Johan Norberg has made an audacious case that compels the readers to make a choice; a choice for either economic prosperity or orthodox inefficient ideologies. As the Chinese reformist leader Deng Xiaoping once said “It doesn't matter if a cat is black or white, so long as it catches mice”; similarly the author voices out that it hardly matters what kind of system of governance is existent till it facilitates prosperity. The question of how to cater to “the greatest good of the greatest number” is answered persuasively. Along with being the most economically apt system capitalism creates a conducive environment for liberal values such as individual liberty and freedom to flourish. Johan Norberg has brought light to many of the misleading statistics of our times. In contrast to countries that liberalized their economies, the ones that imposed trade restrictions and chose to stay isolated were the most unsuccessful in diminishing poverty inequality. This book is a must read for both the pro/anti capitalists. Is it viable to believe that the world today would progress this far with the best ever technological advancements, advanced communication and transportation, vaccines for fatal diseases and a global society without the conducive space capitalism for progress? The answer is obvious.
Certain indicators have been identified and deliberated upon to show why capitalism is comparatively the best mode of socio-economic organization.
The half truth- It is true that the rich are getting richer, but it would be unfair to disregard the fact that the poor are catching up too. As globalization penetrates deeper, citizens all the world are getting empowered with “freedom of choice”. People are free to ‘trial and error’ and hence, choose what is suitable for them-selves without the permission of the rulers. Of course, critiques will argue that not everything can be justified in term of economics. But the point is to adopt “market economy, not a market society”. Plain statistics show how these changes are taking place. As per the UNDP poverty has decreased more in the past 50 years than the last 500 years. Average life expectancy has increased highly. Some of the factors mentioned indicate development with the advent of democracy.
Hunger- Though population has increased tenfold; there has never been a case of famine in a democratic country. Economist Amartya Sen points out that even poor countries like India and Botswana have not seen cases of famine. There is no doubt that education brings prosperity. Economic stability creates a conducive environment for better education. There is no contradiction between democracy and capitalism. Usually the rulers are scared that the status quo will change. ‘Democratic peace theory’ in International puts forward the idea that democracies do not fight each other. International exchange makes countries friendly. Today, China being the world’s second largest economy is looked with much less distrust than couple of years ago.
Awareness has helped women’s oppression to fall in leaps and bounds. Social mobility has increased. It attacks status-quoist . There is link between prosperity and liberation of women.
Astounding transformations-
China- In the 1970’s Deng Xiaoping pointed out that collectivization was impending development. For the first after allowing private property, people began to have food surplus rather than famines. Free economic zones were established along the coastal cities. China has succeeded in bringing biggest and fastest poverty reduction in history. In 2013 they were the highest spending tourists all over the world.
India initiated LPG (Liberalization, Privatization and Globalization) in 1991.Between 1993-99 alone there was a decrease in poverty by 10 %. These schemes have succeeded in breaking the stratification created by the caste system. The ‘unprejudiced market’ is given the credit.
The question of reducing global inequality remains the important task in hand. Inequality decreased rapidly between countries during the 1070’s. HDI has increased in all countries but more in the poor countries.
A deliberate process for prosperity-
What one needs to understand is growth all over the world is a result of deliberate decisions taken by various countries. It is not a miracle. There is a reason why some countries have become so affluent and some have remained the same. The living standards, per capita income and the average life expectancy have increased on a whole. The only answer to poverty is growth. There is a ‘trickle down’ effect when overall growth is realized. In a dynamic market economy there is high social mobility.
When standard of living increases for everyone, it hardly matters how well some groups are doing. G.W Sully found that ‘incomes were evenly distributed in countries with a liberal economy, open markets, and property rights.
Property rights-
It is not necessarily an ideology of the rich. It is a universally accepted fact that one’s economic positions improves with upgrading in production capabilities. In a liberal economy, any one with ideas is allowed to try his/her luck. Ownership rights protect the poor as they are more vulnerable to state regulations. Property rights provide an incentive for foresight and personal initiative. If government is allowed to regulate everything nepotism and corruption will proliferate.
