Krasner, 322).

The issue we are currently facing with China needs to be addressed, not merely by campaign ads attacking the other side, but by acknowledging the threat and enacting policy to address it. If we allow ourselves to become caught up in our political agenda’s, we will epitomize what Coughlin directly claims; our protectionism will be a product of special interest and political favoritism that is not economically efficient.

Quality vs. Quantity

9/24/12

Henry Milner’s article expands beyond merely hegemony and into the sphere of state’s specific characteristics and values, a reassuring contrast to Krasner’s article that focuses supremely on dominance of a single state. Milner emphasizes that the concrete size or power of a nation doesn’t ensure its global dominance, something I find that applies to the simple industrialization of developing countries as well.

Last year I researched case studies that took into account the quantity and quality of a state, finding quality to be of higher importance. While world leading, industrial countries differ in the size of their national governments, it is required that they have high quality public sectors embedded with upstanding values. For instance, Nigeria has abundant natural resources and arable land, but due to corruption within the oil sector, they have a catastrophic poverty rate and inequality index. The corruption in the public sphere has spilled over into the economy, as dishonest and unjust country leaders prevent the development of industries beyond oil in order to protect their personal wealth. Milner emphasizes the importance of looking beyond mere power by claiming that “the possession of superior resources by a nation does not translate automatically into great influence or beneficial outcomes for the world” (Milner, 115).

When states do have justified purposes and goals, these shape their dominant ideas, which lead to their actions and probable institutional structure. This structure then determines their economic development, something severely lacking in countries like Nigeria.  

In addition to his claim that there is more to dominance than hegemony, he emphasizes the role of international organizations. He parallels Stiglitz in his belief that international structures provide information to states, create a checks and balances system between states, and allows the international economy to function fairly, especially in reference to globalization. He goes into further detail on the worries that globalization presents, but emphasizes that states are “the means for countries to resist and reshape the pressures generated by globalization” (Milner, 121), so having a high quality state is imperative. In order for countries to reap the benefits from the global market, they do not need to aim to reach supreme worldly power, but have upstanding, moral states. 

Growing, Growing Special Interest

CBS news released an article stating that the UN Anti-Poverty goals are at risk by reducing the international aid to developing countries that began in 2011. International aid fell to $133 billion, less than half of the $300 billion needed annually to meet the millennium development goals. The secretary-general claims that we need a heightened global partnership in order to implement this goal, a concept supported by Stiglitz. While Stiglitz does support free and fair trade, he firmly advocates that we need to enhance our global governance and reciprocity if fairness is to succeed in the world economy. His ideas are being seen here, as the lack of global partnerships have contributed to a decline in international aid. This ties back to the foundations of microeconomics, that state that actors in the market operate out of self-interest, which, in theory, leads to balanced trade. However, when some actors (developing countries) lack the opportunity and the means to participate fairly in the international market, global governance is needed to compensate for this inequality.

The global economic crisis contributed greatly to the decline in international trade, as said in the article, and led governments to develop protectionist policies that hurt developing countries. Our Coughlin article supports this in claiming that protected industries/countries always have a special interest. By countries protecting their domestic economy, they decrease imports, which reduces foreign incomes. This not only reduces aid that industrialized countries give to developing countries; it prohibits the developing countries from exporting to offset their debts (Coughlin). Thus, protectionist policies of developed nations create a detrimental externality when enacting protectionism.

The article warns that the $167 billion gap in foreign aid could worsen as a result of a delayed economic impact in the donor country budgets from 2013 to 2015 as the international economy has a very slow adjustment time. With this in mind, international governance must increase quickly and protectionism must decrease in order to attempt to offset this probable continued decline in foreign aid.

The Correlation Between Biofuel and Hunger

UN Wire’s headline today states that the European Commission is discussing capping quotas on the production of food-based bio fuels because current policies are resulting in the removal of crops from the global supply chain, thus attributing to hunger problems. This successfully exhibits the constant struggle of resource management, as Lianna’s essay focused on.

