Case study: Israel and Palestine, an Alternative Approach
Sixty years after the creation of Israel, the issue of Israel’s existence, the rights of the Palestinians, the issue of a western power on Arab land, and the issue of Arab and Jewish Diasporas financing their respective sides; continues to create a dangerous stalemate in the Middle East.
Every new American president seems to have to address the issue of resolving the dispute between Israel and the Palestinians and the Arab world on a broader scale.
The situation is getting worst rather than better with Israel being recognized as a Nuclear Power, Pakistan having nuclear capabilities, Iran attempting to develop same, and at some future date countries such as Egypt, Syria, Algeria, or Iraq having the wherewithal to develop their own weapons of mass destruction.
We have a situation where Israel is perfectly happy with the status quo, and its foreign policy is focused on destabilizing the Palestinians; maintaining its military supremacy over Egypt, Syria, and Jordan; and ensuring that regimes in other parts of the Arab World do not challenge its nuclear hegemony in the Middle East.
The Palestinians have split into two groups; a radical Islamic Fundamentalist wing (Hamas) with no intention to compromise, and a more docile group, the remnants of the PLO (Fatah) willing to look at a 2 state solution. Moreover, the rest of the Arab world may soon become more radicalised and split between Islamic Fundamentalists and pro Western regimes.
We have the makings of a powder keg with fires rising and falling all around it.
There appears to be no way out. The Israelis will not concede an inch as long as they have military superiority and the backing of the USA. The Palestinians and every other Arab state somehow would like to see Israel magically disappear from Arab lands, just as the Christians did after the Crusades.
This impasse is important for the world to resolve as it resembles somewhat the Balkans prior to the beginning of World War I. For the moment, at least, there is no one to challenge the Israeli/ USA axis. This will not remain this way for long, as world economic and military power shifts, and oil politics change alliances, countries such as China, and Russia may be back on the stage to challenge the Israelis and Americans.
So there is no time like the present to produce some form of lasting peace based on mutual respect and justice. The Israelis cannot be expected to be reabsorbed back into Europe, and the Palestinians will never give up their right to live in their ancestral lands, Palestine.
To solve this situation, radical solutions are required; International negotiations with give and take on both sides can go on forever, unless some basic principles are established as a starting point. These principles might look something like this:
1) There will be only one state and not two, and the state will be secular.
2) Each community will have the right to mange its own cultural and religious affairs.
3) There will be an international tribunal composed of 10 leading jurists agreed to by the International community, and not appointed by either Israel or the Palestinians.
4) Israelis will be able to maintain their current land holdings, but where there is a clear ownership title by Palestinians; they will receive an appropriate compensation from the Israelis or return the land to the rightful owners.
5) The country will have a single constitution focused on individual freedoms and a justice system that is secular.
6) There will be specific protection for minority rights in any constitution, to prevent one group from dominating the other.
7) Both sides will give up the right to bear arms.
8) For a time the defence of the new state will be through UN forces.
9) The new state will focus its internal defence forces in a similar manner as Switzerland or some other small European state, or it will join NATO.
10) All Jews and former Palestinians will have the right to immigrate to this new state if they so wish.
11) Private property will be the bases of land ownership; the state cannot own land unless it’s for infrastructure to facilitate commerce.
12) Religious sites will be apportioned to the appropriate cultural communities and trade and visiting rights negotiated.
Something like this could create a solution to the existing stalemate. How would one get both groups to accept it? One would have to return to pre World War I power politics where the major powers would essentially mandate it. That might get tremendous resentment on both sides.
The alternative is for the US to propose an impartial commission composed of various groups to come up with something based on these principles, and then try to sell it to both sides, by applying International pressure to get the 2 groups to commence to think of a different world, not based on ethnic and religious differences, but on human principles of democracy, justice, and individual freedoms.
A two state solution will never work because both sides will continue to demand access to each others lands. The state of Israel will continue with its destabilization policy; while the Palestinians will continue with their rallying cry of evicting the infidels from their ancestral homeland.
Monday, August 24, 2009
Monday, August 17, 2009
Minority Rights and The Nation State
Minority rights and The Nation State
We live in a world composed of Nation States with significant ethnic majorities, or at least cultural majorities. Russia is supposedly Russian, Germany is German, China is Chinese, Japan is Japanese and so forth. The stereotype is of a nation composed mainly of a cohesive and pure ethnic group with a common cultural affinity. When we look beneath the covers, so to speak, we find something quite different. There is a majority ethnic and or cultural group; however there are many ethnic minorities, culturally different groups, and certainly significant differences of opinion politically. With the concept of majority rule, and democratic institutions, we are all supposed to be part of one big happy family, represented by the State and the history of its people.
One would argue that the greater the ethnic and cultural concentration, the more efficient the state becomes. After all, a common history, culture and ethnic group, should help to align the aspirations of its citizens towards a common goal. In other words, it is assumed that greater alignment will lead to greater cooperation and a higher potential for achieving the common objective; a prosperous, economically and militarily competitive Nation State. After all, classical 19th century Nationalism maintained that an individual would best blossom within his ethnic and cultural group; Two world wars later, and we begin to have some doubts as to the merits of aiming towards a monolithic ethnic and cultural Nation State. Perhaps we would be better off accepting a more diverse ethnic and cultural mix, which might lead us into becoming a more tolerant and culturally aware society.
When we look at countries such as the United States, we can see that to call the US ethnically pure is not within the norms of possibilities. At one point, perhaps before the beginning of the 20th century we might have been able to call it a Nation composed of European descendants with a significant Black minority. Today, one hundred years later we would have to remove the European label, and say that the US is composed of a variety of people from all over the world, with a common American culture, and no particular ethnic purity. One hundred years into the future and we might begin to speak of an American ethnic group. The point being that the most successful nation of the last 100 years is anything but ethnically pure; there is an American culture, but it is composed of many sub cultures. We might say, there is a dominant culture, with lesser sub cultures. Even in this environment, there are significant issues around language, religion, race, regional differences, urban versus rural differences, and class differences. The United States is held together not by ethnicity or cultural affinity, but by common beliefs in individual freedoms, democracy, and the mistrust of government involvement in cultural or religious institutions. It is a country where Jews can be Jewish, Christians can be any number of different sub-faiths, Muslims can be Muslims, and if you believe in voodoo then so be it. Religious rights are protected in the US constitution. Culturally, the state does not attempt to promote one culture over another, and the media is typically viewed as an economic activity with no state interference. Americans are however becoming highly concerned about the rise of Spanish as a language of communication, and historically have shown a degree of racism to match that of any monolithic ethnic state. So, even in a multi ethnic, multi racial, multi cultural State as the United States, minorities have their work cut out if they wish to maintain a degree of independence and not be coerced into the common culture. However, when we compare the freedom that minorities possess in the United States with the lack of freedom of minorities in more monolithic cultures; we have to wonder, what is the rationale for the continued suppression and coercion of these minorities?
