Large chain stores and franchises do affect local businesses, especially in small towns, but note that it’s mostly a shift rather than destruction: Some businesses find ways to compete effectively by filling niches that the larger stores can’t fill, particularly with respect to distinctly local products, such as restaurant food.

However, larger chains have at least two big advantages worth discussing.

First and perhaps most obviously, their size normally gives them the ability to buy in larger quantities, keeping their costs and prices down.  Walmart grew to the size it did through highly effective inventory management; it pressured suppliers to keep their input prices low and passed those low prices on to consumers.  Low prices are a big part of what lures people to shop there rather than at the smaller boutique stores.  Chains like McDonald’s work in similar ways; a burger, fries, and drink there is usually no more expensive (especially if you count the lack of a tip) than the diner up the road.

Known Commodity

The second advantage is less commented on. The very similarity of chain stores and franchises nationwide, and even worldwide, is a big attraction to many customers because they are a known commodity.  If you’re hungry in a strange town, you know that you can always go to a national fast-food chain and get a meal of nearly identical quality to what you’re used to at the chain’s restaurant at home — and for a good price.  If you are sufficiently risk-averse, the consistency of a national brand is very valuable.  In an economy where national chains were more difficult to operate, we would be far more at the mercy of the unknown.

And it’s not just about food. On a recent trip I forgot to pack dress socks.  Thankfully, in a strange town 2,500 miles from home there was a Walmart five minutes up the road.  I happen to like Walmart’s in-house Faded Glory cotton dress socks, so I was able to buy several pairs of exactly the socks I like and usually wear (for less than $2 per pair).  In a “local only” economy, not only would I have had to spend more time searching for a store that carried dress socks (and was open at 8:30 a.m.!), I would also have faced uncertainty over whether those socks would be the kind I like.  And I probably would have paid considerably more.  A highly local economy constantly puts strangers in a similar position to the traveler with car trouble who knows he is at the mercy of a mechanic he’ll never see again.  Chain stores and franchises bring reputation and repeated dealing into the equation, removing uncertainty and reducing the seller’s power over the buyer.

Freedom of Choice

One final advantage of a global economy is that it still permits people to “buy local” if that’s what they prefer.  I love living in a small town with a Walmart ten minutes away and a farmer’s market during the summer and a top-notch restaurant that serves lots of local beef and produce.  In a world where everything is local, those of us who want to “buy global” presumably would be prohibited from doing so — in the name of preserving the local character.  Just as markets allow pockets of voluntary socialism, but socialism cannot abide capitalist acts between consenting adults, so a global economy has room for the local, while mandatory localism cannot meet the needs of those who prefer to buy global.

Whether it’s food or socks or pretty much anything else, the freedom of the marketplace allows for firms of varying size and composition to meet the equally varied wants of consumers.

The strength of the anti-globalist coalition has waxed and waned over time, but there is still a large number of people who believe that globalization is a sinister force that must be stopped at any cost. In Why Globalization Works, Martin Wolf does a fine job in showing why free trade ensures that the world’s economies continue to grow.

Wolf is the economics columnist for the Financial Times; he is the most libertarian voice in a newspaper well known for its stubborn hostility to classical liberalism. But in the 1970s, before he became a journalist, Wolf was an economist for the World Bank, where he saw firsthand how the bank’s lending for failed Third World planning schemes left some of the world’s poorest nations more destitute and debt-ridden then they were before the bank began to “help” them. This led Wolf to see that free trade is the best way to make sure that Third World countries are transformed from passive recipients of international aid to productive participants in the global economy.

Wolf is at his best when he refutes the facile claims of the foes of globalization. Among the charges he addresses:

• Corporations rule the world and force us to buy things we don’t want. In her 2001 book, No Logo, Canadian anti-globalist Naomi Klein explains that her hostility towards capitalism began in fourth grade, where “my friends and I spent a lot of time checking each other’s butts for logos. . . . [W]e were only eight years old but the reign of logo terror had begun.”