This proposal would limit biofuel usage to 5% until 2020 down from the current goal of 10% for transport energy from renewable resources. While the current global economy is shifting towards renewable resources, which I fully support in the long run, it presents definite problems today. While we are using food-based bio fuel for transport costs, we have overlooked its effect on the nutrition of the world’s people.

While all of our readings have emphasized the free-market economy and expanding trade in at least some aspects, this requires more transportation, whether that is of capital, goods, or people. In the transportation sector, there has been an emphasis placed on renewable resources to sustain our current levels of travel and trade and make it possible so that these numbers can grow. Free trade has the potential to benefit all parties involved and the application of renewable resources of energy fully supports this claim. However, with this statement by the European Commission, we again see the unfairness that developing countries are forced in to, regardless of intentions. Renewable resources are not meant to cause harm, but they undoubtedly have.

While the answer it not to simply revert back to unsustainable practices, we must be even more cautious in the decisions we are making in all aspects of globalization. I wouldn’t have thought that our methods of transporting goods and services are directly impacting the lives of many; this only goes to show the inherent unfairness present between developed and developing countries that we must continue to be wary of.

NAFTA: Unfair Free Trade

At the beginning of Stigitz’s chapter on “Making Trade Fair,” he describes the formation of NAFTA as a case study to exhibit how the concepts of free trade and globalization have played out in the real world and not just hypothetical situations that we have seen thus far. The formation of NAFTA left people hoping that Mexico’s economy would boom upward, but we shortly saw that this did not occur.

I found this study to contradict Wolf’s claim that unchecked liberalization will advance developing countries. We have seen, in Mexico alone, that asymmetric trade has taken place, with Mexico opening up to goods from the U.S. without full reciprocation (Stiglitz, 62). For instance, Mexican corn farmers had to compete for subsidized American corn and NAFTA didn’t create an international governing body to allow Mexico to impose duties on U.S. imports to offset subsidies.

Because Mexico lacks a strong safety net, the risk that liberalization presents cannot be offset by a functional infrastructure. The fact that NAFTA created the largest free trade area in the world at the time does not make up for the fact that the countries involved did not create an international management system to counteract the inequality present between the U.S. and Mexico. Free trade obviously looks harshly on protectionism, especially in the context of developing countries, but this may be needed as developing countries attempt to transform from agriculture to industry. Also, developed countries, the U.S. included, have been protectionist even when it was not profitable to do so. Under the Jones Act of 1920, ships used to transport goods domestically had to be owned, built, and manned by Americans, eventually leading to a loss of $250,000 for every job it saved (Stiglitz, 89). If this fact isn’t hypocritical and sufficient enough to show that free trade has produced asymmetric relationships, I’m not sure what is.

NAFTA made Mexico more dependent on the U.S. and heightened the disparity in income between the two countries. Mexico already had low investments in education and technology, but free trade forced them to eliminate tariffs, so they lost even more funding. This further lowered their capability, I would say, because they then had even fewer funds to put towards building up their infrastructure.

Growing up, NAFTA was always portrayed as a success; it seemed intuitive that North America should have been trading freely long before 1994. The elementary school textbooks showed picturesque images of farmers and manufacturers; they revealed nothing of how the U.S. was continuing to zoom past Mexico in virtually all areas.

International Political Economy Timed Essay

The basic principles of microeconomics rely on the concept of comparative advantage. This functions best in a free-market economy both domestically and internationally, and emphasizes a greater overall benefit for society with the specialization it entails. Martin Wolf seems to have used this simple economic concept as an answer to the very complex issue of how to best address the international political economy. Once countries specialize in production, the free market’s invisible hand will present prosperity. Wolf claims that unchecked markets benefit society as a whole; “dynamic market economies” (Wolf, 45) with no one in charge explain successful economies. Allowing markets to function creates the most efficient international arena.

