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December 16, 2008

Globalization and Morality

The John Templeton Foundation has engaged a number of leading thinkers to write about "big questions" facing society. I first wrote about one of these big questions over a year ago in a post entitled Will Money Solve Africa's Problems? The latest question pundits have been asked to ponder is "Does the free market corrode moral character?" Like the question about Africa, the Foundation managed to find people who could provide a range of answers from "of course it does" to "it depends" to "not at all." The Foundation, of course, is not looking for definitive answers but a stimulating discussion that sparks additional thinking. The academic who puts the most positive spin on the morality of free markets is Jagdish Bhagwati, a University Professor of economics and law at Columbia University and a senior fellow for international economics at the Council on Foreign Relations. He begins his commentary by noting that most people on college campuses equate free markets with globalization and that raising the issue of globalization can result "in an avalanche of criticism." Bhagwati continues:

"The opposition of faculty and students to the expansion of international markets stems largely from a sense of altruism. It proceeds from their concern about social and moral issues. Simply put, they believe that globalization lacks a human face. I take an opposite view. Globalization, I would argue, leads not only to the creation and spread of wealth but to ethical outcomes and to better moral character among its participants. Many critics believe that globalization sets back social and ethical agendas, such as the reduction of child labor and poverty in poor countries and the promotion of gender equality and environmental protection everywhere. Yet, when I examined these and other issues in my book, In Defense of Globalization, I found that the actual outcomes were the opposite of those feared. For example, many believed that poor peasants would respond to the greater economic opportunities presented by globalization by taking their children out of school and putting them to work. Thus considered, the extension of the free market would act as a malign force. But I found that the opposite was true. It turned out that in many instances, the higher incomes realized as a result of globalization - the rising earnings of rice growers in Vietnam, for example - spurred parents to keep their children in school. After all, they no longer needed the meager income that an additional child's labor could provide. Or consider gender equality. With globalization, industries that produce traded goods and services face intensified international competition. This competition has reduced the yawning gap in many developing countries between the compensation paid to equally qualified male and female workers. Why? Because firms competing globally soon find that they cannot afford to indulge their pro-male prejudices. Under pressure to reduce costs and operate more efficiently, they shift increasingly from more expensive male labor to cheaper female labor, thus increasing female wages and reducing male wages. Globalization hasn't produced wage equality yet, but it has certainly narrowed the gap."

Bhagwati's position seems to be that the most "moral" thing we can do is help reduce poverty and want. He doesn't deny that greedy and exploitive people and companies exist or that bad things can happen as a result of connecting local economies with global networks. But taken as whole, he sees that globalization has been a good thing.

"Globalization has allowed [India and China] to improve material conditions for hundreds of millions of their people. Some critics have denounced the idea of attacking poverty through economic growth as a conservative 'trickle-down' strategy. They evoke images of overfed, gluttonous nobles and bourgeoisie eating legs of mutton while the serfs and dogs under the table feed on scraps and crumbs. In truth, focusing on growth is better described as an activist 'pull-up' strategy. Growing economies pull the poor up into gainful employment and reduce poverty."

Turning more specifically to the question of morality itself, Bhagwati writes:

"As for the influence that globalization continues to have on moral character, let me quote the wonderful sentiments of John Stuart Mill. As he wrote in Principles of Political Economy (1848):

The economical advantages of commerce are surpassed in importance by those of its effects, which are intellectual and moral. It is hardly possible to overrate the value, in the present low state of human improvement, of placing human beings in contact with persons dissimilar to themselves, and with modes of thought and action unlike those with which they are familiar. …There is no nation which does not need to borrow from others, not merely particular arts or practices, but essential points of character in which its own type is inferior.… It may be said without exaggeration that the great extent and rapid increase in international trade, in being the principal guarantee of the peace of the world, is the great permanent security for the uninterrupted progress of the ideas, the institutions, and the character of the human race."

Although Mill's sentiments reflect a bit of Norman Angell's unjustified optimism that globalization in the late 19th century had eliminated the threat of international conflict, his point -- that we all grow and improve when exposed to other cultures and ideas -- remains valid. As Bhagwati asserts:

"In today's global economy, we continually see signs of the phenomena Mill described. When Japanese multinationals spread out in the 1980s, their male executives brought their wives with them to New York, London, and Paris. When these traditional Japanese women saw how women were treated in the West, they absorbed ideas about women's rights and equality. When they returned to Japan, they became agents of social reform. In our own day, television and the Internet have played a huge role in expanding our social and moral consciousness beyond the bounds of our communities and nation-states."

Bhagwati goes on to reflect on another perspective of globalization's connectivity.

"Adam Smith famously wrote of 'a man of humanity in Europe' who would not 'sleep tonight' if 'he was to lose his little finger tomorrow' but would 'snore with the most profound security' if a hundred million of his Chinese brethren were 'suddenly swallowed up by an earthquake, "because" he had never seen them.' For us, the Chinese are no longer invisible, living at the outside edge of what David Hume called the concentric circles of our empathy. Last summer's earthquake in China, whose tragic aftermath was instantly transmitted onto our screens, was met by the rest of the world not with indifference but with empathy and a profound sense of moral obligation to the Chinese victims. It was globalization's finest hour."

Bhagwati paints a picture that many people believe is a bit too rosy. On the end of the spectrum is Michael Walzer, a professor emeritus in the School of Social Science at the Institute for Advanced Study in Princeton, New Jersey. Instead of looking at the forest of globalization, he looks at the individuals (the trees) who operate in it. He concludes:

"Competition in the market puts people under great pressure to break the ordinary rules of decent conduct and then to produce good reasons for doing so. It is these rationalizations - the endless self-deception necessary to meet the bottom line and still feel okay about it - that corrode moral character."

