With some notable exceptions, economic boundaries, at least over the past century, have been the same as national political boundaries. Historically, each nation has had its own currency, and economic relationships between those within nations have been distinctively different from economic relationships among nations. The British Empire of the early 1900s, which once included a fifth of the globe, might have been considered a single economic unit. More recently, the North American Free Trade Agreement (NAFTA) and the European Community (EC) represent attempts to bring several nations within a single economic boundary. But, most economic communities have been defined as single nations.
The purpose of economic boundaries is to promote “free trade” within the boundaries and carry out “selective trade” among those groups separated by boundaries. Historically, economic diversity among nations has been considered a necessary means of ensuring choice and opportunity – necessary for health, growth, resilience, and long run security of the global economy. Humanity was not willing to put all of its “economic eggs in one basket.”
So, why have leaders of the major economic powers of the world decided now to put all their “economic eggs” in the “WTO basket?” The most logical answer seems to be that world leaders are now motivated more by short run economic consideration than by longer run concerns for human culture or the natural environment. In this respect, other nations quite likely are being misled by the “economic culture” of the U.S., which now dominates the global economy. The tremendous growth of the U.S. economy over the past century is widely attributed to our “competitive, free market” economy. Admittedly, this new “culture of economics” now also holds sway among many in the most economically powerful nations of the world.
Within this culture, economic boundaries are viewed as obstacles to trade, which limit the ability of investors to maximize economic efficiency. “Free trade” among all nations would result in a more efficient global economy, they say, thus benefiting all people of the world. Current barriers to trade, they say, are nothing more than artificial, political constraints designed to protect specific individuals and industries within nations from economic competition from more efficient producers in other nations. The WTO should work to remove such barriers, allowing the most efficient producers in the world to produce the world’s goods and services, resulting in the lowest cost to consumers everywhere – so they claim.
Such claims are based on economic theories of trade that historically have made “free trade” something of a “sacred tenet” of economics – particularly among the more conservative of economists, whose views have been in vogue for a while. Contemporary economic “free trade theory” has its foundation in the writings of British economist, David Ricardo, in the early 1800s. Ricardo showed that when two individuals choose trade, each is better off after the trade than before the trade. People have different tastes and preferences, and thus, each person values the same things differently. So, if I value something you now own more highly than I value something I own, and you value the thing that I own more highly than you value the thing you own, we will both gain by trading. I get something that I value more than the thing I now own and so do you.
The same concept can be used to show the potential gains from trade associated with specialization. One farmer may be a more efficient producer of one thing, say corn, and another farmer may be a more efficient producer of another, say cattle. If so, one farmer can then specialize in cattle and the other in corn. The better corn producer can then trade corn for beef and the cattle producer can trade beef for corn, and they both will be better off than if they each tried to produce both beef and corn.
Even if one farmer is a better producer of both beef and corn, the other farmer will have a “comparative advantage” in producing one or the other. Let’s say the first farmer could produce either a 1,200-lb. steer or 300 bushels of corn with a given amount of land, labor, and capital. Assume a second farmer could only produce only a 750-lb. steer or only 250 bushels of corn using the same amount of resources – not as much of either as the first farmer.
If the first farmer decided to produce only corn, he or she would have to forego 4-lbs. of beef for each bushel of corn produced (1200/300). However, if the second farmer decided to produce corn, he or she would only have to forego only 3-lbs. of beef for each bushel of corn (750/250). In economic terms, this means that the second farmer has a “comparative advantage” in producing corn, because his or her “opportunity cost” of producing corn is less. The two farmers will have to forego less beef for each bushel of corn if the second farmer uses his or her land, labor, and capital to produce corn and the first farmer produces the beef. Using the same logic, the first farmer has a lower “opportunity cost” of producing beef – 1/4 bushel of corn per lb. of beef (300/1200) compared with 1/3 bushel per lb. (250/750) for the second farmer.
Although the arithmetic gets messy, if the second farmer specializes in corn and the first in beef, and they trade their surpluses with each other, both will be better off than if each produces their own corn and beef. Of course the real world is much more complex that this simple “two farmer, two commodity” example, but this simple one-on-one trade situation is still at the heart of contemporary economic trade theory.
So, if both traders gain from specialization and trade, what’s wrong with “free trade?” The problems arise because “free trade” between two independent individuals, in the context of the early 1800s, does not accurately reflect the reality of trade among nations in the early 2000s.
