The Global Economy and its Theoretical Justification
by John B. Cobb, Jr.
John B. Cobb, Jr., Ph.D. is Professor of Theology Emeritus at the Claremont School of Theology, Claremont, California, and Co-Director of the Center for Process Studies there. His many books currently in print include: Reclaiming the Church (1997); with Herman Daly, For the Common Good; Becoming a Thinking Christian (1993); Sustainability (1992); Can Christ Become Good News Again? (1991); ed. with Christopher Ives, The Emptying God: a Buddhist-Jewish-Christian Conversation (1990); with Charles Birch, The Liberation of Life; and with David Griffin, Process Theology: An Introductory Exposition (1977). He is a retired minister in the United Methodist Church. His email address is firstname.lastname@example.org.. This lecture was delivered by Dr. Cobb in Shanghai, June 1 and Wuhan, June 4, 2002: Used by permission of the author. This material was prepared for Religion Online by Ted and Winnie Brock.
I. The International Economy
In one sense, there has been a global economy for a long time. For thousands of years caravans carried goods between China and Europe. There are indications of connections in very ancient times between the Eastern and the Western Hemispheres. Nevertheless, these trade connections played a very small role in the economies of the trading partners.
The colonial expansion of Europe beginning in the fifteenth century changed that. Trade connections between Europe and many other parts of the world became important both to the colonial powers and to the colonized peoples. Needless to say, the relationship was highly exploitative, and the horrors inflicted on the colonized have left deep scars in much of the world.
Even so, this was not a truly global economy in the contemporary sense. I do not mean simply that some parts of the world were not involved. My point is that, although most of the globe was involved, the various colonial systems, such as the French and British Empires, were significantly separate from one another. For example, the British encouraged free trade within their empire and among their dominions, but they restricted trade between this whole system and outsiders.
This colonial system collapsed during and after World War II. A new system was created at Bretton Woods, embodied in the World Bank, the International Monetary Fund, and the beginnings of the General Agreement on Tariffs and Trade, which has now developed into the World Trade Organization. The European colonial powers had been so weakened by the war that they could not resist the insistence of the United States that their colonies and former colonies be freed to trade across imperial boundaries.
The new system, however, was still not a global economy. I do not mean simply that the world was divided into two quite separate systems, the capitalist and the communist. I mean that both world systems remained international in character. Although trade among nations was strongly encouraged, all those involved at Bretton Woods still envisioned that this trade would be among nations, each of which would have its own national economy.
Because many believed that disruptions in international trade had caused, or at least worsened, the Great Depression of the thirties, they created instruments to reduce the likelihood of a recurrence. The IMF was designed to help nations deal with temporary financial problems that made them unable to pay for needed imports. The General Agreement on Tariffs and Trade was to provide a place where unnecessary barriers to trade could be gradually reduced. The World Bank was to help in the reconstruction of Europe and the economic development of the newly independent former colonies.
For the first decade or so after the war, none of these institutions played a significant role. The reconstruction of Europe was aided much more by the U.S. Marshall Plan than by the World Bank. The developing countries depended on advice, investments, loans, and grants more from former colonial powers than on the international financial institutions. Matters of tariffs and trade were decided by individual countries in terms of their own interests more than by international agreements.
The World Bank was forbidden by its charter to interfere in the internal affairs of the nations to which it made loans. However, it began to work with national governments to develop economic plans for their countries. It also created infrastructures within countries, which it could directly fund and support. Its goal was to lend money to governments or to government-supported institutions for projects that would be sufficiently profitable that the loan could be repaid and the national economy enriched.
Much development during this period was through government operated projects and government-controlled industries. Most developing countries opted for a mixed economy. Many favored import-substitution industries, seeking to become more self-sufficient economically.
The results of this system were, of course, mixed. Most countries did increase their per capita income. International trade grew. But improvement was slow. In most countries, poverty was not greatly reduced. Furthermore, it became clear that many of the loans could not be repaid out of earnings from the investments they made possible. Partly this was due to poor planning, but much of it was due to corruption and the diversion of funds to military purposes. By 1970, the World Bank calculated, if loans continued at the same rate, payments on previous loans would equal of exceed new loans, so that there would be a flow of capital out of developing countries. That would work against further economic growth. In response, the World Bank, under the leadership of Robert McNamara, undertook greatly to accelerate World Bank lending.