The unity of the state is sacrosanct, and this unity, with the exception of the United States, is premised not on common beliefs and individual freedoms, but more on historical land claims, ethnic purity, common language and culture, and the need to protect the mother or father land against old and new enemies. Invariably this includes protection from internal coercion by minorities and somewhat not quite ethnically pure individuals. We therefore have the history of the Jews in Europe, where they may not have been all that different from the common ethnic group they lived with, but were seen as outsiders, different, suspicious, and resented for their success, or lack of success in the case of the Roms or Gypsies. We have all the minority groups from neighbouring states that had to either suppress their Nationality or leave. We have had more recently a mass immigration into western European countries, and the difficulty of being accepted by the majority ethnic groups. In places such as China where the majority Han Chinese are so much the overwhelming majority group, that one would think they would not be worried about giving Tibetans and some other ethnic group some degree of autonomy and self rule; at least as concerns religion, culture, and language. Moreover, the Chinese continue to maintain that they are a monolithic culture, even though there are many regional differences, both culturally and ethnically. Russia, rather than adapting its constitution to the reality of the varied minority groups within its territory, insists on the indivisiveness of Russia and has basically devastated Chechnya and the Chechen people in order to make a point about its integrity as a state.
It seems that rationalizing why the state’s ethnic and cultural purity and its borders must be maintained, is an easy excuse to trample on minority rights. One would even say it is primal, its part of our need to belong, its part of maintaining our identity and the greater identity which the group bestows on us. The idea of a State with common values, but composed of various ethnic minorities, cultural groups, and even different language groups, is something which threatens the very core of who we are. We somehow seem unable to operate as a group unless we have cultural, religious, ethnic, and language similarities. Is it any wonder, that the ideal Nation State was to be culturally, ethnically, religiously and linguistically a monolith, within a prescribed national territory. Was this ideal, ever achieved? Probably not; never the less it is what continues to dictate our view of the world and the people within it. From ridiculous symbols such as National flags and the Olympic flag, with its supposed five races, to National histories emphasizing the maximum geographic range of its national ethnic group, to the achievements in battle, technology, science, culture, and civilization; the National ethnic group is pure, glorious, and not to be let down. We after all, pledge allegiance to the Nation State and its sacrosanct borders.
This would all be great, if it were thus; however, the reality is quite different. I know of no monolithic state, I know of no state with only one religious group in it, I know of no state without cultural or linguistic minorities, I know of no state where its cities are not populated by a variety of people from all over the world. Is it not time to see the state for what it is; a 19th century concept requiring significant revision? The major role of the State after all was to provide security to its citizens, this was achieved by being economically competitive, thus permitting the creation of a standing army to protect both your national and economic interests. In a world with a significant global trade, and a significant economic interdependency, what role is the state providing? It is true that as little as 60 years ago we were involved in a life and death struggle between the forces of evil and the forces of good, as some might argue; however, was this really a struggle between Nations, or was it a struggle for freedom and democratic principles against the proponents of might is right. Certainly both a Nationalistic interpretation and an ideological one could be argued. So it may be somewhat premature to abolish the Nation State and open ourselves to the acceptance of international standards of conduct, composed of common beliefs, values, and respect for human beings and human diversity.
Can we at least commence the process by which minorities are granted certain rights? Minorities should have the right to practice their culture, language and religion, without fear of coercion or persecution. Minorities should have the right to not pay taxes for items that are essentially meant to marginalize them or force their integration into the larger groups’ culture. In other words, states should refrain from pushing one culture over another, one religion over another, or one language over another. Minorities should be protected against economic discrimination. Minorities should have equal representation under the law. Minorities should have the right to associate and support each other as they see fit. In a larger sense, the people needing protection are the minorities, not the majority. The argument will be that this type of state will break apart, as the cohesiveness of the state will be undermined. This does not have to be so, if the state argues for a set of inclusive values, such as individual freedom, democracy, equal justice under the law, and protection for all under the constitution. After all this has worked in the United States of America. As a European from a supposed monolithic ethnic state, it had always amazed me how many blacks were prepared to fight for their country, even though to a large extent they were severely discriminated against both by fellow citizens and by the state. What I did not understand, at the time, was their belief in the American constitution and the civil rights movement in getting America to recognize that its black citizens had equal rights to their white brethren. By doing their part in defending the United States they would have a greater authority in demanding that those rights were recognized. Today we have a black US president.
The Nation State will have greater cohesive ability if it focuses on common values, then if it focuses on a non-existing monolithic ethnic group to justify its existence. As security needs diminish, as the state becomes less important in the economic success of its citizens, as international economic and cultural integration evolves, the state will fall apart; unless it has beliefs and values that transcend cultural and ethnic grounds.
If we are not careful, we will return to times where masses of people were forced to move and return to recreate the ethnic pure states from whence they came. This would set back human civilization, and contribute to greater conflicts and possible military interventions.
We need to understand that the majority must consciously protect its minorities and ensure their equality in all areas, otherwise ethnic, cultural, religious and political strife will ensue. In a world where migration and economic integration continues at a relentless pace to the benefit of all humanity; we need to ensure that the Nation State concept of an ethnically and culturally pure citizenry is viewed as a phenomenon of our past. A progressive ethnically mixed, multicultural Nation State focused on individual freedoms and reflective of the dynamism and diversity of today’s major urban population needs to be championed and protected as a symbol of human cooperation and cohabitation, hopefully leading to less tension between Nation States and especially between the majority community and the growing list of minority groups.
We have come a long way from the cohesiveness and belonging to the tribe, and need to recognize that we have evolved beyond the ethno-centric Nation State. Our future lies not in protecting our turf or territory from all who would imperil it, but rather in the opening ourselves up to other cultures and ideas, within a framework of equality for all and respect for others different but never the less acceptable lifestyle.
Does this mean that competition between people will end? No it implies competition at both a cultural and ethnic level, but competition based on merit and ability to influence others; not competition based on threats, coercion, and the advantage that majority rule might temporarily bestow on us.
In the past we protected ourselves from the unknown by a close allegiance to our fellow ethnic or cultural group. Today we should protect ourselves by associating with others and making common cause against anyone that would endanger our individual freedoms and our right to associate with those with which we feel an affinity. As long as we do not infringe on anyone else’s rights and freedoms, then it is no one’s business as to how we choose to lead our life, regardless of which Nation State we are citizens of. Our protection against tyrants, and other would be domineering groups, lies in the power of our ideas and sharing those with other common minded individuals and coming to the aid of any part of the Global Village that might be under attack.
