The Best of All Possible Worlds, or The Only Game in Town?

By P.M.Lawrence

In "The Market Shall Set You Free", in the Spectator Magazine (U.K.) for June 24,2000, as a preview of a book they were about to release, John Micklethwait and Adrian Wooldridge made a number of minor yet cumulatively effective attacks on some perceived weaknesses of economic globalisation. It is worth looking into those areas a little more deeply, if only to see the true costs and harms that go with its putative benefits.

Since they cited an earlier age of globalisation, beginning around the repeal of the Corn Laws in 1846, it's worth looking at some of what happened then. In fact, parts of it were even earlier; the general peace and freedom of trade within the British Isles had already helped Scotland. For, make no mistake, the arrival of sheep in the Highlands, prompted by English markets, led to an undoubted increase in Scottish wealth; only, the Highlands were cleared. This is a type of what is happening now in developing countries, so we cannot just dismiss it as long past or a mere aberration - it stands for all.

Then, English markets made raising sheep for wool comparatively advantageous in Scotland, rather than raising food for crofters who paid what little rent they could. So - and accompanied by a change in how land was held - the sheep drove out the men, who had trouble reskilling to grow wool. While Scotland gained, more than 100% of the gain went to the newly landed aristocracy; there aren't that many percents, but the rest came from the broken men, worse off with wealth than without.

Now, the parallel is a developing country in which subsistence farmers are driven off land and a cash crop grown for export instead - often coffee, which is at present labour intensive. But fewer workers are needed, and the "iron law of wages", a race to the bottom, still applies (particularly since there is often some subsistence land left, so the bottom is only a top up wage even lower than subsistence). Those workers have to take as little as possible, as there is always another unskilled worker even more desperate for that top up wage. But how is that, when our beautiful and elegant abstraction, comparative advantage, has shown that all must be for the best in this, the best of all possible economic worlds?

The usual answer is that this is because the general increase in wealth is accompanied by a wholly unrelated transfer of wealth, and it is as wrong to blame globalisation for the coincidental ills of kleptocracy in modern developing countries as it was to blame the English for the encroachments and clearances carried out by Scots. But this is not so, in these respects:-

Now it is quite wrong to criticise the banks as such; they are mere catalysts and facilitators, quite neutral in all this. But by the same token they catalyse and facilitate any harm that is going, buying and selling and asking no questions. The modern view - which is quite accurate as far as it goes, though one size most definitely does not fit all - is that "debt is good", for with debt you should increase your revenue more than enough to pay the interest; being wise, if this is not the case, you do not do it. But not all are wise, any more than all are good, and what is more, if one borrows, can another afford not to? Sometimes - especially with classic externalities like the "Tragedy of the Commons" - there is little choice. If a farmer improves his yield with fertiliser he must borrow to buy, he does so or the next man does; yet if all do the price drops, since only so much food is needed - more than 100% of the gain goes from the country to the town which gets its food cheaper, and the interest must still be paid. It was partly from such as this that Scotland squeezed out the capital that made Fleming's merchant bank, channelled through the merchants of Dundee.

It may be said that this merely accelerates things rather than aggravates them, that the catalytic effect not only speeds up the harm, it also speeds up coming out the other side. But this is not so. In their article Micklethwait and Wooldridge remark "...many people feel that they just want a bit of a pause. The world has speeded up too fast - even for the winners." While true, this misleads by suggesting that this is a mere psychological effect. But it so happens that speed matters in substantive ways too, because it makes ideas of equilibrium and the long run meaningless - if new change is arriving faster than old change can be assimilated, there is a qualitative difference. Look at the Highland Clearances again. From an Olympian height we could say, nobody owed the Scots a crofter lifestyle; let them emigrate, go to the cities and the factories, or to Canada or Australia. Well, they did these things and we their descendants indeed share in the gains.

Only they didn't. In the short term, you can starve. We know the cities were no carrot to offset the stick, because we have a natural control experiment; on Lewis Lord Lever built Leverburgh around fish processing, and the locals, having more choice, stayed away in droves. And we can see why the cities lacked appeal, when as late as the 1930s a Dundee tenement could have stairways dimly lit by the stairhead gas, flickering from a fitting bent upside down by desperate men to bubble monoxide through milk until it went blue for a cheap drunk, the same diseased cow juice that could give a child TB that rotted through the side of his throat until a hospital could be found. Ah, but at least there was the money for those.

