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Globalization vs. Capitalism

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Adebe is an impoverished Ethiopian man. There’s a pothole the size of a Toyota in the street facing his house. He’d like to have it fixed before it devours his bicycle, his dog, or his four-year-old daughter. So what does it take to fix it?

According to William Easterly of the Center for Global Development, formerly of the World Bank, it takes, well, a lot.

In his paper, “The Cartel of Good Intentions: Bureaucracy Versus Markets in Foreign Aid,” Easterly lays out the mind-numbingly complex process. Unlike you and me, Adebe can’t just phone the Division of Public Works, or call his city council member. Fixing his pothole is an arduous, time-consuming journey of Godknows- how-many steps, an alphabet soup of acronym and bureaucracy as lovely as the process of bovine digestion, or sausage production.

It all starts, in Easterly’s words, like this:

Adebe somehow communicates his desires to “civil society representatives” and/or non-governmental organizations (NGOs), who allegedly articulate his needs through the government of Ethiopia (itself dominated by one minority ethnic group) to the international donors. The national government solicits a “poverty reduction support credit” (PRSC) from the World Bank and a Poverty Reduction and Growth Facility (PRGF) from the International Monetary Fund (IMF) ... To get loans from the IMF and World Bank, the government completes a satisfactory poverty reduction strategy paper (PRSP), in consultation with civil society, NGOs, and other donors and creditors. The government prepares the PRSP in light of the fourteen-point Comprehensive Development Framework (CDF) of the World Bank …

That’s just the kick-off. Then there are more meetings, more bureaucratic hurdles to jump, more reports to file, and many, many more acronyms. The matter of Adebe’s pothole—as provincial as it may seem—turns out to be a massive international affair involving highly paid suits in posh Washington suites.

Easterly continues:

If the international lenders and donors approve the PRSP and release new funds to the national government, then government will allocate the money in accordance with the NDP, ADLI, CRSP, MTEF, CDF, PRGF, PRSC, and PRSP, after which the money will pass through the provincial governments and the district governments, and the district government may or may not repair the pothole in front of the poor person’s house.

Adebe might as well just pray.

The process isn’t cheap, either. The cost of paper-shuffling alone could have fixed Adebe’s pothole many times over. Easterly notes that “it takes $3521 in aid to raise a poor person’s income by $3.65 a year.” No wonder antiglobalization activists want the Bank and the Fund (as they are called in D.C. — much as one speaks of “the Church” when in Rome) to sink into hell.


Yet there is confusion about what it means to oppose the policies of the Bank and the Fund. A group called the “Anti-Capitalist Convergence” is one of many that are “organizing against the World Bank and the International Monetary Fund (Bank and Fund) because of their roles in enforcing and expanding global capitalism and imperialism” (my italics).

But wait.

Just what do the Bank and the Fund — paragons of state-sponsored bureaucracy, quagmires of regulation, cash-burning vehicles of ineffective global wealth redistribution — have to do with capitalism?

It’s true that the Bank and the Fund often attempt to prescribe “pro-market” reforms. But just as the fall of the Soviet Bloc showed that you can’t plan socialism, the failures of the Bank and the Fund show that you can’t plan capitalism, either.

Projects sponsored by the Bank very often stink like the misbegotten fruit of a communist five-year plan, and very rarely exemplify the tendency toward efficiency found in a free market. Thus the Third World is strewn with steel mills that produce no steel, oil refineries that refine no oil, bridges for railroads that run no trains, and airports where only mosquitos alight. These white elephants roam the world’s underdeveloped countryside because capital was funneled by the Bank and the Fund to where it would not freely flow. Which is to say that the Bank and Fund, by their very nature as bureaucracies trying to outguess capitalism, are anything but capitalism in action.

Nor do the policies of the Bank and Fund do the bidding of capitalism in unleashing free-market forces in poor countries, even aside from those policies’ manifest failures in producing needed “infrastructure.” Bank and fund monies generally flow to the governments, not the people, of recipient nations — including regimes headed by brutal dictators. Doug Bandow writes that “the aid agencies never met a dictator that they didn't like and wouldn’t subsidize — generously. Mengistu’s Ethiopia, Ceausescu’s Romania, Deng’s China and Mobuto’s Zaire all received grants and loans from bilateral and multilateral sources.”