“In the last century,” Wolf notes, “millions of human beings knew the terror of police states, genocide, and government-engineered famines. But insists Klein, I and people like me have experienced terror too. We are not just the world’s most pampered brats. We know terror too: ‘logo terror.’ ” Wolf then shows that all the evidence suggests that consumers are less and less likely to buy products solely based on a brand name. And corporations, unlike governments, have no police or tax-collection agencies to confiscate people’s incomes.

• Under globalization, the Third World gets all the manufacturing jobs. An average Chinese worker may earn $750 a year while a German earns $35,000 and an American $29,000. But Americans and Germans are far more productive than Chinese workers are. This productivity advantage ensures that skilled workers in American factories earn their high salaries—and explains why makers of complex products such as airplanes or drugs are unlikely to move production overseas.

• Globalization has increased inequality among nations. In fact, Wolf argues, the reverse is true. Freer markets in China and India have resulted in dramatic increases in income levels in those two nations in the past decade, ensuring that hundreds of millions of Chinese and Indians are leading better lives. Incomes in these two countries are nowhere near Western levels, but what matters more is that capitalism has made sure that the average worker is doing far better than he did under the draconian governments of Mao Zedong or Indira Gandhi.

Moreover, international companies do not make investments in the Third World randomly. They invest in countries that believe in the rule of law—where private property is supported, contracts can be enforced by an independent judiciary, and an educated labor force is available. If far too many African nations are stagnating, it’s not because of stinginess by multinational corporations, but because these countries are ruled by strongmen who plunder their countries and leave them as economic basket cases.

Wolf does not reflexively condemn all the anti-globalizers’ arguments. In particular, he says that the charge that rich countries are hypocrites for asking poor countries to open their markets while preserving trade barriers is “more than justified.” He notes that while global tariffs currently average 3 percent, agricultural tariffs are a more-punitive 13 percent—and most of these tariffs hurt the Third World. A Progressive Policy Institute study, for example, showed that in 2001 the United States charged Bangladesh $331 million in tariffs—about the same as France. The result: the tariffs punished Bangladeshi farmers trying to better their lives. Farm subsidies, antidumping measures, and environmental regulations are also frequently used by Americans, Europeans, and Japanese to keep foreign goods out. Those barriers, Wolf believes, should be greatly reduced or eliminated.

Martin Wolf is a sharp and lucid writer. Those interested in deepening their knowledge of the world’s economy will find that Why Globalization Works is well worth the time and money.

Portraying the IMF as a bastion of laissez-faire principles is usually the rant of people who have no understanding of markets. For my money, that is an apt depiction of Professor Stiglitz. A Clinton White House insider who was a member and then chairman of the President’s Council of Economic Advisers, he later became chief economist at the World Bank. After he resigned that post, he shared the Nobel Prize in economics with a pair of scholars. Their contributions related to their observations that the real world was different from the perfectly competitive model that specifies economic agents acting on perfect information. Their contention was that when information is imperfect, or “asymmetric”—that is, some people know more than others—markets may not function, especially if buyers don’t trust sellers.

While the efforts that led to the Nobel Prize may have been technically impressive, most problems in markets are caused by extensive intervention, often inspired by bright chaps like Stiglitz who lack sufficient humility to understand the damage they cause.

In this new book, which purports to be a history of the economy of the 1990s, the author broadens his identification of global villains and goes beyond the IMF to include Wall Street interests along with big business generally. Among their sins, Stiglitz lists the following: demanding deregulation of electricity, providing stock options, messing up on pensions, using bogus accounting, and an irrational mania for mergers. It’s all a thin conventional gruel from someone who is supposed to be a world-class economist. Stiglitz also ventures beyond the 1990s to excoriate President George W. Bush for the recent budget deficits, which were caused, of course, by tax cuts.

