TIGblogs - Marina Smolnikova

Is Free Economic Interchange Beneficial???

“…economic globalization benefits the few
at the expense of the many.”

Globalization together with free economic interchange, in other words free trade, are accepted today as something if not inevitable, then at least natural. Dozens, if not more, researchers from organizations like the World Trade Organization (WTO), the International Monetary Fund (IMF) and others publish their research papers annually, aiming to justify and show the benefits of globalization, and free trade as part of it. I would like to stop and take a look not only at the arguments given by the authors of both articles, but go more into the history of free trade, to start with.
Most of the pro-globalization sources I’ve studied, start with describing the United Kingdom (UK) as the first and one of the most vivid examples of benefits brought by free trade and economic expansion: “In the nineteenth century, for instance, the leading nations such as Britain grew at an average annual rate of 1.5 percent per capita.” How did that occur?
The nineteenth century was the century of the Industrial Revolution, and UK was the first country to industrialize at that point. Having found itself being capable of mechanically producing goods that were still hand made and consequently much more expensive in other countries, the UK strives to increase the amount of these goods on international markets. As a superpower, it rarely faces resistance. However, one case study is worth mentioning when discussing the development of free economic interchange, and that is China. China closed its economy for all incoming goods, though not refusing to sell unique things made in China and desired by many foreign countries. When the UK ran into the wall, the first option was to offer China something it cannot resist – opium. After a significant part of the Chinese grew addicted to the drug, the country kept refusing to open the borders, trying instead to cut off the smuggling of opium from India, a UK colony at that time. The outcome of this struggle is known as the Opium War of 1839-1842, which was followed by unequal treaties, granting the British extraterritoriality, allowing them to import goods at 5% tariff and legalizing opium. The 100 years of “free trade” that followed led Chinese economy to utter devastation… while “it took the United Kingdom some 60 years to double income per capita in the 19th century.” No wonder it did, but at who’s expense?
Another remarkable point that deserves to be noted is the policy of the United States towards free trade. Having gained independence from Great Britain, the US excludes imports as well as establishes high tariffs. It was not until after WWII that “the United States played the leading role… in establishing the IMF.” I believe it opened up since most major powers suffered tremendous damages during the war and could not be considered strong rivals for the time being. This is the very moment when the US radically changes its policy and turns towards promoting free economic interchange.
Despite the fact that all the research documents of the World Bank, that I will cite here, are definitely pro-globalization ones, even according to them “so far, only some countries, sectors and firms have taken advantage of globalization.” To be more precise, “countries are divided into ‘haves’ and ‘have-nots’ and… the world is similarly divided into have and have-not countries.” So, what is wrong with the picture? Why does it not work for everybody? Why does it not make our economies flourish?
My first point about the YES-article refers to the authors’ credentials: “Anne O. Krueger, first deputy managing director of the IMF.” This particular detail makes me believe that, being a direct employee of one of the leading organizations promoting free economic interchange, she could not have been quite objective. Meanwhile, “Jose Bove, a French farmer and antiglobalization activist” , awakens more trust, for I see him as the one affected by free trade policies and therefore speaking from experience.
Speaking in favor of globalization, Anne O. Krueger states the following: “But globalization is like breathing: it is not a process one can or should try to stop; of course, if [there] are obvious ways of breathing easier and better one should certainly do so.” I cannot help asking one simple question: how did everyone breathe before? “Economic integration occurs through trade, migration and capital flows.” Globalization is not the process that has always been there, it revealed itself in the beginning of the 15th century with travelers going around the world to trade, and continued its speedily development after the Industrial Revolution. By no means am I stating that we can and should conduct the world politics the way it was done five hundred years ago, but the author’s statement is not well grounded in my view.
One of the key YES-side arguments is that the GDP, life expectancy and standards of living in developing countries are rapidly growing. Nevertheless, once we compare the developed countries with the third-world ones, we see that the gap between Global North and Global South is not declining…
Further on she is saying: “If one looks not at within-country inequality but at world inequality, the news is actually very encouraging. The evidence, though difficult to piece together, suggests that world inequality is declining. This is happening in large part because of the phenomenal growth of China and India. Because the majority of the poor reside in these two countries, their growth helps to reduce inequality of world incomes, even though many smaller countries have had stagnant incomes.” I would hardly agree that we can judge about the developing countries’ progress by just looking at two countries, even though they are densely populated. Indeed, according to CIA World Fact book, the percentage of population below poverty line in China is 10% and in India 25%, but at the same time, Algeria’s level is 23% and finally the level of Russia – 25% .
Dwelling on the second article, the first thing I would mention is that it is extremely passionate and emotional, at times even harsh: “It is therefore a good idea to throw some vitamins into the rice that is sold to poor people, so that they don’t die too quickly and can continue working for low wages, rather than helping them build a freer and fairer society.” One could argue here noting fairly enough that Jose Bove takes a one-sided view of the problem by focusing on the one area of globalization, and free trade in general – agriculture. However, I find this article somewhat more trustworthy since the author is sharing his personal ‘encounter’ with free trade. I also suppose that in many ways we can draw a parallel between agriculture and e.g. industry. Here is an illustrative sketch: “If, for example, a country becomes dependent on foreign sources for vehicles, then it may well have no ability to produce its own military vehicles in times of peril if cut off from its foreign supplier or, worse, if that supplier were to become an international antagonist.” Thus, I consider very valuable the solution for the problem, described by Jose Bove: “…it is necessary for all of us – farmers and non-farmers alike – to make it subject to three fundamental principles: food sovereignty – the right of peoples and of countries to produce their food freely, and to protect their agriculture from the ravages of global ‘competition’; food safety – the right to protect oneself from any threat to one’s health; and the preservation of bio-diversity.”
In my opinion, the NO-article is also more logical and organized than the first one. The author discusses the four falsehoods of globalization that are being proven to us by such organizations as WTO. Another essential fact he mentions is that “free market economics…strives to keep wages in southern countries as low as possible to maximize profits.” In this connection, NAFTA (North American Free Trade Agreement) would be a good illustration, since it had left thousands of workers bankrupt in Mexico; and let us not forget the ‘about-to-emerge’ FTAA (Free Trade Area of the Americas), which meets lots of protests and demonstrations on its way to being created.
Free economic interchange is beneficial, no doubt… for the few strong countries, imposing their rules on the weaker players of this huge game.