by Ralph E. Ancil
In educating for democracy, we must also educate for economy. This follows from the fundamental truth that government and economy have an indivisible relationship. We are not free to mix any form of government with any economic form. In the present context, we will apply this truth to three possible visions of economy: the globalist, the regionalist, and what may be called the “localist” views.
Consider the globalist view of Ben Wattenberg. He has expressed his vision of the good life in the terms of the benefits that the General Agreement on Tariffs & Trade (GATT, now the WTO) and the global economy will give us. Technology in the form of satellites and computer links is moving us “toward an overarching global culture”; and as a result entertainment, publicity, and advertising are “all able to leap countries in a single bound.” America is the envy of the world and all countries want to Americanize. This, he argues, is all as inevitable as it is good (Ancil, pp. 4-5; Wattenberg).
Contrast this with James Goldsmith who claims, when speaking of David Ricardo’s doctrine of comparative advantage and GATT, “these ideas are not valid in today’s world.” Instead, he argues: “We should start by rejecting the concept of global free trade and replacing it by regional free trade,” in conjunction with bilateral trade agreements and a return to the “original concept of the Treaty of Rome” (Goldsmith, pp. 7-13).
Finally, a British soldier in World War II was asked to explain his ideas for living after the war. According to Roepke, the soldier “openly confessed he was not anxious to die for communal kitchens or massed democracy, but for a small home of his own with a garden, for a decent family life, for a simple and stable existence and for a humanistic education for his children.” A survey of British housewives and soldiers gave a similar result: they favored a simple life embodied in the formula of “house plus garden” over the most comfortable urban flats (Moral Foundations, pp. 155, 165). Their vision is very much like Charles Butler’s advice for the “cultivation” of The American Gentlemen in 1839: “In almost every description of the seats of the blessed,” he says, “ideas of a garden seem to have predominated….Happy were it, if the amusement of a garden were more generally relished” (pp. 269, 270).
These statements are symbolic not merely of conflicting views of economic life, but of differences on vital issues. Which view is right? What we are really dealing with is the question: how should we live? What is the manner of life we believe is good for human beings? What is the best way economically of reinforcing a democratic government, a government of free and independent people? And, what actually is the purpose of an economy?
Western tradition is not without an answer. It is a tradition which values the individual and seeks the flowering of human personality and this means individuals require a measure of liberty and independence. How, then, do we best achieve liberty and independence for people in civic life and in the economy? Do globalism and regionalism further or hinder these values? If they are hindrances, is there an alternative? The short answer is that both globalism and regionalism should be rejected and an alternative policy pursued.
The Problem of Globalization
The Wattenberg dream promises us greater productivity of material wealth and unity and peace among all nations as they move to a uniform, world-wide, electronic-driven culture. Globalization simply refers to a process of increasing international economic dependence. Its nature is better understood by asking what is the purpose of the economy as globalists see it? The process of globalization is the outgrowth of the obsession of all the industrialized countries with one chief policy, namely, the commitment to continuous increases in economic growth, that is, to unlimited increases in individual consumption with the social, cultural, moral and political changes it entails.
Now, the problems of international trade as such are ancient. They were known in the days of the Israelites, in the time of the Greeks, and in the Roman empire; they were known in the later Middle Ages, in the growing international trade of the last century, and in between the two great world wars. Much of the historical and economic literature between the wars refers to our growing dependence on international trade and the problems this presents for nations.
So that much is old and familiar. What is new and why is it problematic? The degree and intensity of trade are new and it is more intrusive, and the change more rapid. This is where we begin to question what’s happening and whether or not it is good. There are five major but overlapping objections to be raised:
1. The first problem of the process of globalization is that it is socially destabilizing. The promiscuous mixing of different peoples, languages and cultures is normally confusing and unwelcome to individuals and contributes to prejudiced and alienating attitudes against foreigners; it separates the generations, and divides families which is still more unsettling. This problem comes from the excessively fine division of labor both between and within nations which, while it brings about greater productivity, also has this cost of increased social change.