Stiglitz’s main conclusion is that the economic debacles of the 1990s arose from “misregulation” and “underregulation” of markets. In that regard, he seems to suffer from a “fatal conceit” (to borrow from Hayek) that blinds him to the same failings in himself that afflict mere mortals. In a way, Stiglitz is like Lord Keynes, a “rational constructivist” who believes he can bring about order from the “chaos” of messy markets. Stiglitz similarly overestimates the ability of government planners to direct markets efficiently, while at the same time overlooking the enormous inefficiencies they cause.

The only praise our author seems to offer is for himself, since all his would-be fellow travelers cannot hold steady. While he heaps scorn on Republicans, he deeply resents betrayal by Democrats who cave in to their own craven instincts or pressures from Wall Street. The narcissistic streak in the book is not appealing.

In one of many instances where he is right for the wrong reason, he points out that deficit reduction did not cause the boom of the 1990s. Although he does not seem to understand this, the 1990s were like almost all booms in history. There was an illusion of rising prosperity promoted by hyperactive monetary policy. However, the author’s description of the 1990s boom as “hyperactivity” caused by false hopes and lies shows his profound lack of understanding of the role of monetary policy in business cycles.

Stiglitz displays exceptional rhetorical skills, as well as an inclination toward character assassination. However, nothing in The Roaring Nineties demonstrates that he deserves the wide acclaim that identifies him as an outstanding economist. One might hope that he would turn to studying how markets work and thus become a better economist. But since that would require him to abandon his true comparative advantage and pleasure from engaging in political battles and mudslinging, that hope is probably forlorn.

Perhaps these protesters have poor powers of observation or simply lack fertile imaginations to seek out some new symbol of protest. It does seem curious that there are no known complaints about the global reach of karaoke or the invasions of Asian cuisines that have swept the world.

Surely, there are more karaoke bars in more cities around the globe than there are McDonald’s restaurants. And what about the scourge of Latino songs that have stormed the music world like wildfire? Or things Korean that charm a growing number of admirers among Asians? And who accounts for the sins of Sony and Mercedes?

As it is, would-be activists have cut their teeth on breaking into or tearing down structures adorned with the Golden Arches. Jean Bove, a self-styled French farmer who spends more time on the barricades than on his fantasized farm, was catapulted into stardom by vandalizing one of those hamburger joints. Ironically, no one paid attention to the fact that his act destroyed job opportunities in a rather depressed part of France.

Now McDonald’s has become the target of choice of those who would express outrage against the U.S. retaliatory actions for terrorism directed at the Taliban, Afghanistan’s wannbe government. In neighboring Pakistan, unruly crowds trashed McDonald’s in Islamabad and Karachi. Demonstrators in Indonesia have been slightly more tame with outlets in various cities being cordoned. As if to show their resolve and to make up for their tempered rage, protesters also set upon Pizza Hut outlets and implored diners to stay away.

Although multinational corporations make an easier target for registering complaints about globalization, ubiquitous brands certainly are not limited to the United States. As suggested above, it is simply wrong to portray globalization as a form of cultural imperialism by America or the West. (The favorite target of the predecessors of modern anti-globalists was the Swiss company Nestlé.) Indeed, globalization involves a more complex process of modernization combined with internationalization. Those who would pretend it is otherwise are playing a dangerous game.

Attempts to mischaracterize globalization as an American or Western conspiracy resonate of social theories that supported ruinous economic policies in much of the postwar period. Generations of Latin American dictators, African despots, and communist commissars condemned their countries to grinding poverty by thinking along these lines.

Causing generations to suffer from economic stagnation is bad enough. Now their modern-day fellow-travelers are encouraging a divisive view of the world that is inhabited by a virtuous “us” and an evil “them.” Under this banner, the downtrodden victims are acting righteously in tilting against the windmills of multinational corporations. Unwittingly perhaps, this fuels the fire that burns in the gut of terrorists.

