Seeking Sustainable Development

In line with this week's readings, here's a NYT's article (or video, for your viewing pleasure) that covers a captain of industry who turned green after waking up to his manufacturing company’s practice of overflowing landfills and incinerators with negative externalities. It was a pleasant surprise to hear the chairman of a billion dollar corporation sincerely appreciate the moral imperative of environmentally-friendly business practices, but the real kicker came with his revelation that the supposed trade-off between economics and the environment is a specious myth. In fact, eliminating the waste and pollution from production significantly improved the company's bottom-line: green practices conserved energy, reduced production costs and enhanced the quality of products.

The green revolution that occurred in this company happened at the volition of one person, not at the behest of government regulation or a cauldron of whiny liberals. This fact confirms my belief that green practices will prevail only when business and industry understand that sustainable development is not only socially responsible, but also profitable.

Alison Butler’s essay speaks to the potential for harmony between environmentalism and free trade and provides a glimmer of hope that these apparent rivals can peacefully coexist. Butler notes that government regulation and market mechanisms vary across countries, which implies that trade and markets needs to be properly managed to ensure environmental protection. And because of the variance in markets and regulations, free trade and environmental protection will only agree when industrialized nations finance the environmental protection of the developing world.

Just as Butler's argument hinted at the convenient options for industrialized nations to take advantage of lax environmental regulations in the developing world, the Singer and Stiglitz readings did not inspire confidence in the environmental movement. After reciting the perils of global warming, Singer peers into the ethical dimension of environmentalism to glean an equitable distribution of blame for pollution and emissions. Singer offers a wealth of justifications to blame and tax the big polluters, especially the US, but no real solutions. Similarly, Stiglitz seems to be focused on the most efficient way to punish polluters: emissions taxes, carbon trading, and international sanctions are all options. To me, the problem with the use of taxes and carbon trading is that, on some level, they seem to condone emissions and pollution as long as the polluter pays for his injustices and green laws and policies are enforced.

While the financial incentives and disincentives that Singer and Stiglitz are pragmatic and are certainly a step in the right direction in cutting pollution, this line of thinking avows globalization as a crisis rather than an opportunity for innovation and technological breakthrough. Borrowing an observation from Friedman’s “The World is Flat,” the Chinese character symbolizing “crisis” carries two meanings: one signifying danger, the other opportunity. While the danger of global warming is a tired and well-known criticism, environmentalists need to focus on spreading a new gospel: the opportunity for a fresh start of sustainable practices and the profits that creativity offers.

As no good deed goes unpunished, it would behoove environmentalists to stop moralizing in the search of fairness and equity, and reframe their message in a tone that the business community can appreciate. Environmentalists must emphasize the moderate profits to be gained from sustainable development in the short run rather than the catastrophic losses that could possibly be suffered by their grandchildren. For example, the bid to consumers to buy a hybrid car emphasizes gas efficiency of 60 mpg and escaping the captivity of exploding gas prices, not the tendentious claim that sea level is going to rise 34 cm in the next century if fossil fuel consumption doesn’t stop. In short, the medium is the message, and governments and environmentalists need to find a message of reward and opportunity rather than punishment and crisis. Harking back to the aforementioned NYT's article, the right sales pitch of sustainability will compel businesses and citizens to go green voluntarily rather than through external economic instruments or dooms-day scenarios.

Redefining Value Added

In a convincing yet schoolish analysis of multinational enterprises, Richard E. Caves provides a solid framework for the economic merits of horizontally and vertically integrated economies, the basis of the MNC. Among many benefits, the reduction of transaction costs and the internalization of proprietary assets have made foreign investment a focal point of the modern MNE. Caves’ study provides no value judgment on multinational enterprises within the larger globalization debate, but leaves no doubt of the staying power of MNCs, as they are natural outgrowths of the global economy and large-scale models of maximized efficiency and productivity.