The actual crisis was much more severe than anticipated. This was because the organization of Petroleum Exporting Countries (OPEC) raised the price of oil dramatically. Most developing countries were oil-importers, so the cost of their imports rose greatly, compounding their problems. The new wealth of the oil-rich countries, on the other hand, flowed into European and American banks, which were eager to lend. Suddenly loans by commercial banks to developing countries exceeded those of governments and international banks. These were less closely monitored, since the interest of the banks was only in collecting their money, not in the development of the borrowers. It was far easier for the governments of developing countries to borrow more money than to pay for their imports in any other way.
II. The Origins of Economic Globalization
When, toward the end of the decade, oil prices were raised again and the United States dramatically increased interest rates, this period of easy borrowing came to an abrupt end. Commercial banks realized that their loans were not as secure as they had thought and stopped lending. Since repayment of loans had depended on fresh borrowing, this precipitated a crisis. The crisis focused on Mexicoís threat to renege on its payments. At this point the IMF became an important actor in ways not envisioned in its founding. It stepped in to pressure lenders to make concessions on payments and to lend more money while pressuring the government of Mexico to change its policies to insure the ability to repay. The changes demanded by the IMF as a condition of assistance are called Structural Adjustment Policies (SAPs).
The requirements placed on Mexico initiated the global economy to replace the international one. The policies directing these changes embodied what is called the "Washington Consensus," led by the United States treasury department and agreed on by the IMF and the World Bank. This consensus was that development should henceforth be led by investments by transnational corporations (TNCs) rather than by grants by governments and intergovernmental organizations.
This shift could occur only as developing nations made themselves attractive to potential investors. This required massive change from the national economies that had heretofore been dominant. Laws requiring that businesses be largely owned and controlled by citizens had to be abolished, along with laws of any kind favoring local business. This involved the privatization of government-owned businesses, so that these businesses competed on an equal basis with those owned by outsiders. Tariffs and other barriers to trade had to be abolished or, at least, greatly reduced.
It is clear that import-substitution industries could not survive under this new regime. The new slogan was export-driven development. Each country was to export what it could produce most efficiently. In many non-industrialized countries this has led to rapid exploitation of their natural resources, especially forests.
A major incentive to investment by TNCs has been low wages and few restrictive government rules. Governments competing with each other to attract the investment they now needed were under pressure to lower already low wages and to avoid enforcing any rules they might have to protect workers from exploitation and the environment from pollution. The result has been called "the race to the bottom." A major instrument for lowering wages has been depreciating the value of the currency, since this reduced the value of wages without officially reducing them in the local currency.
Although low wages and little governmental restriction are major attractions to investors, they alone do not secure investment. There must also be stable government, public order, and a certain level of education. In addition, an infrastructure of transportation and communications is required. As a result, investment tends to concentrate in a few parts of the world, rather than being spread evenly over it. The combination of all these factors has made some parts of China, especially the southern coast, preeminently successful in their bid for investment.
The structural adjustment that began with Mexico has now been applied to most of the less-industrialized countries in the world. Its effect is to remove barriers to the free flow of goods and services across national boundaries. Most important, perhaps, is the financial integration of the world. Money is moved from one country to another in a fraction of a second. Sometimes this is a matter of buying and selling currencies, sometimes, stocks and bonds. Far more money is involved in these transactions than in investment in productive facilities or the actual purchase of goods and services.
One purpose of structural adjustment was to enable nations to pay their debts. In this respect, it has been only partially successful. Major defaults, such as the one threatened by Mexico, have been avoided. But repayments have typically been at the cost of services to the poor, and despite this sacrifice, the overall level of indebtedness has continued to rise. The burden of repayment is a severe limitation on development in many countries. In some of the poorest countries, the problem is so acute that there is now general agreement that concessions must be made.