First, trade is truly free only if both partners are “free not to trade.” Participants in “free trade” must have an “interdependent” relationship. Interdependence implies that people depend on each other “by choice,” not by necessity. If one trading partner is dependent on another, the dependent partner may have no choice but to do whatever is necessary to maintain the relationship. When both are independent, neither has any obligation to maintain the relationship. “Interdependent” relationships can only be formed between two independent entities. Under such circumstances, relationships are formed only if they are beneficial to both and continue to exist only so long as they remain beneficial to both. Through the WTO, stronger nations are trying to force weaker nations to form “dependent” trading relationships – to create situations where the weaker nations are “not free to not trade.”
Trade made under conditions of coercion, under explicit or implied threats of retribution if one does not trade, is not free trade. The school kid, who trades lunches with one bully to secure his protection from another bully, is not participating in free trade. Neither is a weak nation that trades with a strong nation, under the threat of denial of military protection from some global tyrant. Nor is it “free trade” if one nation is dependent on the other for its economic wellbeing, such as in cases where one has built up large debts to another. Poor nations are made dependent on rich nations by their disproportionate economic wealth, economic infrastructure, and technological advantage, regardless of their inherent worth to humanity. In many cases, rich nations are able to exploit the workers and resources of poor nations through trade, because the poor see no other way to avoid physical depravation or starvation of their people. This is not free trade.
Second, “free trade” assumes “informed trade.” Both parties must understand the ultimate consequences of their actions. If a car dealer trades cars with a customer, knowing that the car is a gas-guzzler, needs lots of repairs, and is unsafe to drive, and trades without informing the customer, this is not a “free trade.” When a developed nation encourages a lesser-developed nation to produce for export, knowing that such production will lead to exploitation of their natural and human resources, and does so without informing them of the consequences, this is not free trade. The leaders of the lesser-developed nations may benefit from such trade, including bribes or payoffs from the outside exploiters, but the resources of the lesser-developed nation will be exploited rather than developed. The people will be left with fewer opportunities for developing their country after than before the trade. The exploiters know the consequences but the exploited do not. Uninformed trade is not “free trade.”
Third, “free trade,” in economic theory, implies that the decision is made by an individual, not a nation. Individuals are whole people, presumably absent of unresolved internal conflicts regarding the relative values of items being traded. A person trades only if they decide that the trade, overall, is good for them as a whole. Nations, on the other hand, may make and carry out trade agreements to which a substantial portion of the nation’s population is opposed – perhaps even more than half are opposed, both before and after trade takes place. The economic rational for such agreements is that if the economic benefits to those who favor trade more than offset the economic costs to those opposed the nation as a whole will benefit from the trade.
Economics is incapable of dealing with interpersonal relationships. In economics, a nation is said to gain from trade if those who benefit from trade could compensate those who lose and still have something left over. Of course, the gainers are under no legal obligation to compensate the losers, and rarely, if ever, do so. And, it doesn’t matter that the rich are made richer and the poor are made poorer. In economics, it doesn’t really matter how many people are made relatively worse or better off by trade, as long as the trade results in growth of the economy. Contemporary economics doesn’t address issues of social equity or justice.
Finally, the foundational principles of economic trade theory are rooted in a “barter economy” – one person trades something to another. In an international currency economy, “comparative advantages” in trade can be distorted by fluctuations in exchange rates, resulting from differences in monetary policies among nations. Such fluctuations can cause the exports from one nation to become more or less costly to importers from another nation for reasons totally unrelated to differences in production efficiency. Under such conditions, “free markets” do not result in efficient resource use.
In classic trade theory, also, each trading partner uses their individual resources, land, labor, capital, technology, etc. to do whatever they do best – to exploit their comparative advantage. No consideration is given to the possibility that one nation might instead transfer some of their resources, such as capital and production technology, to another nation where they might generate greater profits. Mobility of capital and technology, hallmarks of today’s global economy, eliminates the “comparative advantage” of higher cost nations, forcing them to import from lower cost nations, devaluing both land and labor in the higher cost nation to globally competitive levels.
Because of these inconsistencies between economic theory and economic reality, most international trade today does not fit the theory of economic “free trade.” Perhaps more important, opposition and open defiance of the WTO, from countries all around the globe, indicates that any future expansion of trade forced upon people by the WTO almost certainly will “not” be free trade, but “coerced” trade.
If the ultimate “free market” goals of the WTO were achieved, all national economic boundaries would be removed. Initially, all economic barriers to trade would be translated into tariffs, and over time, all tariffs would be eliminated, erasing all economic boundaries among nations. The world economy would presumable operate pretty much as a national economy. “International commerce” would be a lot like “interstate commerce,” and no nation would be allowed to have laws interfering with such commerce. However, under the WTO, nothing could be arbitrarily excluded from “international commerce.” Ultimately, anything we own might have to be offered for sale to the highest bidder. The WTO would decide what we can and cannot exclude from the world marketplace. And, no seller or buyer would be allowed to offer a different price or different conditions of trade to one nation than is offered to any other.
