I must admit, I am a bit biased when doing these readings. I love capitalism. If they made posters of Milton Friedman or Friedrich Hayek, I would hang them on my wall. It's the coolest thing since sliced bread. Nonetheless, I'll be the first to admit that capitalism has some flaws. Why? Capitalism is the only economic system, as supported by Wolf and others, that reflects human nature. It doesn't try to picture humans as saints or sinners, but as what we are. And for that reason, it works.
But as I did say before, capitalism has some flaws. However, I believe that many of the supposed negative effects of capitalism are in reality faults of some government or state somewhere along the line.
Let me give you a perfect example.
Agricultural Subsidies.
Anti-globalization/anti-free trade/fair trade activists like to state that free trade is destorying the farmers of the developing world. As soon as some developing country lets down their trade boundries, American agricultural products come flooding in, destroying any Joe or Jane farmer in their wake. Unless it's a product difficult to grow in the U.S., the U.S. will soon dominate the market.
It is here that I begin my first critique of Wolf. Wolf is a great guy, don't get me wrong, but the system today is broken, but not exactly how Stiglitz describes it. Globalization has failed in the regard that the developed world (i.e. Europe, the U.S., and Japan) are not playing the free trade game all the way. Sure, they're forcing foreign countries to liberalize their trade regimes, but they are not doing the same in response. I mean, look at the Softwood Lumber Dispute, the paper tariffs, the Dubai port deal, or the Unocal bid. Trade liberalization works, but both sides must liberalize for the full effects to develop and also for trust to emerge (which Wolf says, is a necessary condition for markets).
So how does this all relate back to farm subsides?
The OECD spends around $279 billion per year in farm subsidies. How are poor farmers expected to compete? Answer, they can't.
That's alot of money. Stiglitz is right on this one, subsidies are destorying free trade.
And who is responsible for all of these subsidies?
The governments of the OECD countries.
So back to my original point, yeah capitalism has some flaws. But one must be careful before ascribing something they see wrong to the capitalist order.
3 comments:
We could totally liberalize, but like in the Dubai ports case, it could also be a serious security risk--which is more important? Tough call.
I agree. It's difficult for the US to argue against others to reduce trade barriers, when it still retains some of its own to protect certain industries. I don't think we should eliminate agricultural subsidies, but I do feel there needs to be substantial reform. Subsidies can be trickier than tariffs or quotas as a form of free trade obstruction, because the government doing the obstructing pays for it. So while the extent of US (and probably some other OECD countries) subsidize agriculture is wasteful, subsidies can be good for the economy (and with the case of agri subsidies, though hurting farmers elsewhere who might be as or more efficient, but lack subsidies, it does provide cheaper food). A global organization in charge of subsidies would probably work better, at least in theory. Maybe the OECD could pool the money and distribute to farmers in all countries. If this were the case, OECD nations might not spend so much on subsidies (and if they did, at least the only harm done would be the cost to those governments doing the subsidizing.
Dane makes a very important point here about the extent to which "free trade" is "free". You will notice as we continue through Wolf that how often he will say we have "too little globalization, not too much", or similar phrasings. In this, I think he and Dane are finding common ground -- Wolf thinks globalization works, but more is what is needed.
He and Stiglitz actually agree on more than you might think at first glance... with a big difference in tone (and title).
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