2. Mass technification of our world is the single biggest reason for globalization. It causes the functional abolition of national boundaries, the disappearance of cultural diversity in favor of a growing uniformity of tastes and patterns of living, as best symbolized perhaps in the architecture of any modern city: a series of blank, uniform buildings, boring, unimaginative, and devoid of grace and beauty. The mass transportation of people and goods, the processing of information electronically through satellites and computers are the major forces in this trend. But they are also furthered by certain legal structures such as the corporation and by the ideology of globalism that says somehow this is all good, the way of peace and prosperity, and by the submission of life to the control of international corporations, plus the fact that big corporations fit well with big government so the political and economic aspects lose their distinction wherever corporate and government bureaucracies merge, clearly a threat to the fundamental values of a free government and a free economy.
3. Globalization is an extension of a market economy’s inability to deal with the question of size or scale. As Herman Daly pointed out some years ago in his well-known work on steady state economics, the free market knows nothing about scale. It can allocate resources efficiently but it cannot know when to stop at the right size. By committing ourselves to the ideology that bigger is always better, or what Roepke called the “cult of the colossal,” we change the nature and direction of our economic activity to favor large corporations, and to think on a global scale rather than, say, a national, regional or local one. The present spread of large corporations from the national to the international level, then, is a natural outworking of both this ideology and the market’s unfortunate inability to know when to stop.
4. Another dimension to globalization is its unqualified commitment to economic growth. Much of the highly praised economic growth in modern times involves a waste of resources insofar as it promises benefits that only a few can have but not all, even though all are invited to participate in the scramble. British economist Fred Hirsch has called this “positional competition” involving “positional goods,” the scramble to use resources to achieve social positions, advantages over other people, which some, but not all, can have.
5. An objectionable aspect of globalism is its contribution to the further commercialization of life. But this is merely an extension of the commercialization that has been and continues to be practiced within a country. Commercialization means inappropriate or excessive advertising and marketing. Examples are obvious: the destruction of free space in the form of billboards and signs, the effort to enlist sex to sell a product, the use of marketing techniques, and money-making schemes to sell religion, art, and science. Once these have been exploited within a country, it is no wonder that corporations look elsewhere for additional opportunities for profit and use the same techniques.
There are other possible flaws. Mishan speaks of “impulse buying” on which swings in international trade are mainly driven by technical advances and intensified by advertising and marketing techniques. The wisdom of allowing this is surely questionable, and so scope exists for policies to moderate such forms of economic instability (Economic Myths, p. 207).
Above all, in none of these aspects of globalism is it obvious how democracy, independence, and liberty are strengthened. For example, multi-national corporations appear to have no loyalty to culture, to country, or to anything higher than monetary profits, and sometimes bypass customary democratic procedures. To be sure, some aspects which attach themselves to or derive from a market economy are positive helps for a free government, but it is unclear whether they are strong enough to overcome those more doubtful aspects indicated above that would seem to weaken rather than strengthen a free and democratic society.
Is there a better alternative? Some, riding the crest of the current fashionable wave, say no, deluding opponents into thinking that this fashion is inevitable, and that there is nothing to be done but to jump on board. Such pronouncements are clearly nothing but self-serving misrepresentations. We must reject what Alexander Ruestow calls the “superstitious belief in the inevitability of the development” (Ruestow, p. 275) and remember that collectively we do have our choices. One such alternative choice is voiced by those who likewise reject globalism and favor a policy of “regionalism.” These include U.S. presidential candidate Patrick J. Buchanan and, in Europe, James Goldsmith.
The Problem of Regionalism
Perhaps the place to begin with regionalism is to note a different definition of the purpose of an economy: it is to provide growth with stability. This is an improvement over the definition of the globalists or laissez-faireists. Mr. Goldsmith wants a regional free trade bloc for Europe, and a return to the original conception of the Treaty of Rome. Interestingly, and unlike other protectionists, Mr. Goldsmith also wants economic decentralization, restoration of crafts and artisans, small- and medium-sized businesses and the revitalization of small- and medium-sized towns and cities (Goldsmith, pp. 7-13).