Under such rules of trade, a nation could not subsidize its agriculture by any means that might be trade distorting; that is, it couldn’t subsidize producers of one commodity more than it subsidizes producers of another. A nation could not establish environmental, health, or safety standards for its production processes that were more restrictive than those specified by the WTO. A nation could not close its borders to WTO approved “cultural exports” from other nations – movies, television programs, clothes, and magazines – no matter how repulsive they may be to current residents of that nation. A nation could not refuse to sell its natural resources, such as minerals, oil, or even water, to another nation. And, the WTO would stand ready to enforce merchandise patents and intellectual property rights globally, regardless of whether the people of the world agree that all things, such as life forms, should be patented. These are some of the potential consequences of the WTO vision of globalization.
So what are the “real” costs of globalization to Americans? After all, we are the strongest of the strong nations and the strongest promoter of the “free market” goals of the WTO. Certainly, the U.S. expects to benefit economically – at least in terms of economic growth. But, at what social and ecological costs? And can we even be sure that the economic benefits of globalization will accrue to the “people of nations” rather than a select group of investors and executives of “global corporations?”
First in farming, until a decade or so ago, few questioned the ability of American farmers to compete with farmers anywhere in the world. We were the self-declared global leaders in agriculture. We had the most highly educated and efficient farmers in the world using the latest production technologies to cultivate the best agricultural land in the world. However, in recent years, the US share of global agricultural exports has plummeted, dropping farm profits, and shaking confidence in the American farmer’s ability to compete.
The U.S. market share of global exports of soybean and soybean product, for example, shrank from 80 percent during the 1960s to just 35 percent in 1998-2000. Over that same period, the combined share for Argentina and Brazil grew from less than 10 to nearly 50 percent. Abundant land and favorable climates, coupled with low-cost labor and a favorable exchange rate, have given Argentina and Brazil a clear competitive advantage – not just for soybeans, but for corn and most other grain crops as well.
U.S. livestock producers face strong competition from Canada and Mexico in domestic livestock and meat markets, causing some livestock producers to question the wisdom of the NAFTA. Threats by agribusiness to move their large-scale confinement animal feeding operations to Mexico or elsewhere, to avoid growing environmental and animal welfare restrictions, also cast a shadow on the future of meat production in the U.S. South America and Australia are lower cost producers of range cattle, and countries such as Mexico and China could gain competitive advantages in restructured global pork and poultry industries.
Declining exports have led American farmers into their fourth straight year of economic “emergency” – resulting in $5-$9 billion per year in “emergency” government payments, in addition to already generous farm program benefits. American farmers today are among the most heavily subsidized in the world, and the new farm bill seems certain to maintain this dubious distinction. Without these generous subsidies from taxpayers, American farm exports would be far less, and we would be in the midst of an American “farm financial crisis” at least as severe as that of the 1980s. Without continued large subsidies, American farmers quite likely will not be able to compete in a free market global economy, regardless of what the free market promoters may say.
America’s lack of competitiveness in farming is not just a short run phenomenon resulting from unfavorable exchange rates or a depressed global economy. As Steven Blank points out in his recent book, “The End of Agriculture in the American Portfolio,” rising costs of land and labor are destroying the traditional competitive advantage of American farmers in world markets. Growing demand for land in rural areas for residential purposes, as America’s affluent urbanites acquire more living space, will make even good farmland too costly to farm. Employment opportunities arising from the “new economy” will make the economic sacrifice of an occupation in farming too high. Cornfields can’t compete with condominiums for land and the Missouri Valley can’t compete with the Silicone Valley for labor.
According to Blank, Americans will choose their best economic alternatives and will leave agriculture to the farmers of other countries. Americans will continue to be well fed, he says, we will simply import our food from other countries where it can be produced at a lower cost. We will exploit our comparative advantages, but they won’t be in agriculture.
Although Blank didn’t make an issue of it, if the multinational corporations succeed in gaining control of global agriculture, this scenario is quite plausible, if not inevitable. Under comprehensive corporate production contracts, agricultural producers become little more than landlords, tractor drivers, or hog house janitors. The corporation will select the crop and livestock genetics, will own the growing crop or livestock, and will make all of the important decisions – including where and with whom they choose to contract. These same corporations will control access to global commodity markets, and producers without contracts will not have access to those markets.