It comes as no surprise to learn that tyrants bankrolled by the Bank and Fund are rarely champions of rights to private property, free exchange, and the rule of law — the mainsprings of capitalism because they are sources of decentralized power. Money showered on dictators tends to enrich them personally and entrench their rule.

Mobuto, the former dictator of Zaire (now Congo), is said to have used Bank and Fund resources to buy himself a number of European castles, a fleet of Mercedes, and a private 747 — and to equip his military forces to put down dissent. Multinational donor agencies apply a thick mist of Orwellian euphemism to make problems of such enormous gravity disappear. “Countries with homicidal rulers are also known as ‘low income countries under stress.’ Countries whose presidents loot the treasury experience ‘governance issues,’” Easterly writes.

Even where the local government isn’t dictatorial, frequent infusions of cheap cash from the “international aid community” enables bungling governments to maintain costly levels of regulation, restrictions on trade, and economically damaging levels of taxation and bureaucracy. The governments are thereby insulated from the effects of their own anti-market policies, and capitalism does not thrive.

Perhaps most significantly for daily life at the grassroots, the Bank and the Fund serve to thoroughly politicize life in recipient nations.

If money from the Bank and the Fund is just about the only money around, then almost everything rides on the decisions of politicians, bureaucrats, and administrators into whose hands the money falls. If you want a pothole fixed, what you need to do is grease the wheels of the local bureaucracy. You need to “know a guy who knows a guy.” And if you want to live really well, you’ll need to get yourself into a position to capture some of the copious aid money flowing down through the echelons of government.

But if everyone is making a mad scramble for government money, then no one is starting a business, or searching out winning entrepreneurial opportunities. Thus capitalism — which has to spring from many small capitalist acts at the grassroots, if it’s going to spring at all — is stunted in utero; no new wealth is created; and no one, in the long run, is made better off.


So, then, what does it really mean to oppose institutions like the Bank and Fund?

The anti-globalization protesters in Seattle, D.C., Quebec, London, Davos, Gothenburg, Prague, and Genoa tell us that it’s about opposing the forces of “global capitalism.”

But in what sense are institutions that attempt to plan economies, that displace private investment, that prop up the rule of socialist dictators, that insulate countries with anti-market policies from the consequences of their actions, and that squelch entrepreneurial market activity by politicizing the social life of poor countries — in what sense are these institutions tools of capitalism?

They look instead rather like a global regulatory state that breeds politicking in impoverished countries, and puts capitalism, growth, and increasing prosperity out of reach for impoverished people.

What poor people need is to not be poor. People emerge from poverty by creating wealth, by cooperation to mutual benefit through the division of labor.

This is how we got to be rich, we, the young adults of the developed world. Our economic “devlopment” is the inadvertent product of the emergence of relatively unregulated “markets” in places like eighteenth-century England — a phenomenon so unexpected, and which produced so much wealth, that it inspired great minds from Adam Smith to Karl Marx to try to figure out how it had been done—after it had been done. Where these diverse thinkers agreed is that once private property was treated as a “right,” capitalism sprang up spontaneously. It was not forced by technocrats.

If organizations like the Bank and the Fund had been sovereign in eighteenth-century England, there probably would have been no Industrial Revolution in the First World in the nineteenth century, and none of the abundant wealth that the Bank and the Fund now uses in ways that prevent capitalism from developing in the Third World.

Capitalism is what provides the wealth that produces what we in the First World need (as well as much that we don’t need). Even Marx conceded that point. We should oppose the Bank and the Fund because they are so good at keeping Third-World capitalism at bay — that is, because they keep impoverished people from getting what they need.

OK, we shouldn’t like the Bank and the Fund. But should we like globalization? It’s a bad question. Globalization is a confused and confusing idea. We need distinctions.

If globalization is the process by which transnational political bodies, such as the Bank and the Fund, gain authority, then there’s a lot to be said against it. But if globalization is the process by which people around the world become ever more integrated by means of technology and trade, then it’s a boon to humanity, and especially to the poor. Take your e-mail address book: it knows no boundaries. It’s now perfectly normal for an American to correspond regularly with friends in Norway, Japan, Germany, Australia, and Kenya, eroding cultural barriers, forging friendships across borders, and making the world a smaller, more intimate place. That is cultural globalization.

When someone in Des Moines buys Gap clothing made in India, that’s globalization, too. And it’s a good thing. An Iowan got some pants, and some Indians got a paycheck. That is economic globalization.