But SAPs have proved an extremely effective instrument in accomplishing the basic purpose of the Washington consensus -- movement toward a single global market. This movement has been strongly supported by a succession of agreements worked out by the GATT, especially in its concluding efforts, called the Uruguay Round. This work has now been taken over by the WTO. In some parts of the world, regional agreements have gone even further. The European Community is the most impressive in this respect. But the North America Free Trade Agreement (NAFTA) also carries the movement of erasing boundaries further than the WTO, and the proposed Free Trade Area of the Americas (FTAA) goes farther still. National boundaries are now minor impediments to the movement of capital, goods, and services. They significantly restrict only the movement of labor.
As already suggested, the process of globalization and that of privatization have gone hand in hand. The ideal is that TNCs be free to buy and operate any business in any country. This applies to utilities and transportation systems, for example, that in the past have typically been publicly owned or at least regulated. The goal now is that competition among private firms replace government involvement.
Globalization is, thus, the systematic reduction of the role of government in economic affairs. Indeed, the role of government has been so reduced that the World Bank held a conference a few years ago to consider what tasks remained to it. Basically governments are still needed in order to support the market. The market needs educated workers; so the government is responsible to see that education is available. The market needs secure public order; so the government needs law enforcement agencies and military forces. The market needs an infrastructure for transportation. The government should supply roads, railroads, and harbors. Of course, government is also responsible for caring for those who do not fit into the market economy.
The effects of globalization arouse great enthusiasm among some and great anger among others. Globalization has been immensely profitable for TNCs. World gross product has increased quite rapidly, but some parts of the world, such as sub-Saharan Africa, have been growing poorer. In most countries, those who are wealthier and better educated have benefited from the changes. On the other hand, in most countries, workers, peasants, and the unemployed have lost status and income. The gap between rich and poor is growing in almost all countries, and it is growing also between countries.
Another concern raised by the globalization of the past two decades is the sheer size and power of TNCs. It is often pointed out that when one makes a single list of nations in terms of the gross domestic product and of corporations in terms of their sales, just over half of the largest economies are corporations. Since money is power, especially in a world in which so many nations have been dis-empowered, this means that power is concentrated in the hands of persons whose professional purpose is the quest for profits for stockholders. One may worry about the consequences for those who do not belong to the capitalist class.
III. Economic Principles Supporting Globalization
Economic theory developed in a context in which nationalism was taken for granted as the context of economic activity. Adam Smith wrote about the wealth of nations and showed what national policies led to national economic growth. He took for granted that investors would prefer to do business in their own countries. Of course, this did not preclude trade, but the trade he envisioned was between nations, both of which understand themselves to profit from the trade.
Nevertheless, the theory developed by the classical economists supports the globalization, including the privatization, that is now occurring. It does so because it shows that larger markets are better than smaller ones and that markets function better when the government does not interfere with them. The arguments are simple and familiar.
First, with respect to the size of markets, economists saw two things. One is that there are economies of scale. At the most basic level, Adam Smith showed that when a farmer needed a pin and made it for himself it might take all day. When eleven workers each undertook a specialized act repeatedly, they could produce thousands of pins in a single day. Of course, a single farm family would have no need of all these pins. Even a village would not. The market must be large enough to absorb this produce.
But economists saw also that a market large enough to support a single producer is still not large enough to gain the social benefits of industrialization. If there is only one industrial producer of pins in the market, that producerís only competition will be individuals for whom the task of making even a few pins is very time-consuming. The producer will be free to charge exorbitant prices and will have little incentive to become more efficient or produce better pins. Competition is crucial to the market. Hence, the market must be large enough to absorb the production of several producers. Even this is not sufficient. Although the small, labor-intensive factories here envisioned are far more efficient than individual producers, they can become still more efficient when they employ fossil fuel energy and enlarge their production. There are economies of scale, which rise as technology improves. We need a market large enough to absorb the production of several larger factories. Although the classical economists pointed this out in order to support national markets over against local ones, the argument works equally well for a global market over against national ones.
Economists also saw that government efforts to control markets inhibited efficient use of time and resources. During the Middle Ages and extending into the modern era, there was a sense that there was a just price for goods. This price should meet the reasonable needs of the producer for a good living but also be reasonable for the purchaser. Public authorities saw to it that this price was established.