If Tibetans are persecuted and suppressed, it matters to us all. If Chechens are murdered for their desire to be free of Russian oppression and domination, it matters to us all. If Kurds are not allowed to have some minimum form of cultural self rule, it matters to us all. If the Basques, the Catalans, The Corsicans, the French Canadians, and any other cultural or ethnic minority want some form of local cultural independence then we should all support it. Where we should draw the line is where these same groups or others are interested in creating the equivalent of the oppressive state they are interested in separating from.
Just as we should be decentralizing cultural and ethnic power, we should be centralizing economic and legal statutes based on the concept of equality, individual freedoms, and respect for minority rights. Our future lies with the growth and enlightenment of all mankind, not in protecting and advancing the power and influence of our little part of the globe that our Nation State represents. After all, power no longer rests with the size and productivity of our agricultural fields, but with the ability to add value through wider economic cooperation and technological innovation. Moreover, our challenges do not lie in protecting and enhancing our little corner of the world, but with the management of our planet’s resources in an equitable manner ensuring the long term sustainability of our economy and our planet. The best way to achieve this is through some form of equitable distribution and inclusiveness in the management of the economy and the eco-system of all of the planet’s citizens. For the moment, as a first step, minorities must be made to feel full and equal partner in the decision making process. At some future point, the concept of the Nation State will fade away, to be replaced with some yet to be defined global distribution of power through international institutions.
We live in a world composed of Nation States with significant ethnic majorities, or at least cultural majorities. Russia is supposedly Russian, Germany is German, China is Chinese, Japan is Japanese and so forth. The stereotype is of a nation composed mainly of a cohesive and pure ethnic group with a common cultural affinity. When we look beneath the covers, so to speak, we find something quite different. There is a majority ethnic and or cultural group; however there are many ethnic minorities, culturally different groups, and certainly significant differences of opinion politically. With the concept of majority rule, and democratic institutions, we are all supposed to be part of one big happy family, represented by the State and the history of its people.
One would argue that the greater the ethnic and cultural concentration, the more efficient the state becomes. After all, a common history, culture and ethnic group, should help to align the aspirations of its citizens towards a common goal. In other words, it is assumed that greater alignment will lead to greater cooperation and a higher potential for achieving the common objective; a prosperous, economically and militarily competitive Nation State. After all, classical 19th century Nationalism maintained that an individual would best blossom within his ethnic and cultural group; Two world wars later, and we begin to have some doubts as to the merits of aiming towards a monolithic ethnic and cultural Nation State. Perhaps we would be better off accepting a more diverse ethnic and cultural mix, which might lead us into becoming a more tolerant and culturally aware society.
When we look at countries such as the United States, we can see that to call the US ethnically pure is not within the norms of possibilities. At one point, perhaps before the beginning of the 20th century we might have been able to call it a Nation composed of European descendants with a significant Black minority. Today, one hundred years later we would have to remove the European label, and say that the US is composed of a variety of people from all over the world, with a common American culture, and no particular ethnic purity. One hundred years into the future and we might begin to speak of an American ethnic group. The point being that the most successful nation of the last 100 years is anything but ethnically pure; there is an American culture, but it is composed of many sub cultures. We might say, there is a dominant culture, with lesser sub cultures. Even in this environment, there are significant issues around language, religion, race, regional differences, urban versus rural differences, and class differences. The United States is held together not by ethnicity or cultural affinity, but by common beliefs in individual freedoms, democracy, and the mistrust of government involvement in cultural or religious institutions. It is a country where Jews can be Jewish, Christians can be any number of different sub-faiths, Muslims can be Muslims, and if you believe in voodoo then so be it. Religious rights are protected in the US constitution. Culturally, the state does not attempt to promote one culture over another, and the media is typically viewed as an economic activity with no state interference. Americans are however becoming highly concerned about the rise of Spanish as a language of communication, and historically have shown a degree of racism to match that of any monolithic ethnic state. So, even in a multi ethnic, multi racial, multi cultural State as the United States, minorities have their work cut out if they wish to maintain a degree of independence and not be coerced into the common culture. However, when we compare the freedom that minorities possess in the United States with the lack of freedom of minorities in more monolithic cultures; we have to wonder, what is the rationale for the continued suppression and coercion of these minorities?
The unity of the state is sacrosanct, and this unity, with the exception of the United States, is premised not on common beliefs and individual freedoms, but more on historical land claims, ethnic purity, common language and culture, and the need to protect the mother or father land against old and new enemies. Invariably this includes protection from internal coercion by minorities and somewhat not quite ethnically pure individuals. We therefore have the history of the Jews in Europe, where they may not have been all that different from the common ethnic group they lived with, but were seen as outsiders, different, suspicious, and resented for their success, or lack of success in the case of the Roms or Gypsies. We have all the minority groups from neighbouring states that had to either suppress their Nationality or leave. We have had more recently a mass immigration into western European countries, and the difficulty of being accepted by the majority ethnic groups. In places such as China where the majority Han Chinese are so much the overwhelming majority group, that one would think they would not be worried about giving Tibetans and some other ethnic group some degree of autonomy and self rule; at least as concerns religion, culture, and language. Moreover, the Chinese continue to maintain that they are a monolithic culture, even though there are many regional differences, both culturally and ethnically. Russia, rather than adapting its constitution to the reality of the varied minority groups within its territory, insists on the indivisiveness of Russia and has basically devastated Chechnya and the Chechen people in order to make a point about its integrity as a state.
It seems that rationalizing why the state’s ethnic and cultural purity and its borders must be maintained, is an easy excuse to trample on minority rights. One would even say it is primal, its part of our need to belong, its part of maintaining our identity and the greater identity which the group bestows on us. The idea of a State with common values, but composed of various ethnic minorities, cultural groups, and even different language groups, is something which threatens the very core of who we are. We somehow seem unable to operate as a group unless we have cultural, religious, ethnic, and language similarities. Is it any wonder, that the ideal Nation State was to be culturally, ethnically, religiously and linguistically a monolith, within a prescribed national territory. Was this ideal, ever achieved? Probably not; never the less it is what continues to dictate our view of the world and the people within it. From ridiculous symbols such as National flags and the Olympic flag, with its supposed five races, to National histories emphasizing the maximum geographic range of its national ethnic group, to the achievements in battle, technology, science, culture, and civilization; the National ethnic group is pure, glorious, and not to be let down. We after all, pledge allegiance to the Nation State and its sacrosanct borders.