From this foundation provided by Caves, the question becomes how to address the MNCs that figure so prominently in the global economy. Predictably, Wolf and Stiglitz come down on different sides of the fence. In his gushing defense of corporations, Martin Wolf overstates his case and, true to form, delivers a lopsided and unbalanced prescription of market-based solutions to political problems. In broad strokes, Wolf’s argument asserts that the presence of MNCs in the global economy is less bad than their absence. Wolf’s attempt to portray states as the exclusive holders of political power and corporations as powerless lobbies at the mercy of market forces proves to be a disservice to his argument. Wolf takes pains to show that “companies do not dominate markets, but rather that markets dominate companies,” but gives little heed to the inevitable intertwining of politics and economics. Furthermore, Wolf’s complete dismissal of the power of corporate branding and advertising is vexing in that it ignores the billions spent on advertising and brand recognition by MNCs and the constant image-nurturing that most businesses eat, sleep and breathe.

Wolf’s finer moments in the reading comes in his debunking of the “race to the bottom” argument. He makes his case in point with the statement that “the world’s least developed countries are not exploited by transnationals, but ignored by them.” Taking to task the argument that MNCs exploit poor countries and workers, Wolf shows that MNCs tend to look for opportunities more often in the developed than developing world, with 2/3 of all FDI in 2001 going to developed countries. Wolf also asserts that transnational companies have the know-how and wherewithal to pay more than local companies and drive up domestic wages in the local economy. Citing other macroeconomic phenomenon, Wolf is secure in his position that corporate investment is overall adding value to countries on the business end of FDI, but never seems to put his hand on a human pulse or appreciate the serious damage done by corporate greed and corruption. Wolf makes no mention of the environment or the dangers of global monopolies . While recognizing the criticism that MNCs are creating “industrial slums and low-wage ghettos,” Wolf shrugs it off with the cheeky assertion that conditions are better than they would have been otherwise.

While Wolf sees no problems with the culture of corporations, Stiglitz offers a more balanced look at the costs and benefits of MNCs. Sitglitz praises corporations for transferring information, services, goods and technology around the world and raising the overall standard of living, but also notes the ugly externalities, or “market failures,” that corporations produce. Unlike Wolf, Stiglitz grasps the enormous economic and political power wielded by MNCs and questions the merit of letting them lose on the global markets. Of particular concern to Stiglitz are the problems of anti-competitive behavior, monopolies, and the protection offered to unscrupulous corporations by limited liability. Stiglitz lapses into one of his more idealistic moments with his discussion of corporate social responsibility and the prospect of improving global corporate governance. While his suggestions of ending banking secrecy and removing the protection of limited liability partnerships are valid, he ultimately settles on a market-based approach to regulate corporations in the global economy. Ending corporate corruption and greed will only come when moral and economic incentives are aligned .As corporations converse exclusively in the language of money, financial and economic incentives are the only way for socially responsible governments to overcome the apparent language barrier and include virtue in the value added coveted by MNCs.

A PSA for the Global Village

This is Free Trade, This is Free Trade on Drugs: A grim reminder of the darker side of wide open, liberalized free trade. While the contaminated pet food story seemed at first to be an isolated incident, the above report on poisoned, counterfeit medicine coming out of China and killing unsuspecting Panamanians has brought the whistle-blowers out of hibernation. Unfortunately it takes these types of incidents to raise the alarm and shatter consumers' false sense of security that what they buy comes from a known, regulated source. However, the finger pointing at China is starting to become a national pastime that is all sizzle and no steak. Too much shimmy, not enough sham. In other words, why haven't there been any consequences, other than fiery academic rhetoric, for China's continued abuse of the global trade system? I may be jumping the gun, but when do a series of events become a veritable pattern of behavior that demands redress? If Americans were the victims of these contaminated medicines, would there be a louder response? Clearly, I have way more questions than answers regarding trade policies with China, but I will say that China's failure to regulate the safety and quality of its exports adds insult to injury to the US's gigantic trade deficit with the Chinese.


For more unanswered questions, see the NYT's two-cents on the Democratic party grappling with a sustainable trade policy.

The United States of Europe?