Economists saw that it was better for the market to set the price. That is, sellers should strive to get as much as they could for their wares, and buyers should try to purchase them as cheaply as possible. As long as there are several sellers of the same product, a purchaser can play them off against each other until he arrives at the lowest price at which any of them is willing to sell. This puts pressure on producers to find more efficient ways of producing so as to be able to undersell competitors and increase market share. Producers also see that introducing a new or improved product may give them an at least temporary advantage, in that they can charge a higher price for the desired commodity before competitors drive the price back down.
Market prices also lead producers to be very sensitive to changing consumer interests. They do not want to produce what consumers no longer want. The incentive is to satisfy actual consumer demands. As a result more resources go into the production of wanted goods. This may not be the case when there is bureaucratic control of production.
The efficiency of the market in the allocation of resources and the stimulus of improved services leads to questioning the desirability of government ownership or control. However, for a long time, most economists recognized that there are natural monopolies, which must be brought under public control. That is, if competition among producers is not practical, then it is better for the public to manage the monopoly than to have it operated for private advantage. For example, it was assumed that a nation needed only one mail-delivery system. The same was understood to be true of most utilities. The judgment about transportation systems was mixed, but at least highways were generally built and operated at public expense.
Today competition has been introduced into areas once thought to be natural monopolies. For example, private corporations now compete with the post office in some of its formerly unique functions. They are quite successful in this. In principle, competition could take place with respect to all its functions. Economists generally believe that this would improve efficiency.
In my own state of California, the legislature approved almost unanimously a bill that introduced competition into the provision of electricity. State regulation was greatly reduced. The results have proved disastrous, but the idea has not died that, when correctly done, liberalization will improve efficiency and reduce prices. The conviction remains strong that, as long as competition among producers is present, the market sets prices better than bureaucracy.
This commitment to privatization leads not only to action within individual countries to submit more of the economic activity to market discipline but also to imposing this demand through SAPs and international agreements. The proposed FTAA goes farther than any previous agreement in this direction.
IV. Underlying Assumptions
I have explained that larger markets and privatization lead to greater efficiency. This is advocated on the grounds that greater efficiency creates economic growth. To explain this, I will shift to the language of "productivity." In theory, productivity could refer to any of the factors of production, that is, to capital, to labor, or to natural resources. But in fact it focuses on labor, with the understanding that labor productivity increases capital as well. Labor is more productive when a given number of hours of labor produce more goods and services. In the example taken from Adam Smith, the small pin factory greatly increases the productivity of labor, because the number of pins produced per worker per day rises dramatically.
Clearly, if the same number of people continue working an equal amount of time, then the total production of a country will rise when they produce more per hour of labor. Economists believe that the market insures that this situation will be approximated. Unfortunately, in an industrial society there is a kind of unemployment that is rare in pre-industrial societies where the need for labor is obvious. But economists show that the capital that is increased by production methods that require fewer workers will be invested elsewhere, so that new employment opportunities are created. As long as the percentage of the work force that is unemployed is small, economists generally regard this as necessary and even healthy. It discourages workers from making excessive demands that would reduce capital accumulation and new investment. Economists point to the consequences of the industrialization of Europe, North America, and the Asian tigers to show that industrialization, operating on market principles, raises living standards dramatically. They want the same results everywhere, and they believe that the market is the best instrument for attaining them.
Two assumptions operative here can be highlighted. One is that the primary goal of development is overall economic growth. The second is that for the attainment of growth the primary productivity required is that of labor. You may agree with these assumptions, but it is important to show that they can also be questioned. This questioning underlies much of the current anti-globalization movement.
There are other views of the summum bonum of a society or a nation than overall economic growth. Historically, justice has been considered the primary political virtue. Economic theory, and the aim at increasing wealth, pay little attention to justice in general or even to the equitable distribution of the goods and services produced. Actually, the increased wealth brought about by economic growth is concentrated in relatively few hands. Economists sometimes argue that when a society becomes sufficiently wealthy the benefits of increased wealth will trickle down to those who are now poor, but in the countries they cite as success stories, the improvement of the lot of the poor was greatly benefited by governmental action and labor unions, neither of which are viewed favorably from the point of view of the theory. The theory may be correct, but it has not thus far been proven by history.