This would all be great, if it were thus; however, the reality is quite different. I know of no monolithic state, I know of no state with only one religious group in it, I know of no state without cultural or linguistic minorities, I know of no state where its cities are not populated by a variety of people from all over the world. Is it not time to see the state for what it is; a 19th century concept requiring significant revision? The major role of the State after all was to provide security to its citizens, this was achieved by being economically competitive, thus permitting the creation of a standing army to protect both your national and economic interests. In a world with a significant global trade, and a significant economic interdependency, what role is the state providing? It is true that as little as 60 years ago we were involved in a life and death struggle between the forces of evil and the forces of good, as some might argue; however, was this really a struggle between Nations, or was it a struggle for freedom and democratic principles against the proponents of might is right. Certainly both a Nationalistic interpretation and an ideological one could be argued. So it may be somewhat premature to abolish the Nation State and open ourselves to the acceptance of international standards of conduct, composed of common beliefs, values, and respect for human beings and human diversity.
Can we at least commence the process by which minorities are granted certain rights? Minorities should have the right to practice their culture, language and religion, without fear of coercion or persecution. Minorities should have the right to not pay taxes for items that are essentially meant to marginalize them or force their integration into the larger groups’ culture. In other words, states should refrain from pushing one culture over another, one religion over another, or one language over another. Minorities should be protected against economic discrimination. Minorities should have equal representation under the law. Minorities should have the right to associate and support each other as they see fit. In a larger sense, the people needing protection are the minorities, not the majority. The argument will be that this type of state will break apart, as the cohesiveness of the state will be undermined. This does not have to be so, if the state argues for a set of inclusive values, such as individual freedom, democracy, equal justice under the law, and protection for all under the constitution. After all this has worked in the United States of America. As a European from a supposed monolithic ethnic state, it had always amazed me how many blacks were prepared to fight for their country, even though to a large extent they were severely discriminated against both by fellow citizens and by the state. What I did not understand, at the time, was their belief in the American constitution and the civil rights movement in getting America to recognize that its black citizens had equal rights to their white brethren. By doing their part in defending the United States they would have a greater authority in demanding that those rights were recognized. Today we have a black US president.
The Nation State will have greater cohesive ability if it focuses on common values, then if it focuses on a non-existing monolithic ethnic group to justify its existence. As security needs diminish, as the state becomes less important in the economic success of its citizens, as international economic and cultural integration evolves, the state will fall apart; unless it has beliefs and values that transcend cultural and ethnic grounds.
If we are not careful, we will return to times where masses of people were forced to move and return to recreate the ethnic pure states from whence they came. This would set back human civilization, and contribute to greater conflicts and possible military interventions.
We need to understand that the majority must consciously protect its minorities and ensure their equality in all areas, otherwise ethnic, cultural, religious and political strife will ensue. In a world where migration and economic integration continues at a relentless pace to the benefit of all humanity; we need to ensure that the Nation State concept of an ethnically and culturally pure citizenry is viewed as a phenomenon of our past. A progressive ethnically mixed, multicultural Nation State focused on individual freedoms and reflective of the dynamism and diversity of today’s major urban population needs to be championed and protected as a symbol of human cooperation and cohabitation, hopefully leading to less tension between Nation States and especially between the majority community and the growing list of minority groups.
We have come a long way from the cohesiveness and belonging to the tribe, and need to recognize that we have evolved beyond the ethno-centric Nation State. Our future lies not in protecting our turf or territory from all who would imperil it, but rather in the opening ourselves up to other cultures and ideas, within a framework of equality for all and respect for others different but never the less acceptable lifestyle.
Does this mean that competition between people will end? No it implies competition at both a cultural and ethnic level, but competition based on merit and ability to influence others; not competition based on threats, coercion, and the advantage that majority rule might temporarily bestow on us.
In the past we protected ourselves from the unknown by a close allegiance to our fellow ethnic or cultural group. Today we should protect ourselves by associating with others and making common cause against anyone that would endanger our individual freedoms and our right to associate with those with which we feel an affinity. As long as we do not infringe on anyone else’s rights and freedoms, then it is no one’s business as to how we choose to lead our life, regardless of which Nation State we are citizens of. Our protection against tyrants, and other would be domineering groups, lies in the power of our ideas and sharing those with other common minded individuals and coming to the aid of any part of the Global Village that might be under attack.
If Tibetans are persecuted and suppressed, it matters to us all. If Chechens are murdered for their desire to be free of Russian oppression and domination, it matters to us all. If Kurds are not allowed to have some minimum form of cultural self rule, it matters to us all. If the Basques, the Catalans, The Corsicans, the French Canadians, and any other cultural or ethnic minority want some form of local cultural independence then we should all support it. Where we should draw the line is where these same groups or others are interested in creating the equivalent of the oppressive state they are interested in separating from.
Just as we should be decentralizing cultural and ethnic power, we should be centralizing economic and legal statutes based on the concept of equality, individual freedoms, and respect for minority rights. Our future lies with the growth and enlightenment of all mankind, not in protecting and advancing the power and influence of our little part of the globe that our Nation State represents. After all, power no longer rests with the size and productivity of our agricultural fields, but with the ability to add value through wider economic cooperation and technological innovation. Moreover, our challenges do not lie in protecting and enhancing our little corner of the world, but with the management of our planet’s resources in an equitable manner ensuring the long term sustainability of our economy and our planet. The best way to achieve this is through some form of equitable distribution and inclusiveness in the management of the economy and the eco-system of all of the planet’s citizens. For the moment, as a first step, minorities must be made to feel full and equal partner in the decision making process. At some future point, the concept of the Nation State will fade away, to be replaced with some yet to be defined global distribution of power through international institutions.
Wednesday, August 5, 2009
The Current Financial Crisis and Global Capitalism
The Current Financial Crisis and Global Capitalism
Perhaps it is best to step back a little in time to understand what has been going on. Certainly there would not be many individuals who would argue that the epicentre of the current crisis is centered on Wall Street and the massive (fraud some might say) issuance of Mortgage Backed Securities on the World Financial markets. This has led us into a major recession, possibly depression, and the possibility of a major setback in global growth and possibly global trade. The mispricing of MBS bonds and the massive housing boom created in America, and some other countries, is viewed as a typical free market over reaction, leading to normal boom and bust; events fairly common in the economic cycle. However, this is turning out to be nothing resembling a common recession. We are at a major turning point in the evolution of the global economy. In the 1930’s Capitalism itself was on trial, and many expected that its end was near. By taming it somewhat, putting in shock absorbers, and guiding it along, eventually revived capitalism; while communism or socialism, its supposed successors, have lost their shine and appear to have receded as alternatives to our current capitalist system. Today the questioning is not around Capitalism, as we have no rivals to replace it with; what we are questioning is global trade. Global trade which has been so positive in bringing millions of people out of poverty is on trial, due to the impact of competition on developed economies’ consumers.