The East Asian Tigers-
If one needs to understand the impact of politics on development, one can juxtapose the growth of East Asian Tigers and the wretched economic conditions of some African nations. The East Asian Tigers have shown the other developing countries how it is possible to develop with the adoption of right political and economic reforms. These countries have allowed freedom of enterprise. Opening their economy attracted foreign investment and encouraged export oriented production. They engaged themselves in internationalization.
The African economic impasse-
Without any doubt the wretched condition of these countries are due to its domestic politics and institutions. The drive self-sufficiency via draconian tariffs, nationalization and detailed control of industries has taken a toll on their economy. Economist Jeffrey Sachs and Andrew Warner have attempted to calculate what changes would have come if they brought East Asian policies of open market. 4.3 % annual growth between 1965-1990 could have materialized and also which could have increased the income by triple. Botswana and Ghana are doing exceptionally well.
Free trade is fair trade-
Mutual benefit-
Trade is based on voluntary cooperation and exchange which is leads to mutual benefits. Tariffs and quotas stand as restrictions on citizen’s choice to choose. Individual skills used in the best possible way This way people are entitled to choose the best at the least possible price. Absolute comparative advantage is possible. The unfeasibility for opting for self-sufficiency is clearly demonstrated by African nations. The fallacy that there needs to be least imports as possible is widespread. Anyway the money earned from exports will need to be used to buy imports to increase the standard of living of the people. The main purpose of exporting is to get us import in return. ‘Trade is not a zero-sum game’, all participants benefit. Schemes to increase tariffs and quotas are just a way to manipulate people. When there are different rules for domestic and foreign businesses, injustices arises.
Free trade brings growth-
Free trade gives freedom to buy what one wants which provides an incentive to the producer to use resources and capital optimally. With healthy competition, inefficiency is kept in check. This brings new ideas and new techniques from all over the world. Isolation leads to stagnation. World output is 6 times what it was 50 years ago, and world trade is 16 times greater. It is necessary to understand that it is trade has facilitated the needs to billions of people today. As Harvard economist Jeffrey Sachs points out based on examination of trade policies of 117 countries that there is direct relationship between growth and free trade. In many cases inequality has decreased with free trade. A convergence has emerged as developing countries are catching up with rich countries.
No end of work-
As productive capacity increases with technology there is a fear that unemployment will be predominant. Usually the reason for unemployment is inefficient politics rather than trade and market. There has been unprecedented creation of jobs all over the world. With employment in one sector saturating new avenues will be created for more jobs. The unlimited wants that humans have will always create new jobs. For example, with the advent of motor cars horse-drawn cabs almost got extinct.
Most of the Western countries have sought for strict immigration policies, but this tends to become counter-productive at times. Countries have to incur huge sum of money for stricter immigration measures. Usually people in dire conditions attempt to immigrate and opt for dangerous methods just to escape. Globalization will not be a complete phenomenon unless people are allowed to move freely. Immigration to an extent can help ease a country’s problems, especially to maintain the ratio of working and retired population. Immigration also leads to higher consumption which leads to market growth.
The development of developing countries-
Development results out of productive capacity rather than natural endowments of a country. The uneven distribution of wealth in the world is due to the uneven distribution of capitalism. Is it viable to argue against the fact that a trillion dollar was channelized into the poor countries between 1990- 2000? Staying isolated will prove to be fatal today.
During the 1960’s the drive for ‘self-sufficiency’ led governments to impose sky high tariff walls to protect the native industries. The economy became more and more publicized as the government attempted to direct man power, prices and production. Huge burden of debt and absence of foreign trade proved disastrous.
Even when trade was believed to solve economic problems; the presence of enormous privileges and discrimination was the problem. When Chilean government replaced authoritarian economic policy with liberalization and free trade in 1975 real earnings doubled by 1995.
On the trade route-
Today developing countries are demanding that the affluent market be open to their exports. Because of satellite communication and the internet, local inhabitants are hired for remote management of things like payroll, invoicing, customer services to developed countries. Now developing countries are also exporting finished products than just raw materials.
Tariffs?