Doubts and Defects of Regionalism
The objections to disconcerting social change as mentioned above apply to regionalists, although with some differences. Using Mr. Goldsmith as one of the better advocates of this position, there are five difficulties to mention:
1. One reason Mr. Goldsmith objects to free trade and the concept of comparative advantage is due to the volatility of exchange rates—a proper concern, but its cause comes from not having a stable international currency, such as gold. And it also is due to the deficit spending of governments, especially in America, which affects foreign exchange markets and increases the trade deficit.
2. International trading blocs may not be the best place to start an alternative to globalism. These require the creation of meta-national organizations which are politically and economically difficult to manage. The problems arising from politicizing the economy mar the history of the Common Market.
3. The desire for unlimited economic growth rooted in the uncritical acceptance of modern technology is not compatible with the other goal of social stability. Instead, it is a major force for some of the problems regionalists identify.
4. Instead of managing the behavior of international corporations, we should work to reduce their size, to increase competition, and to implement strong anti-trust and anti-monopoly policies.
5. A regional bloc may ultimately be unstable: the more integration it achieves within the bloc, the less there may be outside it, and the harder it will be to bring in new members when old members’ interests are disturbed and perhaps increasingly sensitive. As Roepke put it, the more integration in depth, the less there will be in breadth (Modern Age, p. 242).
On the good side of this brand of regionalism are such goals as decentralization, revitalizing local activities, restoring small- and medium-sized businesses and “craftsmen covering a wider range of activities.” “Everything,” says Goldsmith, “must be done to return life and vigour to the small towns and villages throughout our nations” (Goldsmith, p. 12). Here Goldsmith and those regionalists he represents, have something that would be consonant with liberty and democracy and a free economy; unfortunately, it seems a thought that rests in the shadow of the more grandiose conceptions of his trading blocs. Instead of being at the margin, these ideas should be central, and this leads me to the third alternative which does just that.
A Third Alternative
In the American vision, a free republic and a free market both require certain moral and social prerequisites if they are to work. In fact these prerequisites are the same. Vigilance is the eternal price of liberty, an adage applicable to a free economy as well as to a free government. However, eternal vigilance is a difficult thing to maintain. It is easy to slip into a liberty-losing complacency as history all too frequently shows. The desire for liberty must also be cultivated eternally; people must be educated to the right principles of free government and free economy; and they must be given the means to awaken and sustain affection for and identity in these institutions. Our guiding principle, then, should be that which cultivates the will to independence.
The purpose of an economy is to provide a platform for the practice of higher values, the higher aspects of human personality. As Alexander Ruestow said of a socially responsible market economy: “The social market economy must be the servant of humanity and of trans-economic values. All social, ethical, cultural and human values are more important than the economy, yet the economy must prepare the ground for their fullest development. For this reason the economy must not take on forms which are incompatible with these trans-economic values” (Barry, p. 108). It is not enough to argue for “free trade” or for the “free market” for these may take different forms, depending on other social, political, religious and cultural factors. We are looking then for that form which best gives us a humane economy, where not only the economic goals are fulfilled, but the platform for the realization of higher ones is established also. So, we need that form which most completely fulfills the economy’s purpose: material security and a platform for higher values. At the interface between these two we have liberty and independence which are both constitutive means of the economy and higher values in themselves.
Digression on Costs and Efficiency
It is easy to try to trump an opponent’s argument by saying that your policy is “efficient” while your opponent’s is not, and also appear to be scientific and value-free. Some globalists argue this way about international trade and comparative costs: by allowing each country to specialize in what it does best, costs are reduced and productivity is increased.