Multinational agribusiness corporations have no sentimental ties to family, community, or even to any given nation, because they are not real people and their stockholders may be located anywhere on the globe. They will simply move their agricultural operations, including contractual operations, to wherever on the globe they can make the most money, and increasingly, that will be somewhere other than in America. So, what will be the real cost of globalization to American farmers? Perhaps the cost will be the lost opportunity for farming in America, at least farming in the sense that we have known farming in the past. The end of the “American farm” could well be one of the “real” costs of globalization.
Maybe America won’t quit producing food, but the U.S. in the future could well become as dependent on the rest of the world for food as we are today for oil. Economists argue that it doesn’t matter where our food is produced. If producing it elsewhere in the world will be cheaper, we will all be better off without agriculture in the U.S., so they say. But how long will it be before an OFEC (Organization of Food Exporting Countries) is formed to restrict world food supplies causing our food prices to skyrocket – as we have seen OPEC do with our energy prices in the past. Even more important, we have only a few days supply of food in the “food pipeline” at any point in time. The disruption of global food supplies, even for a short period of time, could have devastating consequences for millions of people.
Perhaps we could keep our food imports flowing – through our military might, if economic coercion fails. But, what will be the real costs? How many more terrorist attacks might we expect as a consequence of our global food policy? How many small wars will we feel compelled to fight? How many people will be killed to support a global food system? The highest “real” costs of globalization may be paid in human blood.
Even if America somehow maintains its food security, nations with less productive resources are almost certain to become subject to “nutritional blackmail” in the new global economy. Those nations that have food inevitably will threaten to withhold it from those who do not, as the U.S. has withheld food from our “enemies” in the past. Even more important, those corporations that will control global food production in the future will use their new-found power to shape national policies in every nation of the world, including America.
With the multinational corporations in control of the global food supply, the resources of no nation will be secure from exploitation. There will be no effective limits to their ability to exploit, pollute, and destroy. And almost certainly, with corporate control of the food economy, food prices are far more likely to rise than to fall, and those without the means to pay the higher prices will be more likely to starve. A major cost of globalization may be the loss of food security – for people of both the rich and the poor nations of the world.
Finally, what are the costs of globalization of the food system to global society? The answer, quite possibly, is the sustainability of human life on earth. The question of sustainability is: how can we meet the needs of all people of the present, while leaving equal or better opportunities for those of the future? The answer to the question of sustainability is, through systems of production and distribution that are ecologically sound, economically viable, and socially responsible. Globalization is a strategy designed for short-run economic exploitation, not for long run societal sustainability.
A sustainable food system, to be ecologically sound, must work in harmony with nature – not attempt to dominate or conquer nature. Nature is inherently diverse. Diversity in nature is necessary to support life within nature. “Boundaries” in nature define the diversity of landscapes, life forms, and resources needed to support healthy, natural, sustainable production processes. Fence rows, streams, and ridges define unique agroecosystems within which nature can sustain different types of human enterprises. Globalization will remove the fence rows, divert the streams, and level off ridges, to facilitate standardization and homogenization of production processes. The natural boundaries needed for sustainability will be removed to achieve greater economic efficiency. A “real” cost of globalization to society will be the loss of ecological sustainability.
A sustainable food system, to be socially responsible, must function in harmony with human “communities,” including towns, cities, and nations. Humanity is inherently diverse. Diversity among people is necessary for “interdependent” relationships – relationships of choice among unique, independent individuals. Although we have our humanity in common, each person is unique, and we need unique human “communities” within which to express our uniqueness. Social and cultural boundaries define those “communities” – towns, states, and nations. Globalization will remove those boundaries and will homogenize global culture and society. The natural boundaries needed to sustain social responsibility will be removed to achieve greater economic efficiency. A “real” cost to humanity will be the lost of social sustainability.
A sustainable food system, to be economically viable, must facilitate harmonious relationships among people and between people and their natural environment. The inherent diversity of nature and of humanity must be reflected in diversity of the economy. Although potential gains from specialization are real, such gains are based on the premise that people and resources are inherently diverse, with unique abilities to contribute to the economy. Competitive capitalism is based on the premise that individual entrepreneurs make individual decisions and accept individual responsibility for their actions. If globalization is allowed to destroy the boundaries that define the diversity of nature and people, then it will destroy both the efficiency and sustainability of the economy. A “real” cost of globalization to humanity may well be the loss of long run economic viability.