Arguing that globalization (or the free market) is bad because some (maybe even many) people lack the moral character and courage to do what is right when faced with difficult circumstances is a bit of a red herring and Walzer concedes the point. He notes that just because politicians lie during campaigns and make outrageous promises their bad conduct does not necessarily condemn the overall value of democracy. He really seems to be arguing that the free market rewards bad conduct and that is what makes it a morally corrupting system.

"To be sure, economic and political competition also produce cooperative projects of many different sorts - partnerships, companies, parties, unions. Within these projects, empathy, mutual respect, friendship, and solidarity are developed and reinforced. People learn the give-and-take of collective deliberation. They stake out positions, take risks, and forge alliances. All these processes build character. But because the stakes are so high, participants in these activities also learn to watch and distrust one another, to conceal their plans, to betray their friends, and - we know the rest, from Watergate to Enron. They become 'characters' in familiar stories of corporate corruption, political scandal, defrauded stockholders, and deceived voters. Let the buyer beware! Let the voter beware!"

The system, however, has also rewarded men like Warren Buffett, who has lived modestly, created wealth, and become one of the world's great philanthropists. The fact that we know more about the scoundrels than the saints still doesn't mean that the free market system and globalization are fatally flawed. Walzer doesn't necessarily argue that the system is fatally flawed either; rather he argues that it will remain a corrupting influence until an international system of checks and balances can be put in place to stop the most grievous abuses.

"Constitutional democracies have succeeded in stopping the worst forms of political corruption. We are free from the whims of tyrants, from aristocratic arrogance, from repression, arbitrary arrest, censorship, fixed courtrooms, and show trials - not so free that we don't need vigilantly to defend our freedom, but free enough to organize the defense. Politicians who lie too often or break too many promises tend to lose elections. No, the worst corruptions of our public life come not from politics but from the economy, and they come because we don't have similar constitutional limits on market behavior. ... Market constitutionalism would set similar limits on the economic power of the wealthiest men and women. But again, obviously, we don't have much of a market constitution."

There are, of course, a number of positions between those taken by Bhagwati and Walzer. One of the problems with answering the question is that it may be a "big question" that is too "big" because it involves so many nuances. The free "market," for example, is not a single market but a network of different markets. John C. Bogle, founder and former CEO of Vanguard and president of the Bogle Financial Markets Research Center, argues that the "free" market is really a "fettered" market and that a truly free market has never been tried. He laments the fact that the individual investors have been replaced by "agents" and that "the free-market system has been debased because our new institutional agents not only seem to ignore the interests of their investor principals, they also seem to have forgotten their own investment principles." Whereas Walzer advocates more fetters on the system, Bogle wants fewer.

One of the essays that rings true was written by Robert B. Reich, a professor of public policy at the University of California at Berkeley, and former member of the Clinton administration. His answer to the question -- "Does the free market corrode moral character? -- is "We'd rather not know." He writes:

"Most of us are consumers who try to get the best possible deals in the market. Most of us are also moral beings who try to do the right things in our communities and societies. Unfortunately, our market desires often conflict with our moral commitments. So how do we cope with this conflict? All too often, we avoid it. We would rather the decisions we make as consumers not reflect upon our moral characters. That way we don't have to make uncomfortable choices between the products and services we want and the ideals to which we aspire. ... To be sure, some consumers do shop with an eye to these far-removed moral consequences, and some companies pride themselves on selling goods and services produced in socially and morally responsible ways. But the evidence shows that most consumers want only the great deals. Even if we like to associate ourselves with responsible brands, most of us don't want to pay any extra for responsible products. The market does not corrode our character. Rather, in these two ways it enables us to shield ourselves from any true test of our character. It thereby allows us to retain our moral ideals even when our market choices generate outcomes that would otherwise violate them. If the market mechanism were so transparent that we could not avoid knowing the moral effects of our buying decisions, presumably we would then have to choose either to sacrifice some material comforts for the sake of our ideals or to sacrifice those ideals in order to have the comforts. That would be a true test. Absent such transparency, we don't need to sacrifice either. We can get the great deals and simultaneously retain our moral scruples without breaking a sweat."

Although that sounds cynical, most of us would have agree that what Reich argues is true. His reflections on the matter, however, lead us no closer to knowing whether a better system exists to create wealth and decrease poverty. Ayaan Hirsi Ali, who immigrated to the Netherlands from Somalia in 1992, where she served as a member of parliament from 2003 to 2006, has lived in place where no system existed and where poverty still grips tightly on the people who remain in her homeland. Ali concludes:

"For those seeking moral perfection and a perfect society, a free market is not the answer. In the course of history, the search for perfect societies - that is, the failure to acknowledge human imperfection - almost always ended in one or another form of theocracy, authoritarianism, or violent anarchy. But for those who seek to work with human flaws of every stripe, and to increase the sum total of individual happiness, the free market, combined with political freedom, is the best way."

In the end, that may be the best answer of the bunch. People will never totally agree on what constitutes moral behavior. We may never be able to answer the question about whether it is the system that corrodes morals or human immorality that corrodes the system. Historically speaking, however, we are living in flush times. Millions have been brought out of poverty and, if we can get through the current financial crisis, millions more can be helped. That's not a bad record for a flawed system.


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