But there were Canada and Australia. Many drowned on the way, in coffin ships, and even arriving brought no relief. Here in Australia Caroline Chisholm found and helped starving Scots who had only the Gaelic and so could get no work; she interpreted for them and arranged work as contract woodcutters. You see, as well as distance there was a cultural journey to make. It did not matter that there were no legal barriers, even so there were effective barriers. Which is enough to destroy any argument that freedom of movement is a remaining barrier that we must take down, to get the full benefit of globalisation; what could Caroline Chisholm have done for human waves of migrants? In physics such things are a shock wave, and our constant change is throwing all this at us, accelerated by our very efficiency. In the 1846 era of the repeal of the Corn Laws, Disraeli was inspired to write "Sybil", and there he wishes for some way to offset the harm to those who are thrown down by change, even as it lifts others up. Even then, those lifted up were the younger generation, the old being dropped.

There's more. If we may not bring Mahomet to the mountain, at least our modern mountains may go to him. That is, we can export jobs. Granted, we in the developed world have a technological edge of sorts, but it is not sustainable. Already some kinds of software are outsourced to places like India. Now recall what I noted above, about how a race to the bottom for wages can go below the cost of living, if only there is some subsistence land about - it gives what amounts to a concealed non-cash subsidy. (Disraeli also wrote of the possible desirability of "potato grounds", which survived into the allotment movement and was an example of just such a non-cash subsistence subsidy.) Although this only happens at the bottom, in any country it works through the local price structure to give comparably lower rates than we can offer throughout. Unless, of course, we do something equivalent but overt, and such we are forbidden. Micklethwait and Wooldridge also wrote "...the far greater gains (the cheaper steel that goes into all our cars and houses) are diffuse and hard to spot." Only, it isn't "all" - it's only so for those that have them, not for the dispossessed, the broken men. With some jobs leaking out overseas at every level, there are always some that do not get a gain.

It is not a question of whether the fact that some might get a greater proportion of the gain might be inequitable. It is the fact that there may well be a paradoxical reaction, the way giving oxygen can make a patient go blind by shifting oxygen away from the eyes. Some may actually go back to make up the more than 100% elsewhere - something that is less likely with slow change, uncatalysed by the engines of finance. We cannot know in general, of course, only case by case; but we have enough of a sound theoretical framework to know we cannot rule it out a priori, and enough anecdotal evidence to suspect it may be happening as we speak, so we should in all prudence cease our rush and examine our future, case by case.

We can look beyond our bellies. Micklethwait and Wooldridge also cover cultural matters. Well, here we are on shakier ground still: are we just burning down our house to roast our pig? Is our loss of our immediate means of support justified by some noble dream of greater cultural wealth - for it is a dream, anchored in the days to come, not here present. But suppose it so, for such things must always lie ahead before they can be sought for. It may also be that these cultural things are our birthright, this cost the pottage we would be fools to keep.

We would still be cheating ourselves, two ways. First, we have already had the cultural enrichment; each new Big Mac is just another of the same, like the old joke that a certain man didn't have twenty years' experience, just one year's experience twenty times over. Second, there's a crowding out. Here in Australia it's reaching the point that multicultural means any culture but our own, no more cooked vegetables but only half cooked or raw (al dente or salads, to you) - and, far from increasing choice, it's more like Henry Ford's "any colour they like so long as it's black" or the school food approach where rather than being offered curry there is always some day in the week when curry is compulsory.

In the end a better metaphor may be, not would we give up our pottage for our birthright, but "what profiteth it a man if he gain the whole world, if he lose his own soul?" Is this cultural bird in the bush at the price of the one in our hand, the things that make us what we are? While Sparta may have shunned the new to avoid compromising the old, even Athens embraced additions of culture without abandoning its own. In this area they only differed as to means. The alternative to multiculturalism is not narrowness but synthesis, a true diversity not self-abnegation.

Peter Lawrence's publication page is at