Granted, there is an apparent convergence toward certain norms or rules that are common to Western cultures, especially as they relate to economic transactions. However, this convergence is the outcome of a natural and evolutionary procedure that arises from voluntary choices by citizens and their governments to engage in worldwide markets. Most of these individual or collective choices are made with the aim of promoting greater prosperity. Consequently, as more countries have opened their economies to global markets, they have found a need to establish certain legal arrangements that oversee contractual agreements.

Part of this trend should be welcome to those who oppose authoritarianism. For there is an unmistakable movement toward institutions that protect individuals and away from authority-based institutions that protect state power. Critiques of globalization are little more than another round in the struggle between conservatism and modernism.

Biggest Losers

If protests and vandalism are successful in undermining global branding, the biggest losers will be consumers, especially those in poorer countries. Whatever the complaints against corporations with global reach, the presence of these brands benefits consumers by lowering information costs. Wishing to protect brands, companies will insure a high level of standardized quality and nondiscriminatory treatment of customers.

The good news is that larger multinationals are unlikely to withdraw completely even from the most threatened markets. They can buy up or into local brands or diversify into products with names that may not indicate the geographic origin of the company.

In all events, the success of branding has spawned imitators in developing countries. In the Philippines, a local burger brand named Jolly Bee bested McDonald’s sales before moving into regional markets and a few outlets in California. Another fast-food franchise operation in Guatemala based on chicken products, Pollo Campero, outsells all competitors despite the presence of all the major chains.

It is a gross misrepresentation to depict globalization as the outcome of a conspiracy of anonymous and mysterious foreign forces. The globalizing impulse is to a large degree the result of preferences for imported products or services that are better or cheaper than what is produced locally.

In this sense, globalization is not merely benign. It reflects an expanding freedom of expression for citizens acting as consumers. Those who oppose these results reveal their own elitist loathing for their fellow citizens and their right to express their choices.

Message to anti-globalists: Your distaste for Big Macs or American policies gives you neither the right nor obligation to stop others from enjoying their Happy Meals. Especially when it causes someone else to lose his job.

According to Greenwald (who teaches in Columbia University’s Graduate School of Business) and Kahn (a former history professor), “writers on globalization” largely misinform the public. They fail to acknowledge earlier waves of globalization that Americans have survived and benefited from, and rely on “anecdotes” but not “harder, more representative, and more dispositive data.” As a result, the public overestimates the negative effects of globalization. The authors aim to more accurately describe and discuss globalization and its consequences.

They begin with the history of globalization. In the first phase (1820-1920), innovations in transportation and communication set the stage for world trade in commodities. Globalization receded during the second phase (1920-1950). Greenwald and Kahn recognize that tariffs, economic depression, and war explain part of that decline, but in their view the leading factor was innovation in the production of commodities, which increased incomes and encouraged manufacturing. The new manufactured goods were not readily traded, so countries exported and imported less output across borders. Globalization rebounded during 1950-2000 as “businesses learned to sell differentiated products in distant markets.”

Currently, the authors see the mix of economic activity changing again. In this phase, productivity gains are reducing the importance of the manufacturing sector relative to the service sector. Greenwald and Kahn reason that many of these services will still be produced in home markets and predict another round of decreasing globalization.

Economists generally advocate free trade as a policy that leads to higher standards of living, but Greenwald and Kahn argue that the causality generally runs the other way, with greater prosperity leading to increasing trade. Their data show that standards of living around the world have little to do with the pace of globalization, and they contend that living standards depend more on whether an economy is capitalistic or socialistic than the ebb and flow of globalization.

Few economists would disagree that market-oriented economies outperform socialist economies. The authors seem to be creating an unnecessary debate on that point. Far worse, however, they endorse neither free trade nor protectionism. “Like other economic policies,” they write, “trade policy is best decided by local authorities, responding to local conditions.” That’s a feeble argument. Local authorities are just as susceptible to special-interest pressures to restrict trade as are national ones, and the results are just as bad for consumers.