Economic globalization in this sense is the best hope for the world’s poor, and it’s been making things better, despite the disastrous policies of multinational aid agencies — which, fortunately, are not so powerful as to be sovereign. Between 1965 and 1998, the average world citizen’s income more or less doubled, from $2,497 to $4,839 per year. The income of the richest fifth of the world’s population has risen 75 percent. But the poorest fifth has seen its average income more than double during the same period, from $551 to $1,137 per year.

According to Columbia University economist Xavier Sala-i-Martin, 17 percent of the world's population made less than $1/day in 1970 (in 1985 dollars, adjusted for differences in purchasing power across countries), while in 1998, only 6.7 percent did — despite the fact that the world’s population has grown by two thirds during that time.

The increases in prosperity in the Third World are largely due to the remarkable growth in the economies of Asia, where markets and global trade have been embraced with varying degrees of enthusiasm. However, in Africa, where markets and global trade have generally been repudiated, the people remain, by and large, in the throes of the most desperate poverty. The Bank and the Fund are trying to impose economic globalization through political globalization, and they are failing — indeed, making things worse.


Opponents of globalization worry that many of the economic opportunities afforded the world’s poor are exploitative and degrading. There are leagues of coalitions opposed to sweatshops. There are Feminists Against Sweatshops, United Students Against Sweatshops, Faculty Against Sweatshops, and so on. The fight against sweatshops is a triumph of good intentions misled by careless thinking. Calling a factory in a poor country a “sweatshop” is misleading: if they are so bad, why do people choose to work in sweatshops at all? The answer now is the same as it was in the West during the Industrial Revolution: because the alternatives are worse.

In many developing countries, the alternative to labor in factories is an uncertain and backbreaking life of subsistence agriculture, begging, or prostitution. In comparison, the wages in factories are high, the opportunity for advancement is promising, and the work conditions, while sometimes awful in absolute terms, are agreeable compared to the alternatives. As Nicholas Kristof and Sheryl WuDunn put it in the New York Times Magazine, “Sweatshops that seem brutal from the vantage point of an American sitting in his living room can appear tantalizing to a Thai laborer getting by on beetles.”

As reporters living and working in Asia, Kristof and WuDunn wrote:

Like most Westerners, we arrived in the region outraged at sweatshops. In time, though, we came to accept the view supported by most Asians: that the campaign against sweatshops risks harming the very people it is intended to help. For beneath their grime, sweatshops are a clear sign of the industrial revolution that is beginning to reshape Asia.

It would be a better world if the alternatives weren’t so harsh. But a population of unskilled workers has got to start somewhere. At the turn of the century, unskilled American immigrants found work in hot, overcrowded factories, which led eventually to higher-skilled, higherpaid jobs, and the luxurious working conditions we enjoy today. Social justice does not demand that we throw poor people in distant countries out of work by boycotting the products they toil to create. It is no kind of enlightenment to declare, having already reached the chamber of riches ourselves, that the journey to get here is too degrading, so that the doors must be shut behind us.

When we oppose capitalism, we oppose the only economic system that is known to reliably lead people from the miseries of poverty. Opponents of globalization provide no serious alternatives to what they oppose.

Socialism is a failure, in theory and in practice, at a cost of millions of lives. The idea that Westerners would tax themselves severely enough to provide directly for the Third World’s needs is a fantasy. If we genuinely care about the world’s poor, then we should advocate the indirect approach that produced our wealth: let the Third World sell the First World things we want to buy. That is capitalism. There are better things to oppose.

The globalization of capitalism is the process through which people like Adebe can become enmeshed in a market that stretches beyond his neighborhood, beyond his country, and beyond his continent. Economic globalization is the process by which a shopper in a Belgian market can, unwittingly, help send Adebe’s daughter to school. It is the process by which Adebe can come to afford to just fix the pothole himself — or can pay someone else to. Political globalization, by contrast, cements him in a web of bureaucracy in which the payoffs demanded are too expensive for Adebe to make — because he has not been empowered yet, by the sale of his labor, to afford very much at all.

The next time you get the chance, please protest against the IMF and the World Bank. But do it for the right reason. Do it not because they promote globalization and capitalism, but because they impede it.

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Will Wilkinson is a graduate student in philosophy at the University of Maryland, College Park.






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