Un-equal benefits from Globalization

Although it is clear that globalization and trade are net positive on all countries (both countries benefit from trade), it is also clear that there is a recent trend toward an unbalanced benefit from trade, with the owners of capital benefiting more than the labor-sector. 

Criticizing the Washington Consensus

see:  Washington consensus

Many critics of trade liberalization, such as Noam Chomsky, Susan George, and Naomi Klein, see the Washington Consensus as a way to open the labor market of underdeveloped economies to exploitation by companies from more developed economies. The prescribed reductions in tariffs and other trade barriers allow the free movement of goods across borders according to market forces, but labor is not permitted to move freely due to tough visa laws. This creates an economic climate where goods are manufactured using cheap labor in underdeveloped economies and then exported to rich First World economies for sale at what the critics argue are huge markups, with the balance of the markup said to accrue to large Multinational corporations. The criticism is that workers in the Third World economy nevertheless remain poor, as any pay raises they may have received over what they made before trade liberalization are said to be offset by inflation, whereas workers in the First World country become unemployed, while the wealthy owners of the multinational grow even more wealthy.

Anti-globalization critics further claim that First World countries impose the consensus's neoliberal policies on economically vulnerable countries through organizations such as the World Bank and the International Monetary Fund and by political pressure and bribery. They argue that the Washington Consensus has not, in fact, led to any great economic boom in Latin America, but rather to severe economic crises and the accumulation of crippling external debts that render the target country beholden to the First World.

Many of the policy prescriptions (e.g., the privatization of state industries, tax reform, and deregulation) are criticized as mechanisms for ensuring the development of a small, wealthy, indigenous elite in the Third World who will rise to political power and also have a vested interest in maintaining the local status quo of labor exploitation.

Some specific factual premises of the critique as phrased above (especially on the macroeconomic side) are not accepted by defenders, or indeed all critics, of the Washington Consensus. To take a few examples,^[6] inflation in many developing countries is now at its lowest levels for many decades (low single figures for very much of Latin America). Workers in factories created by foreign investment are found typically to receive higher wages and better working conditions than are standard in their own countries' domestically-owned workplaces. Economic growth in much of Latin America in the last few years has been at historically high rates, and debt levels, relative to the size of these economies, are on average significantly lower than they were several years ago. Despite these macroeconomic advances, though, poverty and inequality remain at high levels in Latin America. About one of every three people - 165 million in total- still live on less than $2 a day. Roughly a third of the population has no access to electricity or basic sanitation, and an estimated 10 million children suffer from malnutrition.

Some socialist political leaders in Latin America are vocal and well-known critics of the Washington Consensus, such as Venezuelan President Hugo Chávez, Cuban dictator Fidel Castro, Bolivian President Evo Morales, and Rafael Correa, President of Ecuador. Cuba is a Communist planned economy and Venezuela implements Chávez's own brand of "twenty-first century socialism," powered by Venezuela's large oil reserves. In Argentina, too, the current Peronist party government of Nestor Kirchner has undertaken policy measures which represent a repudiation of at least some Consensus policies (see Continuing Controversy below).

Others on the Latin American left take a different approach. Governments led by the Socialist Party of Chile, by Alan Garcia in Peru, by Tabare Vasquez in Uruguay, and by Lula in Brazil, have in practise maintained a high degree of continuity with the economic policies described under the Washington Consensus (macro-economic discipline, opening to trade and foreign investment, financial reforms, etc.). But governments of this type have simultaneously sought to supplement these policies by measures directly targeted at improving productivity and helping the poor, such as education reforms and subsidies to poor families conditioned on their children staying in school.

RECENT NEWS

Germany’s finance minister, rounded on Nokia, the Finnish mobile phone-maker, for closing a plant in Germany and relocating production to Romania, accusing it of “caravan capitalism”.

It is a paradox that Germany, arguably the biggest winner in the globalisation stakes among rich countries, is also one of the richest sources of petulant epithets against the source of its riches.

Most vivid was the (also pre-electoral) attack on hedge funds as “swarms of locusts” in 2005 by Franz Müntefering, the former Social Democrat leader. Against that, calling Nokia “subsidy locusts”, as Jürgen Rüttgers, the Christian Democrat premier of North Rhine-Westphalia, did this week, is derivative and insipid.

And Germany does have competition in the ranting stakes. In France, politicians routinely brandish the spectre of délocalisation and the Polish plumber. In the US, Ross Perot, the billionaire populist, tried to spook American voters with the “giant sucking sound” that would drain their jobs south to Mexico if they agreed to the North American Free Trade Agreement.

The UK can hold its own. John Monks, the trades union leader, last year called hedge funds and private equity firms “casino capitalists”, the “provisional wing” of finance capital, while Guy Hands, the private equity boss, called investment bankers “whimpering dogs”.

Caravan capitalism, by contrast, may even send the wrong rhetorical signal: Silk Route rather than rust belt; the richness and romance of the caravanserai rather than the rootlessness of the carpetbagger.

Still, let us be grateful for subtlety. Mr Rüttgers, after all, once popularised the slogan Kinder statt Inder (children instead of Indians) to press education rather than immigration as the solution to skills shortages.