We are therefore at a crossroads, just as in The Great Depression, we are questioning whether to kill the goose that laid the golden egg. Why have we become so disenchanted with global trade, and more specifically global capitalism? In total, global capitalism has benefited the world economy. When we look for specific winners and losers, we get a somewhat different view, or perception. We would all agree that Global Capitalism has benefited, the most, developing economies such as China, Brazil, Mexico, and India. We would also agree that OPEC countries and Russia have benefited from the rise in demand for oil. Resource rich countries have benefited from the demand for iron ore, copper, nickel, agricultural products, and livestock. The developed world has benefited from increased competition through lower consumer prices for manufactured goods. All in all, not a bad report card; however we must now also look at the losing side of the ledger.
On the losing side, the biggest losers have been the developed worlds’ current and former manufacturing workers whose jobs have been transferred to places such as China and Mexico, or whose salaries have been kept down by the pressure to compete against workers who are prepared to accept a lower standard of living. To these individuals, Global Capitalism is not quite viewed as a positive force. There are of course other consequences, such as greater amounts of pollution being produced by countries whose environmental standards are not comparable to the developed worlds’. Although prices have been kept down overall, the rise in demand for oil from emerging economies has had an impact on the price of gasoline worldwide.
The real problem that we are facing is that the adaptation to Global Capitalism is not reaching its end, but is only at the beginning. The modern corporation has learned to segment its business in such a way, that it produces in the least costly geographic entity, sells its wares in the geographic entity where it can get the highest price, and reports its profits in the geographic entity where it can minimize its taxes. Moreover, the modern corporation will play one government against another to obtain financial concessions to build or not close a given plant or facility. As all politics is local, politicians have not looked at the greater picture, but have focused on getting as much as they could to ensure local growth, or support for the local economy. This type of competition for investment dollars, after all, is nothing new, and not only international, but national as well. What is different is that on a national level, there are some rules to play by. On an International level, rules are vaguer and can more easily be gotten around.
Governments have been dealing with Global Capitalism for over 30 years at least and the developed world’s economies had been adapting rather well it seemed. There were two problems; politicians generally have been focusing on short term remedies, and the globalisation has moved well beyond manufacturing. Let’s look at these two individually.
Politicians, in the developed world, have been telling their citizens that the way to be more productive is to move up the production economic ladder. The theory being to let the developing economies produce the simple widgets, and gadgets, while the developed economies workers could focus on the higher end products, such as aerospace, automotive, healthcare, information systems, R& D, etc. This is certainly a valid strategy; however, these areas do not produce many additional jobs. The surplus labour has tended to be absorbed into the service economy. This has worked relatively well, as the service economy has the advantage of requiring local labour, or at least that was the thinking. The problem with the service economy is that it tends to produce lower paying jobs. This has had the effect of moving the average family from a single bread winner, to two bread winners, and thus maintaining their standard of living. This was not a big sacrifice, as house work has become highly automated as well as farmed out to the service economy (restaurants, dry cleaning, etc). Additionally, women were more than happy to leave the drudgery of the home, thus the two income family was welcomed, and the single income family was viewed as a relic.
Looking at the second problem, that is, that globalisation had moved well beyond manufacturing, we see the beginning of the need to address longer term globalisation issues. Globalisation no longer focuses solely on transferring blue collar jobs to developing economies. With the advent of the internet and instant communication, jobs as diverse as engineering, accounting, call centers, information processing, Research and Development scientists, and why not, middle level managers; could now be transferred to the developing economies such as India and China; economies that produced more University graduates in one year then the developed economies produced in a decade. Moreover, an engineer in India could be had for $10,000, while a similarly qualified engineer in the developed world could be had for ten times that. Companies such as IBM have been increasing their developing world staff significantly, while cutting their developed world staff. For corporations this was a no brainer, if we wish to remain competitive we have to reduce our labour cost. The way to reduce our labour cost is to transfer knowledge jobs, as well as service jobs to the developing world. For example, the Cruise ship industry is nothing more than packaging a developed world vacation into a developing world cost structure. Management of the Cruise Ship Company is handled out of New York or London, while ship staff is from Indonesia, Philippines, or Columbia. The design of the ships is done in California, while the actual ship building is done in the European or Asian nation that provides the greatest subsidy to the dry docks facilities. Cruising has become so successful that now there are plans to have medical ships that would actually dock in a third world country, local doctors would perform operations, and the ship would act as a convalescent hospital while transporting patients back to their home country. Another initiative is to create some type of retirement home, or convalescent home for the elderly. Why pay developed world salaries, when developing world labour is so abundant and inexpensive. Other creative approaches include moving a company to a Caribbean island for tax purposes, outsourcing accounting, IT, engineering, to a place such as India, while focusing on design, sales and marketing in a developed economy country. The permutations and combinations are endless.
The results of these trends have been to create a growing boom in the developing world, and strange enough a growing boom in the developed world. How is this possible? As the developing world produced greater products and services, they were mostly to satisfy the demand of the developed economies, as the local workers were paid wages that were so low that they could not afford to buy the products they produced. This created a trade surplus for the developing world, and a trade deficit for the developed world. The developing world wishing to stay competitive, not only with the developed economies, but more so with competing developing economies; undertook policies to keep the value of their currencies low. They did this by recycling their foreign reserves into the developed world economies currencies, such as the US dollar, the yen and the Euro. This money eventually found its way into Wall Street hands, and the US and other housing booms were underway. As the money could not be invested in productive endeavours in the developed world, it went into unproductive endeavours such as US government bonds and Mortgage Backed bonds. As the US $ was the International Reserve currency, it had the effect of keeping interest rates down and this lead to massive lending to the housing market. The US consumer being squeezed financially by suppressed wages due to the Globalization effect borrowed heavily hoping to make enough money for his retirement through investment and housing profits, and not through savings.
One other significant impact of Global Capitalism has been to dramatically alter the income distribution curve. This happened as the value of head office personnel rose, while the value of the middle manager and the industrial worker stagnated or fell. The top 5% of the population began amassing larger and larger portions of the income generated by the economy. The effect of this was to ultimately increase production capacity while at the same time lowering consumer demand. As income became concentrated, it generally went into investments all over the world. The greater the concentration of wealth, the greater the risk the investor is willing to take. This stands to reason, as a billionaire will be much more capable of absorbing a $100 million loss, then a simple millionaire will be capable of absorbing a $100,000 loss. The billionaire has much more room to manoeuvre and will consequently take greater risk. On the consumption side, consumers wanting to spend more could only do so by borrowing, as their income either stagnated or fell. They borrowed from their banks by mortgaging their houses to the hilt, by obtaining multiple credit cards and making only the minimum payment, by leasing their cars rather than buying them. For a while it looked that all was well. The rise in asset values whether in the stock market, or real estate, created a false sense of prosperity.
The hope was that at some point there would be a significant rise in demand from developing economies’ consumers, to offset the eventual reduction in demand from the developed economies’ consumers. Of course, this was not going to happen given the intense competition for jobs in the developing world, and the consequent low wages paid to the labour force.