But costs are more than the narrow, technical part of an output-to-input ratio. They also involve form, and form implies purpose, end, and value, as Thomas Aquinas so aptly pointed out. Unless we are willing to admit this, we end up with some rather silly arguments. In international trade, we can’t say we’re applying the concept of cost properly by arguing that, since foreigners are more “efficient” at investing in the United States and we are more “efficient” at consuming, we should allow this international division of labor to occur; Americans can thus sustain low savings rates and maximize consumption, while foreigners continue to invest. Or, as one economist said, the federal budget is always balanced—somebody pays the bills. In all three cases the form, as distribution, is all wrong. The statements are true but not relevant. And, clearly, the concept of “efficiency” is not meaningful here either.
By bearing a cost, of course, we mean an appropriate accounting of the cost, a right distribution, and this implies “oughtness,” a value. We see it in the premier concept of economics that he who bears the benefits should also bear the costs, a maxim which is as important for its equity as it is for its efficiency. So, cost as value (form or distribution) is inseparable from cost as technical efficiency (output-to-input). In fact, efficiency is meaningless in the absence of purpose, without which our economic actions would resemble the ancient Greek steam engine, the Aeolipile, which whirled and hissed but didn’t do any work. And, of course, we must recognize that the broader social efficiencies with implied purposes as well as the narrow economic ones involve trade-offs such that an increase in efficiency of one requires a decline in another. Costs and benefits (economic efficiency) are inseparably linked to these broader, higher social forms and values, and in fact take on full meaning only in their context.
In international trade, however, partisans tend to separate form from efficiency. Globalists and free-traders stress the volume of trade while protectionists worry about the form of trade, distribution between exports and imports. Both need to be considered and linked to larger social ends: material productivity as well as diversity, stability, and security. This is true also for individuals who specialize in their work thereby increasing productivity, but at a cost to their economic stability and security. The question of comparative costs, whether considered at the international or individual levels is not one of throwing the principle out altogether, as some protectionists would do or of its blind application, as laissez-faire globalists would do. Rather, it is a matter of knowing when it is appropriate to apply the principle and when not, when to limit and qualify it, or when to make exceptions to it and when not.
The Entelechy of the Humane Economy
Roepke’s answer for this is not the total rejection of specialization for the individual but a modification and compensation. His view of a humane economy begins with the household and the local community and works its way upward by a principle of economic subsidiarity, which means making the lowest economic units, the household and local community as vibrant, competitive, and stable as possible. Only when these levels are as economically complete as they can reasonably be, do we move up to the next higher level of trade: state, regional, national, and international. This would lessen the intensity of international trade, change its structure, and thereby reduce the trend toward globalization and at the same time would eliminate the need for regional trade blocs. (The object is to balance consumption and production as much as possible within each level.)
This subsidiarity begins with the household (the real meaning of economy, oiko-nomia, household management). Independence and liberty are fostered by ownership of productive property at the household level, owning productive assets (e.g., land, buildings, and equipment). Independence and liberty are fostered for the family when it owns a house debt free and when it produces some of the things it needs. This may be home education, home entertainment, its own electricity, as well as some of its own food stuffs and clothes. Public policy should be directed to finding ways and means of strengthening these features at this level (e.g., research to favor the small and the local, not that which favors the large and the global). Such partial self-sufficiency is healthy socially and economically.
Policies should be shaped to preserve the economy and political health of the local community. We should stress local buying and selling and local production. The personal relations supplement the operation of prices and the harmony of the market by allowing for an informal accountability, motivating people by giving them identity in something wholesome, concrete, and personal rather than working with the formal, abstract, and anonymous, and improving both the efficiency and the equity of the market by uniting management and possession of productive property with ownership. Speaking of certain corruptions in a democracy and market economy, Roepke wrote:
“…the real and basic origin of the evil is the division of labor, pushed to extremes and interlocking everything in the most complicated manner, our first thought will be to return to a simpler stage by increasing the sector of self-sufficiency and strengthening local relations between producer and customer…as much as possible…we should consider that the division of labor has possibly been developed too far, so that the strain on frail human morality has become excessive. We must not forget the growing anonymity of all social and economic relations has removed those whom we are bound to treat with fairness to an increasingly remote distance…Let us then, at least to some extent, return to the old easy-going spirit by increasing the sector of simple economic relations (self-sufficiency and local selling and buying) at the expense of the sector of anonymous competition, and we shall have taken the first step towards reconstruction. We are convinced the cultivation of the local sphere in this sense will do wonders” (Social Crisis, pp. 132-133).
