Globalisation is our only future

First Published: 2004-09-18

"The great cause that motivated some of the best to enter politics for the last hundred years was the yearning to help 'the poor'. "

By John Blundell, director-general of the Institute of Economic Affairs www.iea.org.uk

Its primary realisation was parties of the Left. In Britain’s case it was the Labour Party but it was matched in most nations. The spectrum of left wing convictions stretched from the mild good works of Methodism to the coercive tyrannies of Communism. Socialism’s death as an idea is the crucial point for our global horizons. It is churlish to knock socialism as an idea when it has unravelled, but it is worth emphasising that benevolent intentions do not ensure benevolent effects.

Although there may be arguments about the degree of taxation and the volume of regulation, it is obvious and measurable that all the successful economies of the world are liberal capitalist ones and open to the world.

Sensationally, nearly miraculously, the Chinese enjoy the most vibrant economy under a thin veneer of Maoist heritage. Russia still has to nourish its pluralist institutions but no coherent voice is arguing for a return to Marxism.

All this ought to invite a high degree of confidence about our chances of a calm and prosperous future. After the collapse of the USSR it was reasonable to expect capitalism would be triumphant. The great cause that now touched anyone of sympathy or imagination was the deepening misery of what we call the Third World.

Mankind is parcelled into 200 different units called states. Some – North America and Europe – prosper; others such as most parts of South America and Africa have no successful institutions. The horrors in Sudan or Zimbabwe are very vivid examples of a wider failure. An incompetent, plundering, even murdering state can ruin its citizens with impunity. A half of humanity is receding from optimism. They go hungry or are brutalised. Despite our instinct to help, we can only offer token charitable acts or, even worse, donate "aid" that only props up the regimes.

These thoughts are prompted by reading Martin Wolf’s new book Why Globalisation Works. It is a magisterial exposition of the case for free trade. Although we are only at the end of July, I would be surprised if it wasn’t my nomination for the best book of the year . Wolf argues that our acceptance of the sovereignty of these dreadful states makes it nearly impossible to help the forlorn people locked inside. Very often we are more than helpless. We make matters worse. He points out that we spend seven times more in subsidising our farmers than we do in development funding the Third World. The best hope for an Albanian, Nigerian, Paraguayan or Bangladeshi is to migrate to a capitalist economy, but we erect ever higher barriers to movement. They cannot remit their earnings home.

Wolf argues that, although the substantive anti-capitalist cause has expired, there is no shortage of cranks ready to oppose the opening of the world’s markets. Rosemary Righter describes the anti-globalisation brigade as "a hotch-potch of contradictions, linking Left and Right, Poujadists, protectionists and environmentalists, nationalists and anarchists, stolid religious charities and veterans of the heady days of radical chic".

Wolf makes the fascinating point that we have competition between governments or states now. They are in a rivalry for international investment. They need to lighten their regulations and taxes enough to make themselves attractive. This is very much in opposition to the European Commission, which is anxious to "harmonise" taxes across the EU, suppressing all diversity. Only this week a major chemical company has said it will migrate to China if the commission sustains its drizzle of daft rules.

Historians regard the fragmented nature of medieval Europe as one of its primary strokes of good fortune. The Continent outstripped China and India and the Islamic world, all of which were far more advanced a thousand years ago. Europe’s de-centralised authority was unique. This created competition between rulers. It is an argument yet to be resolved between scholars but it seems this fragmentation of powers led to the definition and defence of private property and hence the emergence of markets. More than this, rules also emerged in a market demand for laws. An independent judiciary was a real breakthrough. The rule of law was something that eluded the Chinese, Moghuls and Ottomans. Free trade is not just the exchange of physical goods. It also involves the export of what Hayek terms "the rules of just conduct". Now the world sees states having to be alert to how new laws or restrictions may simply penalise their own populations. Trade holds up a mirror for rulers to see their own incompetences.

The triumphant creation of a Victorian global market collapsed ignominiously after the Great War. It did not revive until after the Second World War. Is humanity so stupid as to abandon success again? Is the open trading system still fragile? Too many regard trade as vulgar and even seem to suppose that parties to free exchange can be poorer as a result.

I am optimistic because we have very close to full free trade in ideas and information. Tyrants can still try to impede this traffic but they look increasingly foolish.The greatest force for good, it seems, may not be Oxfam and kindred kindly bodies, but the much-mocked multinational corporations. It is international trading companies that keep markets open and functioning.

One hazard may be the near total adoption of the assumption that trade liberalisation has to be mutual. Lowering tariffs to, say, Brazil, will only be matched if they lower their tariffs comparably. This sounds reasonable and equitable but we ought not to exclude the bold idea of unilateral liberalisation. We only have two groups of humanity that are still exponents of Adam Smith’s ideal – Singapore and Hong Kong. They are beacons of such obvious success it is a measure of how we are still captive by anti-capitalist ideas that no serious politician in Scotland, or Britain, argues for unilateral liberalisation, the greatest single liberal policy ideal.

I wonder what Adam Smith’s ghost would commend as the priority for policy? I’m clear he would urge the de-privileging of farmers, and a major reform of the EU to repolish its liberal ideals.

He wrote "What is prudence in the conduct of every family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it from them with some part of the produce of our own industry, employed in a way in which we have some advantage."

Those who map our DNA confirm that humanity dispersed over the continents, out of Africa, into tiny bands in pre-history. We became strangers to each other. Today’s great adventure now is that we are meeting and talking and trading again … in our global village. The sillier greens and protectionists yearn for the neolithic. The future is trade … the only way to lift the poor out of their misery.

July 27 2004

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