The assumption that labor is that whose productivity is to be increased is also subject to questioning. When labor was scarce and raw materials and sinks for pollution were large, it made sense to concentrate on increasing labor productivity. Much of this was accomplished by harnessing the energy of fossil fuels. In the past century, the fuel of choice has been petroleum. Now many observe that globally speaking, labor is plentiful. Unemployment and underemployment are huge problems in much of the world. On the other hand, raw materials and sinks for pollution are now scarce. It is the efficient use of these resources, some critics of economic globalization argue, that should now preoccupy us. For example, to concentrate on increasing the use of petroleum to replace human labor in agriculture, for the sake of increasing the productivity of labor, no longer seems a wise policy.
Just as the response to concern about the poor is that wealth will trickle down; so the standard economistís response to questions about resources is that the market will stimulate technology to take care of any shortages. There is evidence of this claim in the past. When certain metals grew scarce, plastics were invented to serve their functions. As soils lose their fertility, chemical fertilizers provide the needed nutriments for food-production.
Some economists recognize that the question of sinks is more difficult. Still some argue that as people become more willing to pay for clean air, through taxes in this instance, there can be market incentives to reduce pollution. In the particularly difficult question of global warming, thus far most economists have argued that it will be more efficient to respond to the problems caused by global warming as they occur than to make serious efforts to reduce it, since these efforts would slow economic growth.
If we ask why so few economists are willing to take more serious account of issues of justice or of the conservation of the natural world, the answer is found in two deeper assumptions. These are the understanding of human beings and of nature that are now built into the whole structure of the dominant economic thinking. If we disagree with these assumptions, we will have good reason to question the single-minded concentration on economic growth, on the one hand, and the lack of interest in the environment, on the other. That means that we may well be doubtful of the desirability of continuing the process of economic globalization in its present form.
V. Homo Economicus
Economic theory is based on a particular view of human beings. Economists all know that Homo economicus is an abstraction from the fullness of human reality. This is just as true of Homo politicus, Homo religiosus, Homo faber, or Homo ludens. There is nothing wrong in principle with examining human behavior in market transactions in some separation from human behavior in political or religious activities.
Economists observed that when we buy and sell we quite consistently seek to get the best bargains we can and sell as dearly as we can. When we need work, we try to get the best job we can, with pay a major consideration. When we need to employ helpers, we try to get them as inexpensively as possible. Economists abstracted this tendency from all the other human tendencies and attributed it to Homo economicus. They describe Homo economicus as devoted to personal economic gain.
It is not the case, of course, that all of our economic activity conforms to this norm. For one thing, our economic dealings within the family rarely do. Economists recognize this, and often speak of households as the economic units instead of individuals. But the boundaries of households are often blurred, and in any case households do not act consistently in purely self-serving ways. An interest in being fair plays some role in our economic dealings. Also people give away large sums of money, much of it out of concern to promote the general good or meet particular needs of others. Economists do not do well in accounting for these activities. But when all qualifications are made, it remains true that a great deal about human behavior in the market place can be described and predicted accurately when the people involved are viewed as economists see them.
Homo economicus is also understood to have insatiable wants. Some early economists thought that the goal of the economy was to produce sufficient goods to meet the needs of all. Growth would then give way to a steady-state economy. However, the profession as a whole rejected this view. They judged that human wants are insatiable. This does not mean that the desire for a particular good cannot be satisfied. It means that there is no limit to the new wants that arise as old ones are satisfied. There is obviously a measure of truth in this understanding of human beings in their economic behavior. The kinds of things that would have satisfied me fifty years ago no longer suffice. For example, I want faster communications, easier travel, and more space and facilities in my home.
Homo economicus primarily values money and the things money can buy. People work for money and seek the best-paying jobs they can find. Economists pay little attention to the quality of work. Again there is much truth to this. When a person changes jobs, our first thought is that the new job probably pays better. We marvel if someone voluntarily accepts a cut in income. Even when one does not need the increased income, one prizes it as a symbol of success and an opportunity to accomplish things one cannot accomplish without it. Money is, indeed, a major determinant in our decisions.
Clearly Homo economicus is a useful abstraction for many purposes, especially for the analysis of the way the economy functions. Nevertheless, it is not the whole truth, and when it passes from descriptive use to prescriptive use, that is, when policies are proposed that treat it as if it were the whole truth, there are serious dangers of distortion.