What are the principles of international trade that would be consistent with a sense of humanity with all those aspects that we wish rightly to preserve against the onslaught of the globalized economy and the trend toward “one world”? The primary principle is the old liberal one of balance to recognize a multiplicity of needs requiring integration and not to strain the complexity of life through one principle only, the principle of free trade alone.
There is the need to preserve the Ricardian principle of comparative advantage. Nations are still situated differently in terms of their natural resources, educational levels and indigenous skills and history which, despite the mobility of capital and modern technology, creates differences between nations in their economic capacity to produce goods and services. In other words, the doctrine of comparative advantage still has validity and this means that some level of international trade must be allowed to play itself out according to this principle.
Economists call this situation, where comparative advantage holds, “inter-industry” trade, trade between different industries in different countries. In this sense trade complements a country by providing resources and products it wouldn’t otherwise have or not have at such a low cost and occurs mostly between developed and developing nations. But the problem of international commerce is mainly one of “intra-industry” trade, trade within the same industry located in different countries: French cars for German cars, American clothes for Italian clothes, etc. These are substitutes, not complements, and such trade occurs mostly between industrial nations similarly endowed; it is especially problematic because it’s driven significantly by large multi-national corporations (MNCs). This sort of trade is based not on a nation’s natural comparative advantage but by economies of scale and finely differentiated products. The economic benefit is that by specializing, say, in one type of car produced in large numbers, the cost is greatly lowered but so is the variety. Yet if another nation specializes in another type of car and the two trade, both nations enjoy low cost cars and more variety. And competition from foreign firms keeps domestic producers’ prices low.
But there are problems. Large international corporations can buy up local firms to eliminate future competition and engage in other practices to restrict local trade. They command enormous financial resources to direct research and development for new products and to stimulate taste for these products from massive marketing and advertising campaigns. They seek to merge with other competitors to increase their size and to merge with their suppliers to insure adequate resources for production. They can also interfere locally or regionally to alter laws, bypassing established political procedures and remaining unaccountable to the very people whose lives they effect. One example is the Multilateral Agreement on Investments (MAIs, Kruth, pp. 23-41) which surpass local and state laws to establish legal changes favorable to corporate investments through a supra-national court of business, a recycled but more virulent form of extraterritoriality, and clearly a practice uncongenial to democracy.
This all points to the need to balance conflicting goals by keeping our priorities straight. Alexander Ruestow reminds us: “It must also be recognized that even within the economic sphere itself the vital and anthropological aspects which cannot be measured are more important than the essentially economic ones which can” (Ruestow, p. 279). We must remember that people are not all Esaus willing to trade their birthright for a mess of pottage. We are materially rich enough to worry about other things. Specialization must not be taken so far as to endanger the legitimate requirements for economic and political stability which economically includes the need for a level of diversity in production of various goods and services, and the preservation of certain unforeseeable advantages which arise from keeping an industry alive and well within a country rather than surrendering it to others. Above all, it should be remembered that the usually cited advantages brought about through intra-industry trade often involve only marginal additions to variety and cost reduction. These do not outweigh the disadvantages in the political, social and cultural changes that are caused by trade. For these reasons some conservative economists recommend a trade policy favoring inter-industry trade (complements) over intra-industry trade (substitutes). (See Mishan, Economic Myths, pp. 207-208.)
If we need a name for this perspective we might call it a Liberal trade policy, or following the German school of thought which advocated the social market economy, “Ordo-Liberal” trade, as opposed to free (laissez-faire) trade, or Protectionism. It’s “liberal” in the older, honorable sense of recognizing the need for balance with other principles and goals with some mutual limitation. It refers as its chief goal to a composition of the whole and this serves as the ideal or the standard for policy judgments. This distinguishes it from protectionist trade policy since it agrees that a politically neutral economy is best, and yet it also differs from free or laissez-faire trade in that it recognizes that international trade is fraught with risks, uncertainty, and inequalities that may require the protection of other goals and the application of other principles, a view which does no violence to the Ricardian principle.