In the context of globalization, the EU has been a groundbreaking regional arrangement that has redefined and expanded the conventional notions of a free trade zone. While the EU currently operates out of a small geographic corner of the total global economy, it carries wide implications for the rest of the world and, in my estimation, offers something of a microcosmic glimpse into the future of a potentially integrated world economy.

Initially conceived as a minimalist Western European trading bloc, the EU has far exceeded the reach and grasp of its architects to become a continental entity encompassing the political, economic, and social spheres of democratic life in Europe. With an integrated marketplace providing for the free flow of goods, capital, services and people across Europe, the EU can serve as a frame of reference for the various and sundry actors involved in the fledgling global economy.

This is not to say that states should accept or adopt the EU framework, but rather that the relevant actors in the global economy should use it as a lens through which to observe where certain polices have failed and succeeded, and to apply the lessons learned. At present, the jury is still out on the overall utility of the EU as it continues to grow and evolve. But, despite continued opposition and its growing pains in the early stages of its evolution, the single market of the EU has grown legs in its continued march into eastern Europe, and now it seems to be developing wings for its flight across the pond.

Sleight of the Invisible Hand

In his argument celebrating the “magic of the market,” Martin Wolf extends Adam Smith’s notion of the invisible hand-- which allows individual self-interest to operate in the marketplace to the benefit of all—from the local to the global economy. In the same vein, Wolf embraces Thomas Friedman’s observation that “nobody is in charge” of this new global economy. At first glance, these observations make sense, as they key into the lowering of economic boundaries between markets around the world and the lack of a single governing, regulatory body to provide the oversight and control that characterize the mechanics of national economies, in varying degrees. However, upon further review, the notion that no one is in charge of the global economy and that it represents a level playing field reveals a gaping blind spot in the thinking of Friedman and Wolf about globalization.

While the thrust of Wolf’s argument that the advanced market economy is the only way for the developing world to keep pace with the developed nations rings true, he fails to mention the inequities that riddle the global economy and the real actors that are, to some extent, "in charge." To fill this void left by Wolf, Stiglitz’s argument fits neatly. Far from adopting Friedman’s belief that nobody is in charge, Stiglitz identifies the imbalances in the global power structure and shows the enormous political and economic muscle that the US and Europe flex in the global marketplace. Stiglitz raises the concern that although no state is technically “in charge,” the global economy is being mismanaged by a variety of actors in the developed countries. Friedman’s notion that nobody is at the wheel to steer the global economy except for the transcendent invisible hand ignores the political, social, and moral dimensions of globalization. The failings of World Bank, WTO and IMF to meet their goals of reducing poverty and inequality in today’s unflat world illuminate the holes in Wolf's argument. The World Bank and IMF represent the continued concentration of political and economic power in the developed world, as they were engineered as global economic instruments that became eclipsed by the agenda of western political actors and elites. Having fallen flat in managing global economic development, the IMF and World Bank have also compromised progress in the political sphere of many developing countries, according to Stiglitz.

Stiglitz asserts that “although globalization has helped spread the idea of democracy, it has, paradoxically, been managed in a way that undermines democratic processes within countries.” Speaking to his point on the democratic deficit in the global economy, Stiglitz mentions the conditionality and unfair demands that are imposed on developing countries for aid and the political and economic instability that some newly opened markets have endured. The spread of the Washington Consensus as gospel is one of the better pieces of evidence indicting the economic policies propagated by those in favor of trade liberalization in the global marketplace. Despite his criticisms, Stiglitz concludes his chapter on a note of optimism, saying that the global economy is not a zero-sum game but rather an arrangement that has the potential to benefit everyone in the global village. But to indulge in the idea that nobody is in charge and that the invisible hand will bring order to the global marketplace is a dereliction of duty on the part of the US and Europe and a missed opportunity for the organizations they control, such as the UN, IMF and World Bank, to take charge in creating a truly flat world. The invisible hand has so far failed in the global economy to level the playing field. To make the most of the potential of globalization to benefit everyone, the controlling forces in the developed world that hold sway over this invisible hand must be more visible, accountable and democratic in responding to voices in every corner of the global village.