With respect to insatiability, we do not simply observe this as a fact of existence always and at all places. Actually, there are traditional societies in which it is not apparent, at least as a significant factor in human affairs. Even today economists sometimes worry that consumers will not buy enough. To prevent this failure of individuals to live up to their billing as insatiable, we have created a system designed to generate new desires as old ones are satisfied. Perfectly functional goods are rendered obsolete by new designs. One may no longer be able to buy the parts needed to repair them. Styles are systematically changed from year to year so that one who fails to buy new clothes is quickly out of fashion. Much of the advertising industry is designed to persuade us to desire new things. We have built an economy that requires the insatiability it presupposes, and we have to work to insure that people are in fact insatiable.
The transition from description to normative use occurs also with respect to the view of Homo economicus as acquisitive. Economists call the selfish behavior they describe "rational". They show that rational behavior leads to greater wealth not only on the part of those who practice it but also for society as a whole. The fact that "rational" behavior erodes community is not noticed, since community plays no role in economic thought. For economists there are only individuals in contractual relations. Giving up personal gain for the sake of maintaining a community is "irrational". The policies they advocate on the assumption that individuals are purely self-interested systematically erode the communities that depend on the importance of human relations that are not contractual.
The normative use of the theory shows up also in the destruction of types of work that are humanly more rewarding. In traditional societies there are specialists in the making of many needed goods. Shoes can serve as an example. The cobbler engages in the whole process of making a pair of shoes, often on order for a particular customer. There is pride and satisfaction in the work. Even if he can earn more by working in a factory, he will find that the loss of job satisfaction outweighs the increased income.
However, once a shoe factory is established, most cobblers have no choice. The price of shoes produced by the shoe factory is well below the price at which a cobbler must sell in order to live. Some cobblers may survive by repairing factory-made shoes. But most must become part of the wage labor force.
Again, my purpose is to point out that the economistsí description of how most of us act in our economic dealings most of the time has become a norm. People who do not want to act that way are forced to do so. The values of community life and creative work are destroyed for the sake of the greater wealth that can be produced when people behave in the manner of Homo economicus.
The communities that are being destroyed now include national ones. When Adam Smith wrote in 1776, his goal was to increase the wealth of nations. He took national community for granted as the context of economic activity. But economic theory as such has no place for community. It demonstrates that the market works best when it is large. Indeed, the larger the better. This allows for the economies of scale, so important to economists, along with the competition between corporations that is essential to the whole process. National boundaries are thus an impediment to economic efficiency. The goal, now largely realized, is a global economy.
A second principle underlying economic theory is the dualism of the human and the natural. A tendency toward dualism has characterized the entire Western tradition. It was intensified by Protestantism and systematized in the thought of the Enlightenment. For traditional economists, and emphatically for the dominant, neo-liberal school today, the only value that is recognized is that of human satisfaction. The only form of satisfaction that is seriously considered is that derived from the possession or consumption of desired goods and services. Economists encourage the ordering of the economy to the end of increasing human satisfaction.
The only value that can be attributed to the nonhuman world is instrumental. It can serve toward the satisfaction of human wants. Its value is the price that someone is prepared to pay for it. It is viewed as a commodity.
Given the standard Enlightenment view of the world as composed of human subjects and nonhuman objects, this dualism of humans and commodities seems appropriate. It is derived from the idea that the nonhuman world is available for the market, so that market forces can price it. Economists recognize that this is not quite true. For example, people value unspoiled landscapes, which are not for sale in the market. However, this is viewed as a minor qualification. Economists can approximate a market price by asking people how much they would pay to preserve this landscape and multiplying the figure by the number of people who would be willing to pay it.
The dualism is applied, with few qualms, when considering nonhuman animals. A cow is worth whatever price it brings in the market. The same is true of a cat. The catís value may be raised by human sentiment, but there is still likely to be some price at which its owners would part with it. What is totally omitted is the value of the cow or the cat for itself, the satisfactions it derives from being alive.