Some Other Policy Possibilities
There are a number of specific policy possibilities to consider which should be seen as supplementing the social ethos outlined here, not substituting for it. There are four levels to work at: the law, mobility, technology, and ideology. If some of the objectionable aspects of globalization are due to multi-national corporations, then we need to restructure the laws and policies so that small proprietorships are favored wherever feasible. In the United States, for example, the inheritance tax on small proprietorships, a burden which unfairly retards their growth and existence and one which corporations do not bear, should be abolished. (This would also help protect local communities from invasion and unwanted changes brought about by MNCs since small businesses could not wield so much power). Roepke’s principle of the optimal size of plants and firms applies here, for the much-hailed efficiencies of large firms is highly overrated and research into alternative modes of production that would increase the efficiencies of small and medium-sized businesses would be appropriate, as would changes in credit policies to make funds available to them rather than to large corporations. If globalism is a function of arguably excessive mobility, we need to restructure the incentives and the laws so that mobility is reduced by requiring, for instance, a longer residence time before certain privileges of citizenship can be exercised such as voting, and by favoring transportation that is more conducive to local trade perhaps via a gasoline tax, and promote more use of railroads in the U.S., and public transportation, and a living scale where in some cases walking will be sufficient. Lastly, we need to favor those technologies that are accessible and give advantage to the household and the local community and small companies as opposed to those which favor large corporations. We must avoid the sociologically and morally blind development of technology which leads us into a dehumanized world. We must change our educational strategies to favor vocational training to restore crafts and artisanry. Sociologically disturbing advertising, including that which promotes the ideology of globalism, should be banned. And, lastly, we should replace the ideology of “bigger and more are always better” with a belief in “enoughness” and satisfaction. After that, the kind of international trade that will be left will be humane and non-threatening.
Finally, there is scope for unilateral action. Nations, states and local communities can take independent action now within certain limits to humanize their economies and communities as is evidenced by numerous experimental communities in the United States.
Throughout these considerations, dogmatism and inflexibility must be avoided. Instead, the guiding rule for policy-makers should be to ask what is the effect of any policy on the independence and liberty of the household and the local community? Does a certain policy change make people more or less dependent on the market and on government? Does it encourage and awaken the will to liberty and independence, or to slavery and submission? We must keep in mind that it is the essence of civilization not to allow economy to determine everything.
For these reasons the process of globalization must be rejected in favor of a more humane vision of the economy. While many aspects of regionalism or protectionism indicate worthy intentions or goals, on the whole these approaches also must be rejected. The answer lies in the directions indicated by other thinkers favoring localism, the principle of subsidiarity as applied to economics, a rational policy of intervention, a new progressive policy of economic development rather than the out-dated, exclusive pre-occupation with material growth. This approach is consistent with the best of the European and American traditions, including that of democratic government. Education into these principles, into the relationship between free government and free but humane economy, is also vital.
Ralph Ancil is the President and Economist for the Roepke Institute and is a professor at Geneva College.
[This essay appeared in The Legacy of Wilhelm Roepke: Essays in Political Economy by Ralph Ancil. Copyright held by the Wilhelm Roepke Institute and reprinted by permission. Read the series introductory essay here.]
Ralph E. Ancil, “Antecedents and Implications of Hirsch’s Positional Goods,” in History of Political Economy, 23:2 (1991, with D. Hakes).
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Norman Barry, “Political and Economic Thought of German Neo-Liberals,” in German Neo-Liberals and the Social Market Economy (Peacock and Willgerodt, eds.), St. Martin’s Press, New York, 1989.
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Alexander Ruestow, “General Sociological Causes of the Economic Disintegration and Possibilities of Reconstruction,” in International Economic Disintegration (W. Roepke), William Hodge and Company, London, 1942.
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