The “true” costs of globalization quite simply are too high to pay. But what can we do to avoid paying these costs? How can we stop globalization? First, we can help people realize that the undeniable existence of a global ecosystem, a global society, and a global economy does not justify “economic globalization” – i.e., the removal of all economic boundaries. Natural boundaries are necessary to ensure ecological integrity. Cultural boundaries are necessary to ensure social responsibility. And economic boundaries are necessary to ensure long run economic viability. Without boundaries, the biosphere would be left without form, without structure, without order, and without life.
Every nation has both a right and a responsibility to protect its people and its resources from exploitation, just as every person has a right and responsibility to protect their person and property from exploitation. Globalization would deny these most fundamental of human rights to the “communities” of people that constitute the nations of the world. People need to have healthy relationships with each other and with the earth, but healthy relationships are relationships of choice, not relationships of coercion. Global society needs a world forum, such as the WTO might be – not to remove boundaries, but to ensure that every person of every nation is protected from economic exploitation. To avoid the high costs of globalization, we must reclaim our rights to individual and national sovereignty.
Other things we can do to fight globalization are more tangible and practical. For example, we can all help develop more sustainable, local alternatives. Thousands of farmers and consumers all across North America are already joining forces to develop more sustainable, local food systems. These people come together regularly within local communities at farmers markets, CSAs, community gardens, and other venues where farmers and consumers meet around food. In addition, the number of large conferences in recent months, bringing farmers and consumers together around common concerns for food safety, nutrition, environmental quality, social justice, and other issues of sustainability, indicate a growing interest in local food systems. Farmers can give priority to local markets in developing more sustainable farming systems. The rest of us can buy as much of our food as possible from local farmers. We can all help to develop a local, sustainable alternative to globalization. Much of the rest of this program will focus on ways to help make this positive vision a future reality.
Supporting local food systems doesn’t mean that we have to give up oranges, bananas, coffee, or things that can’t be produced locally. Trading when we are “free not to trade” can be beneficial to all concerned. We simply need to buy and sell locally to the extent necessary to maintain the sustainability of our local food system. We can and should continue trading with those in other regions and other nations to help ensure the sustainability of agriculture everywhere on the globe. It’s just that relationships among regions and nations must be “interdependent,” rather than “dependent,” if the global food system is to be sustainable. We must maintain boundaries to maintain our identity, our integrity, and our ability to act interdependently.
It would be easy to be skeptical about the possibility of success of local food systems – such systems currently make up such a small part of the huge global food system. Farmers and consumers may seem too few and too weak to confront the giant global food corporations. However, the trend toward a global food system, occurring over the past several decades, took place one farmer and one customer at a time. One-by-one, as farmers changed what they produced, and where they sold their products, and as consumers changed what they ate, and where they bought their food, a food system that had been local became global. Again, one-by-one, we can and must make the changes needed to create a sustainable, local food system.
Will we succeed in avoiding the high costs of globalization? I don’t know if we will, but I know it is possible, and thus, I have hope. Hope is not the expectation that something good is destined to happen, or even that the odds favor something good, but rather, that something good is possible. I know that something better than globalization is possible. It is this very real “possibility” of a sustainable, local food system that gives farmers and consumers the courage to challenge globalization, with everything from protesting in the streets to buying and selling locally. Regardless of whether we ultimately win or lose in this struggle, life is simply too precious to live without hope.
Globalization
Interdependence of buyers and sellers of financial instruments in financial centers around the world. This phenomenon is due mainly to several factors: (1) the maturation of the markets since the 1960s; (2) dramatic changes in trading room technology in recent years, providing market makers with near instantaneous access to current market data on commodities and financial instruments; (3) a desire by financial institutions to expand lending and other activities beyond geographic boundaries; and (4) a desire to control balance sheet risk through Interest Rate Swaps and other financial swap agreements.
For example, the growing use in international financial markets of marketable debt instruments, principally in the market, as opposed to traditional bank lending, as a financing vehicle for major corporate borrowers, and also sovereign governments. The shift away from bank credit instruments, such as Note Issuance Facilities, toward Floating Rate Notes and Eurocommercial paper began in the early 1980s, and was aided by the strong secondary market in Eurobond financings. Both commercial banks and investment banks participate in this market. Outside the United States, U.S. Commercial banks are not confined by Glass-Steagall Act limitations on securities underwriting, and are active participants in the Eurobond market.
Advances in allowed traders in foreign exchange and other money market instruments to manage positions on a 24-hour basis, by moving their trading book to a different financial center at the close of trading. This practice, known as passing the book, permits financial institutions that make markets in New York, London, or Tokyo, for instance, to maintain a single trading book listing positions, limits, and exposures for the entire firm, rather than keeping separate books in each trading center.