The commodification of nature expresses itself in other ways. In traditional society, much is held in common. Indeed, the natural environment is thought of more as part of the community than as a possession. The dualism of the economist is absent. All members of the community can have access to the forests and streams, and sometimes also the pastureland.
To many neo-liberal economists this practice appears irrational. Since these goods have value, they should be privatized and priced, so that those who use them will pay for this use. Privatization insures the most efficient, or economic, use of the resources.
Of course, privatization also favors those in position to purchase them, and it harms the poor. Today, one feature of the negotiations over the Free Trade Agreement of the Americas is the privatization of water. Dualism drives in the direction of the commodification of everything. The policy of privatization also expresses the primacy of the commitment to increase wealth over the goal of meeting the needs of the poor.
The reduction of the value of natural things to the price that individuals are now willing to pay for them in the market is highly problematic. As we have become aware of impending scarcities, we have realized that market price is a poor guide even to the instrumental value of commodities to human beings. For example, as long as there are large pools of oil in the ground, the price of oil will be determined by the policies of oil-producing countries as to how much to pump. Oil could remain plentiful in the market until very near the time that it is, for practical purposes, exhausted. Indeed, if OPEC does not control production with somewhat longer-term concerns in view, market forces will probably lead to that outcome. The actual value of oil for human society is far greater than the market price. The additional price will be paid when we are forced to make a rather abrupt transition to other forms of energy. It would be much better if oil were priced accordingly, but the market will not accomplish that. It can be done only if the political order, which can reflect longer-term concerns, takes precedence over the economic one.
The critique here is that the market, to which economists turn for establishing value, is shortsighted. Human beings are capable of rational judgments based on a longer view of things. If we use our collective wisdom through political processes, we will recognize needs before market prices reflect them. This does not directly challenge economistsí dualism, but it does show that their lack of interest in the natural world leads them to treat it only in categories they derive from the study of the industrial economy. The failure to give sustained attention to nature in its distinct character is a profound failure of economic theory.
More broadly, the dualism of the economists has rendered them as a group largely indifferent to the degradation of the earth. One can, of course, find economic reasons for avoiding this degradation. But the struggle to save the natural environment has not been led by those who view it as a commodity. It has been led by those who see it as having value in itself and as intimately interconnected with human well being. Economists may point to technological developments now occurring that will aid in the transition from a petroleum-based economy to a sustainable one. But the reasons for these development have not been market signals. Petroleum is still cheap. The reasons have been that people in fact know that the market price does not forecast the problems that lie ahead for us and that we need to prepare now. The more we shift decision-making to market forces, the greater the crises we will encounter in the future.
Clearly I am critical of the assumptions underlying the present form of economic globalization. In conclusion, I want to make clear that my critique is not primarily of economists. Most of them recognize that economics as an academic discipline abstracts from the full concreteness of human beings and the natural world. They believe, rightly, that what they abstract and the conclusions they derive from studying these abstractions, are illuminating of much human behavior, especially in the industrial world.
The problem comes when the leaders of the political order decide to give priority to the policies derived from the abstractions of economists. When they do so, they give less attention to the value of justice, which concerns political theorists, the value of community, which concerns sociologists, the value of human fulfillment, which concerns psychologists, and the value of ecosystems, which concerns ecologists. If economists are to blame, it is because they do not remind policy makers that their recommendations are based on abstractions rather than on the real world. But this is knowledge that the leaders of the social and political order should bring with them.
We have always lived in one world, on one globe. For practical purposes, this globe has become much smaller. Geographical distances no longer count for much. We are connected technologically. Many of our problems are now inescapably global. In this sense there is no alternative to globalism. But it is a mistake to suppose that there is no alternative to the present form of capitalist, laissez-faire, economic globalization. There are important alternatives to that, alternatives that would emphasize justice, community, personal fulfillment, and the flourishing of the natural world, as well as increased economic activity where that is needed. This would be a very different globalization.
In my opinion, the present form of globalization is not sustainable. That means it will not continue indefinitely. Indeed, in some parts of the planet, I cannot see it continuing more than a few more decades at most. The transition from an unsustainable to a sustainable form of globalization will not be easy. The longer we wait to begin that process of transition, the more painful the change will be. I hope that China, with a history so different from that of the West, will help the world find a better way.