Like in the great depression of 1929 capitalism has once again tilted dangerously towards concentration of capital, and an out of balance bargaining position between capital and labour. This has happened because in a world where capital and goods can move to anywhere in the world they choose, labour has remained stuck in the old Nationalist Ideology of the monolithic Nation State. Corporations have played one Nation State against another while at the same time reducing the power of labour. It was a great run for 30 years. We now see its consequences and the need to again place some rules around capitalism to tame its tendency towards extremes. Unfortunately, we do not have the international institutions in place to define, implement and manage these required changes. As long as we think nationally and not internationally we will not be able to adjust the economic eco-system that has sprung up, that is Global Capitalism.
Perhaps it is best to step back a little in time to understand what has been going on. Certainly there would not be many individuals who would argue that the epicentre of the current crisis is centered on Wall Street and the massive (fraud some might say) issuance of Mortgage Backed Securities on the World Financial markets. This has led us into a major recession, possibly depression, and the possibility of a major setback in global growth and possibly global trade. The mispricing of MBS bonds and the massive housing boom created in America, and some other countries, is viewed as a typical free market over reaction, leading to normal boom and bust; events fairly common in the economic cycle. However, this is turning out to be nothing resembling a common recession. We are at a major turning point in the evolution of the global economy. In the 1930’s Capitalism itself was on trial, and many expected that its end was near. By taming it somewhat, putting in shock absorbers, and guiding it along, eventually revived capitalism; while communism or socialism, its supposed successors, have lost their shine and appear to have receded as alternatives to our current capitalist system. Today the questioning is not around Capitalism, as we have no rivals to replace it with; what we are questioning is global trade. Global trade which has been so positive in bringing millions of people out of poverty is on trial, due to the impact of competition on developed economies’ consumers.
We are therefore at a crossroads, just as in The Great Depression, we are questioning whether to kill the goose that laid the golden egg. Why have we become so disenchanted with global trade, and more specifically global capitalism? In total, global capitalism has benefited the world economy. When we look for specific winners and losers, we get a somewhat different view, or perception. We would all agree that Global Capitalism has benefited, the most, developing economies such as China, Brazil, Mexico, and India. We would also agree that OPEC countries and Russia have benefited from the rise in demand for oil. Resource rich countries have benefited from the demand for iron ore, copper, nickel, agricultural products, and livestock. The developed world has benefited from increased competition through lower consumer prices for manufactured goods. All in all, not a bad report card; however we must now also look at the losing side of the ledger.
On the losing side, the biggest losers have been the developed worlds’ current and former manufacturing workers whose jobs have been transferred to places such as China and Mexico, or whose salaries have been kept down by the pressure to compete against workers who are prepared to accept a lower standard of living. To these individuals, Global Capitalism is not quite viewed as a positive force. There are of course other consequences, such as greater amounts of pollution being produced by countries whose environmental standards are not comparable to the developed worlds’. Although prices have been kept down overall, the rise in demand for oil from emerging economies has had an impact on the price of gasoline worldwide.
The real problem that we are facing is that the adaptation to Global Capitalism is not reaching its end, but is only at the beginning. The modern corporation has learned to segment its business in such a way, that it produces in the least costly geographic entity, sells its wares in the geographic entity where it can get the highest price, and reports its profits in the geographic entity where it can minimize its taxes. Moreover, the modern corporation will play one government against another to obtain financial concessions to build or not close a given plant or facility. As all politics is local, politicians have not looked at the greater picture, but have focused on getting as much as they could to ensure local growth, or support for the local economy. This type of competition for investment dollars, after all, is nothing new, and not only international, but national as well. What is different is that on a national level, there are some rules to play by. On an International level, rules are vaguer and can more easily be gotten around.
Governments have been dealing with Global Capitalism for over 30 years at least and the developed world’s economies had been adapting rather well it seemed. There were two problems; politicians generally have been focusing on short term remedies, and the globalisation has moved well beyond manufacturing. Let’s look at these two individually.
Politicians, in the developed world, have been telling their citizens that the way to be more productive is to move up the production economic ladder. The theory being to let the developing economies produce the simple widgets, and gadgets, while the developed economies workers could focus on the higher end products, such as aerospace, automotive, healthcare, information systems, R& D, etc. This is certainly a valid strategy; however, these areas do not produce many additional jobs. The surplus labour has tended to be absorbed into the service economy. This has worked relatively well, as the service economy has the advantage of requiring local labour, or at least that was the thinking. The problem with the service economy is that it tends to produce lower paying jobs. This has had the effect of moving the average family from a single bread winner, to two bread winners, and thus maintaining their standard of living. This was not a big sacrifice, as house work has become highly automated as well as farmed out to the service economy (restaurants, dry cleaning, etc). Additionally, women were more than happy to leave the drudgery of the home, thus the two income family was welcomed, and the single income family was viewed as a relic.
Looking at the second problem, that is, that globalisation had moved well beyond manufacturing, we see the beginning of the need to address longer term globalisation issues. Globalisation no longer focuses solely on transferring blue collar jobs to developing economies. With the advent of the internet and instant communication, jobs as diverse as engineering, accounting, call centers, information processing, Research and Development scientists, and why not, middle level managers; could now be transferred to the developing economies such as India and China; economies that produced more University graduates in one year then the developed economies produced in a decade. Moreover, an engineer in India could be had for $10,000, while a similarly qualified engineer in the developed world could be had for ten times that. Companies such as IBM have been increasing their developing world staff significantly, while cutting their developed world staff. For corporations this was a no brainer, if we wish to remain competitive we have to reduce our labour cost. The way to reduce our labour cost is to transfer knowledge jobs, as well as service jobs to the developing world. For example, the Cruise ship industry is nothing more than packaging a developed world vacation into a developing world cost structure. Management of the Cruise Ship Company is handled out of New York or London, while ship staff is from Indonesia, Philippines, or Columbia. The design of the ships is done in California, while the actual ship building is done in the European or Asian nation that provides the greatest subsidy to the dry docks facilities. Cruising has become so successful that now there are plans to have medical ships that would actually dock in a third world country, local doctors would perform operations, and the ship would act as a convalescent hospital while transporting patients back to their home country. Another initiative is to create some type of retirement home, or convalescent home for the elderly. Why pay developed world salaries, when developing world labour is so abundant and inexpensive. Other creative approaches include moving a company to a Caribbean island for tax purposes, outsourcing accounting, IT, engineering, to a place such as India, while focusing on design, sales and marketing in a developed economy country. The permutations and combinations are endless.