The worst thing that tariffs result in is it allows only certain sectors of a country to prosper. These sectors do not have to face competition, hence, they are never in the pressure to improve efficiency and reduce their price. It is a fatal fallacy to believe that the politicians know better than the market and investors. Tariff walls instead give permanent protection to inefficient corporations.
Capitalism has improved vaccines tremendously. With the improvement in economic capability the poor countries are becoming capable to produce medicines as per required by domestic diseases.
Free trade has loopholes that can be amended.
There are strings attached even in free trade such a strong protectionist measures. When developed countries impose regulations on labor conditions in developing countries, it becomes a choice to either to choose employment or no employment at all. No matter what the prevailing conditions, increase in trade seems to be the only way to increase the standard of living of the poor countries. It is a necessary evil for the developing countries to engage in trade with their prevailing bad conditions, otherwise their growth will remain stagnant. Around 250 million children are engaged in child labor, but if the west stop trading with developing countries based on this, their prospect of improvement will be shunned forever. The alternatives for these children are worse if they do not engage in export industries. In 1992 the American Congress prohibited imports from Bangladesh because the garments that were imported by Wal-Mart were produced by children. Thousands of children were fired out of job as a result. Consequently, children moved to more hazardous jobs. Trade weakens any kind of centralization.
Big is beautiful only when monopoly is checked-
Corporations are looked with distrust because of their mammoth size and the influence. The possibility having a monopoly is a threat rather than their enormous size. Free trade exposes corporations to competition. As corporations run according to consumer demands, even the biggest companies survive on their whims. Free and efficient financial markets allow capital to new entrepreneurs with fresh ideas to compete with big corporations. Big mergers show how even the big corporations are vulnerable. Multinationals on an average pay up to 8 times more than the country’s average wage. Due to their size multinationals are able to finance research and long-term projects. OECD points out that 90 % of the profits are reinvested in the host country itself. The Economist has observed that corporate morality is often superior to that of the average government.
The environmental dilemma-
Anti-globalists point out that corporations settle in developing countries which have less environment regulations. But this thesis is a fallacy. The truth is that American and European investments go to countries with environment regulations similar to their own. Globalization has made possible the spread of environment friendly technology.
The leadership collective-
People get paranoid looking at how the stock market functions. Critics point out how ‘hyper-inflation’ is problematic. But this very global freedom has enabled capital to move where it can yield the biggest returns. The developing countries receive quarter of the world’s combined investments in businesses, projects and land. In this way this ‘leaderless collective’ has been more than five times cleverer than the governments and development aid establishments of the affluent countries at channeling capital to the developing countries. International finance facilitates spreading of risks as one can invest in different places.
Regulate more?
Liberal economies with freer financial markets emerge from their crises more quickly as the Asian states recovered rapidly after the Asian Crisis in comparison to the Latin American countries who had strict regulations. Some have recommended the use of Tobin tax. This means each country would impose a low tax of 0.05-0.25 % on all currency exchange but there are too many complexities in imposing it. This will only discourage investors from investing.
Remedy for volatile market behavior-
A healthy economic policy is one way to check the unstable market behavior. It is true that liberalized economies are vulnerable to financial crisis; however, it is the absence of the necessary institutions that make things worse. A country needs to first have political stability, free trade, and domestic reforms before attempting to liberalize their financial markets. When a country accepts economic freedom, civil freedom automatically flourishes. Market economy often leads to democracy and democracy consolidates the market economy. Political pluralism is possible only through decentralized economy. There is a direct relationship between economic freedom and democratic rights. Democracy acclimatizes to change easily.
There is always a lesson to be learned from old economic blunders. In the same way developing countries can learn from the developed countries. For instance, the development that took 80-100 years for west only took 25 years for China. New information technology is now revolutionizing old economic activities all over the world. Though some people fear globalization is leading to a homogeneous world, people have the right to choose how they want to live.
The onward march of freedom-
The idea of self-determination has inspired the globalized world. When one realizes that a certain right is present in another country, demanding for it comes out naturally. International laws have been supplementing local laws. The idea of human rights as a ‘Universal norm’ would not have been possible without globalization.
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