The first problem this mindset raises is that efficiency often leads to increases in inequality. Free-markets allow for inequality in their nature, but with no international regulations between domestic markets, inequality grows and “the rich [are] getting richer while the poor [are] not even holding their own” (Stiglitz, 8). This manifests itself in both developed and developing countries, with developing countries often receiving the worst of it. Many developing countries have been historically exploited and continue to be in modern day. Nigeria exploited by Britain’s minimalist control that has resulted in a state that is not autonomous or functional in any sense of the word. Their neopatrimonial public sector has allowed elites to control natural resources and personal property, so the country’s rise in GDP from the oil industry has not benefited society. While Wolf and many others advocate an unchecked international market, I fail to see how a 70% poverty rate in an oil-rich country that partakes in this market is not an indication that change needs to occur. While developing countries have been opening up their markets, globalization has only raised inequality; it has “exposed developing countries to more risks” (Stiglitz, 11) without providing any checks to ensure against these risks.

Globalization has the potential to benefit all of its actors including developing countries, but Americanization and the application of comparative advantage does not lead to this result. While Wolf is more correct in his theories of developed countries, developing countries simply do not have the political structure to ensure equity and fairness. Without a just domestic political structure, we cannot expect these country’s problems to be erased once they are in the international sphere. In Nigeria alone, elites reap the benefits from oil trade, and all that many heads of developed countries see is the numeric gain both countries received from trade. We get oil, they get money, end of story.

While we do not have the means to bring all countries up to a state of development, we do have the ability to establish international regulations that are separate from market forces. We need international controls to sustain globalization and end exponential increases in inequality within and between countries. There are no “democratic global institutions” on the international level that have the capacity to deal with the problems of globalization (Stiglitz, 21). We have created an international market that is chaotic and involves numerous actors, the most powerful of which are developed countries.

We must establish global regulations that do not allow for exploitation and abject poverty if the international political economy is to do what Wolf claims it can and actually benefit society as a whole.

Regressing Globalization?

The Economist article, International Trade Boxed In, presents a relatively pessimistic view towards global trade in contrast to the mindset we have taken in IPE of a globalizing world.

The article reveals that global exports have declined between 4-8% in the second quarter of 2012, implying that a detrimental effect will soon come on global import-hubs of the world. Some place their faith in the global economy, assuming that global trade will soon rise again as the global economy increases its buying power, regardless of the policies or institutions set in place. Wolf does supports this ideology by claiming that “dynamic market economics” explain successful economics (Wolf, 45). He puts his full trust in the liberal market place, something that both the article and I are hesitant of.

While Wolf states that capitalism generates its own opposition, including those who believe a governmental framework is needed for the success of globalization, that by no means dismisses the opposition as irrelevant. While free markets are essential to globalizing, the international trade level will continue to shrink without international regulations to help control for fluctuation.

However, Wolf’s ideologies counter that exports have even decreased as much as the OECD claims because goods have actually increased in exports, but they are less of a percentage of GDP than services, so they do not appear to be a large percentage of the global economy. “Trade has thus grown…where prices have fallen most and so shares in GDP, in current prices, have failed to increase as much as shares in constant prices” (Wolf, 112). Because increased communications, technology, and cheaper labor, among other factors, have made the exportation of goods less costly and more efficient, the claim that global trade is shrinking is faulty, according to Wolf.

The article claims that nations are now turning more nationalistic, enforcing barriers to international trade that Wolf has proclaimed are a thing of the past. He claims that global trade has increased as previous protectionist nations either failed or opened their markets to the global sphere, but if industrialized countries are indeed recoiling from this international action and raising tariffs, he may need to rethink his explanation for why globalization works and pair up with Stiglitz to find a solution to these new problems involving specific states. If Wolf continues to place his entire trust in the market and ignores the potential for international regulations, he will soon find that the nationalism of states will lead them place less emphasis on the volatile international market.

 The article presents that if protectionism can be avoided and trade facilitation can be enacted, the global economy may rise up, a point of view similar to Stiglitz.

While the triumphant political systems of the late 20^th century involved liberal trade policies, the current global economic crisis does not have the capacity to correct for itself in the foreseeable future. Economies are integrated at unforeseen rates, but they need adequate facilitation on the international level to be maintained. The market forces, although powerful, are not powerful enough to compensate for an inefficient international sector. The World Bank, IMF, and other global actors must act in the interest of both developed and developing countries, of both importers and exporters, to retain successful international trade.