The results of these trends have been to create a growing boom in the developing world, and strange enough a growing boom in the developed world. How is this possible? As the developing world produced greater products and services, they were mostly to satisfy the demand of the developed economies, as the local workers were paid wages that were so low that they could not afford to buy the products they produced. This created a trade surplus for the developing world, and a trade deficit for the developed world. The developing world wishing to stay competitive, not only with the developed economies, but more so with competing developing economies; undertook policies to keep the value of their currencies low. They did this by recycling their foreign reserves into the developed world economies currencies, such as the US dollar, the yen and the Euro. This money eventually found its way into Wall Street hands, and the US and other housing booms were underway. As the money could not be invested in productive endeavours in the developed world, it went into unproductive endeavours such as US government bonds and Mortgage Backed bonds. As the US $ was the International Reserve currency, it had the effect of keeping interest rates down and this lead to massive lending to the housing market. The US consumer being squeezed financially by suppressed wages due to the Globalization effect borrowed heavily hoping to make enough money for his retirement through investment and housing profits, and not through savings.
One other significant impact of Global Capitalism has been to dramatically alter the income distribution curve. This happened as the value of head office personnel rose, while the value of the middle manager and the industrial worker stagnated or fell. The top 5% of the population began amassing larger and larger portions of the income generated by the economy. The effect of this was to ultimately increase production capacity while at the same time lowering consumer demand. As income became concentrated, it generally went into investments all over the world. The greater the concentration of wealth, the greater the risk the investor is willing to take. This stands to reason, as a billionaire will be much more capable of absorbing a $100 million loss, then a simple millionaire will be capable of absorbing a $100,000 loss. The billionaire has much more room to manoeuvre and will consequently take greater risk. On the consumption side, consumers wanting to spend more could only do so by borrowing, as their income either stagnated or fell. They borrowed from their banks by mortgaging their houses to the hilt, by obtaining multiple credit cards and making only the minimum payment, by leasing their cars rather than buying them. For a while it looked that all was well. The rise in asset values whether in the stock market, or real estate, created a false sense of prosperity.
The hope was that at some point there would be a significant rise in demand from developing economies’ consumers, to offset the eventual reduction in demand from the developed economies’ consumers. Of course, this was not going to happen given the intense competition for jobs in the developing world, and the consequent low wages paid to the labour force.
Like in the great depression of 1929 capitalism has once again tilted dangerously towards concentration of capital, and an out of balance bargaining position between capital and labour. This has happened because in a world where capital and goods can move to anywhere in the world they choose, labour has remained stuck in the old Nationalist Ideology of the monolithic Nation State. Corporations have played one Nation State against another while at the same time reducing the power of labour. It was a great run for 30 years. We now see its consequences and the need to again place some rules around capitalism to tame its tendency towards extremes. Unfortunately, we do not have the international institutions in place to define, implement and manage these required changes. As long as we think nationally and not internationally we will not be able to adjust the economic eco-system that has sprung up, that is Global Capitalism.
Monday, August 3, 2009
The Problems with Globalization
The Problems with globalization
Global trade is a wonderful thing. We can get Chilean peaches and grape in the winter; we can get Argentinean wheat, Canadian beef, and Brazilian soybeans. If we happen to live in Northern Europe or even Japan this can certainly enhance the quality of life. Not only can we get summer crops all year round, we can actually support a larger population overall than we could without global trade. Of course trade is a two way street and Europeans and Japanese export wonderful manufactured goods, such as electronic devices (TV’s, Stereos, and computers), automobiles, and wonderful appliances. Even countries that at first glance look like they have nothing to trade suddenly become important in the overall economy. If Saudi Arabia had to provide for its own needs, its standard of living would be very poor indeed. It certainly could not support its current population. Saudi Arabia has massive quantities of petroleum, a major energy source, so the rest of the world is bending over backwards to trade food and appliances in exchange for petroleum. Surely nothing better has ever been invented than trade. After all, global trade is merely an extension of commerce. I work for an employer who pays me a certain salary for helping him produce a product or service. In turn I take my wages and buy whatever products or services I need. It’s called specialization of labour and it is miles ahead of our subsistence farming model, the previous method of organized life.
So what are the problems with global trade? Well, when we trade as in the examples above, generally speaking there is not a major problem. The problems arise when we look at states’ strategies for taking advantage of what globalization provides. The USA may be able to make a pretty good car, yet many of its citizens buy Japanese cars. Canadians, grow vast quantities of wheat, grow large herds of cattle, and produce significant amounts of lumber; yet they will buy Italian pasta, Italian leather sofas, and US or Indonesian flooring. China could be a self contained economy, and for many thousands of years has been. Now however, they have become an economic juggernaut. They can produce agricultural and industrial products at prices that no one else can compete with. This type of trade is more problematic. There may very well be a skill that Italians have in producing Pasta and Leather that Canadians do not. The US automotive capabilities are significant, yet Japanese quality and craftsmanship is superior, and people are willing to buy Japanese. As for the Chinese, they will produce anything and everything. People are willing to buy Chinese products because they are less expensive.
We now reach a point of discussion, which deals with relative value. How do we measure relative value, when there are different systems of organization, different currencies, and different government policies? One can argue the academic theory of supply and demand, and that if state A is prepared to subsidize the production of a given product, than fine, no problem; you are getting it at a bargain price. In the short term there is nothing wrong, in the long term it may remove a whole industry from one country and shift it to another, simply on the basis of pricing strategy. Once production has shifted, than a rise in the price can be obtained, and desired advantage achieved. We come to Mercantilist strategies. Mercantilism held that the more you were an exporter of goods, and the more gold you accumulated as a result of this trade, the greater advantage and power to your state. Mercantilist states therefore focused on increasing exports while minimizing imports. This is why the WTO (World trade Organization) was established to ensure that we have fair trade. The WTO can deal with subsidies, but it cannot deal with internal economic organization, nor can it deal with monetary exchange rate strategies. What is the comparative value of currency A over currency B? Well, whatever the market says it is. The market however, over and above comparative value analysis, looks at things such as monetary flows, but monetary flows can be manipulated by governments, who control such levers as the money supply and interest rates.
There are other problems; the value of labour is local, not global. That is a plumber in Beijing may be paid a lot less that a plumber in New York. Economic theory would dictate that this situation would not last for long as a number of plumbers from Beijing realizing that the rate of pay in New York is higher, would migrate to New York. This process would continue until the discrepancy between the two cities would be such that it would not be worth their while to move. This type of migration happens everyday, within the United States, and within China. However, to move form Beijing to New York is a different kettle of fish. There are significant restrictions to the migration of labour. Strange enough, there are practically no restrictions to the migration of capital and goods.
How can we move towards globalization when one of three principle components, into the capitalist production system, is not allowed to freely move about?
This creates major problems; Shortages of labour in one area, overabundance in another. More so, a nation whose trade is in decline will suffer major economic adjustments. Even the Nation that is rising in trade will eventually have problems. The Capitalist class will play one group against another to obtain the lowest possible cost for producing their product. Moreover, there will be severe dislocations between where the product is produced and where the product is consumed. It will cause wage migrations towards the mean, but in a somewhat skewed fashion. It will lower the wages in the Nation which is in trade decline, but it will not necessarily raise the wages in the Nation that is experiencing growth. By playing one government against another, the capitalist obtains his objective of removing any bargaining capability on the part of the worker and the government; by threatening to move the plant to a more hospitable and lower cost country.
Other issues, safety, pollution, transfer of patrimony, inefficiencies of transportation, energy efficiency, etc. these are all issues to deal with. What we have is a free market system for capital and raw material; but a managed system for labour, working standards, educational and health support, and value for life, as portrayed by quality of life issues such as pollution, safety, labour laws, and minimum acceptable working conditions. If we now leave it to corporations to migrate to the least cost production environment, we will all eventually lower our standards to that level. This is neither good for labour, nor capital in the long run. In a global economy, we need global labour standards, and free movement of labour from one part of the globe to another. Only in this way will we have true free trade, and the application of comparative advantage, which should ensure a more productive and prosperous global economy. As things stand, the temptation on the part of governments and corporations to intervene in the free flow of capitalism will be too strong, and the rise of Mercantilism will be too strong a force to suppress. This will lead to a greater degree of protectionism as labour wakes up to what is happening, and ultimate disputes and wars between competing states.
Surely the day of the Nation State as a monolithic competing entity on the world stage has past, and should be buried.
Global trade is a wonderful thing. We can get Chilean peaches and grape in the winter; we can get Argentinean wheat, Canadian beef, and Brazilian soybeans. If we happen to live in Northern Europe or even Japan this can certainly enhance the quality of life. Not only can we get summer crops all year round, we can actually support a larger population overall than we could without global trade. Of course trade is a two way street and Europeans and Japanese export wonderful manufactured goods, such as electronic devices (TV’s, Stereos, and computers), automobiles, and wonderful appliances. Even countries that at first glance look like they have nothing to trade suddenly become important in the overall economy. If Saudi Arabia had to provide for its own needs, its standard of living would be very poor indeed. It certainly could not support its current population. Saudi Arabia has massive quantities of petroleum, a major energy source, so the rest of the world is bending over backwards to trade food and appliances in exchange for petroleum. Surely nothing better has ever been invented than trade. After all, global trade is merely an extension of commerce. I work for an employer who pays me a certain salary for helping him produce a product or service. In turn I take my wages and buy whatever products or services I need. It’s called specialization of labour and it is miles ahead of our subsistence farming model, the previous method of organized life.
So what are the problems with global trade? Well, when we trade as in the examples above, generally speaking there is not a major problem. The problems arise when we look at states’ strategies for taking advantage of what globalization provides. The USA may be able to make a pretty good car, yet many of its citizens buy Japanese cars. Canadians, grow vast quantities of wheat, grow large herds of cattle, and produce significant amounts of lumber; yet they will buy Italian pasta, Italian leather sofas, and US or Indonesian flooring. China could be a self contained economy, and for many thousands of years has been. Now however, they have become an economic juggernaut. They can produce agricultural and industrial products at prices that no one else can compete with. This type of trade is more problematic. There may very well be a skill that Italians have in producing Pasta and Leather that Canadians do not. The US automotive capabilities are significant, yet Japanese quality and craftsmanship is superior, and people are willing to buy Japanese. As for the Chinese, they will produce anything and everything. People are willing to buy Chinese products because they are less expensive.
We now reach a point of discussion, which deals with relative value. How do we measure relative value, when there are different systems of organization, different currencies, and different government policies? One can argue the academic theory of supply and demand, and that if state A is prepared to subsidize the production of a given product, than fine, no problem; you are getting it at a bargain price. In the short term there is nothing wrong, in the long term it may remove a whole industry from one country and shift it to another, simply on the basis of pricing strategy. Once production has shifted, than a rise in the price can be obtained, and desired advantage achieved. We come to Mercantilist strategies. Mercantilism held that the more you were an exporter of goods, and the more gold you accumulated as a result of this trade, the greater advantage and power to your state. Mercantilist states therefore focused on increasing exports while minimizing imports. This is why the WTO (World trade Organization) was established to ensure that we have fair trade. The WTO can deal with subsidies, but it cannot deal with internal economic organization, nor can it deal with monetary exchange rate strategies. What is the comparative value of currency A over currency B? Well, whatever the market says it is. The market however, over and above comparative value analysis, looks at things such as monetary flows, but monetary flows can be manipulated by governments, who control such levers as the money supply and interest rates.
There are other problems; the value of labour is local, not global. That is a plumber in Beijing may be paid a lot less that a plumber in New York. Economic theory would dictate that this situation would not last for long as a number of plumbers from Beijing realizing that the rate of pay in New York is higher, would migrate to New York. This process would continue until the discrepancy between the two cities would be such that it would not be worth their while to move. This type of migration happens everyday, within the United States, and within China. However, to move form Beijing to New York is a different kettle of fish. There are significant restrictions to the migration of labour. Strange enough, there are practically no restrictions to the migration of capital and goods.
How can we move towards globalization when one of three principle components, into the capitalist production system, is not allowed to freely move about?
This creates major problems; Shortages of labour in one area, overabundance in another. More so, a nation whose trade is in decline will suffer major economic adjustments. Even the Nation that is rising in trade will eventually have problems. The Capitalist class will play one group against another to obtain the lowest possible cost for producing their product. Moreover, there will be severe dislocations between where the product is produced and where the product is consumed. It will cause wage migrations towards the mean, but in a somewhat skewed fashion. It will lower the wages in the Nation which is in trade decline, but it will not necessarily raise the wages in the Nation that is experiencing growth. By playing one government against another, the capitalist obtains his objective of removing any bargaining capability on the part of the worker and the government; by threatening to move the plant to a more hospitable and lower cost country.
Other issues, safety, pollution, transfer of patrimony, inefficiencies of transportation, energy efficiency, etc. these are all issues to deal with. What we have is a free market system for capital and raw material; but a managed system for labour, working standards, educational and health support, and value for life, as portrayed by quality of life issues such as pollution, safety, labour laws, and minimum acceptable working conditions. If we now leave it to corporations to migrate to the least cost production environment, we will all eventually lower our standards to that level. This is neither good for labour, nor capital in the long run. In a global economy, we need global labour standards, and free movement of labour from one part of the globe to another. Only in this way will we have true free trade, and the application of comparative advantage, which should ensure a more productive and prosperous global economy. As things stand, the temptation on the part of governments and corporations to intervene in the free flow of capitalism will be too strong, and the rise of Mercantilism will be too strong a force to suppress. This will lead to a greater degree of protectionism as labour wakes up to what is happening, and ultimate disputes and wars between competing states.
Surely the day of the Nation State as a monolithic competing entity on the world stage has past, and should be buried.
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