Free trade remains unpopular because the public worries about job losses. Greenwald and Kahn acknowledge this concern, but observe that what the public does not notice are the tremendous job gains. “During 35 years of increasing globalization,” report the authors, “employment in the United States actually increased by over 80 percent.”

Their analysis of employment data shows that many of the new jobs are in attractive categories such as management. Furthermore, globalization is not the primary destroyer of manufacturing jobs. By the authors’ calculation, globalization accounted for 35 percent of the manufacturing jobs destroyed from 2000 to 2006, while automation accounted for 65 percent. Might it not be that American workers will keep their jobs but suffer wage cuts due to globalization? In fact, the authors show, while real wages in the United States declined between 1970 and 1982, since 1983 they have been rising.

So far, so good. But Greenwald and Kahn then argue that because other countries are practicing “monetary mercantilism” we must take steps to reverse the U.S. trade deficit. They favor creating a new world currency, with the International Monetary Fund acting as a global central bank. What terrible analysis and advice! Trade deficits are not harmful; they’re the flip side of capital inflows that reflect increasing investment. Furthermore, there is no reason to believe that international bureaucrats can run a central bank any more successfully than can the bureaucrats in charge of our own inflation-prone Federal Reserve.

The basic premise of the book–that people should stop thinking about “globalization” as if it were the economic equivalent of the Black Death–is correct. The trouble is that Greenwald and Kahn let their erroneous notions (not all of them pertinent to globalization) get in the way of a truly enlightening work. We emphatically do not need any of the interventionist policies they propose (like the new international currency) or think are harmless (like local trade impediments). Economic freedom, including global trade, needs a full-throated defense rather than this rather timorous one.

The concentrated public-relations campaign against Walmart has been moderately successful, and the company has drawn criticism from all sides: Commentators on the left criticize the company for its alleged impact on wages and jobs; those on the right criticized its decision to join the National Gay and Lesbian Chamber of Commerce and to offer “abortion pills” in 2006. Recently, Walmart announced support for mandatory health coverage by large employers, bringing more criticism. Walmart’s handling of the attacks has been less effective than the company would have liked, and its attempts to defend itself have been a distraction.

The criticisms too often rely on anecdotes or statistical comparisons that are difficult to interpret. When one considers that Walmart is the world’s largest corporation, with revenues of about $300 billion and almost two million employees, anecdotes that cast the company in a good or bad light are not particularly surprising. Similarly, a simple comparison of employment (or wages) in a city with a Walmart to a city without one is only minimally informative because such comparisons often fail to control for other explanatory characteristics. Current research suggests that the economic, political, and social case against Walmart is exaggerated. Further, Walmart’s “Every Day Low Prices” do not come at an unacceptable social cost in the form of negative spillovers not reflected in prices. Walmart is certainly imperfect, and there are reasons to view the company with a critical eye, but the usual criticisms of the company collapse under the weight of the evidence.

Does Walmart Squeeze Workers and Suppliers?

Economists Jerry Hausman and Ephraim Leibtag argue that we systematically overstate the rate of price inflation because we don’t account for Walmart’s and other big-box companies’ impact correctly. Walmart claims to save consumers $2,500 per capita per year. This is probably an overestimate, but studies I have done with Charles Courtemanche of the University of North Carolina-Greensboro do suggest that Walmart increases our options.

Critics claim that Walmart can deliver low prices because it destroys jobs, lowers labor standards, and squeezes suppliers. The data, however, do not support the first two, while the third is misleading. Retail labor market studies by University of Missouri economist Emek Basker show that Walmart modestly increases retail employment. Critics are quick to counter by questioning the quality of those jobs, correctly noting that Walmart pays less than its unionized competitors. However, this should be qualified. Union pay scales restrict the labor pool from which unionized stores can hire: If the union contract specifies minimum compensation of $12 per hour, then people whose labor cannot produce at least that much in revenue will not be hired. Since Walmart is an open shop, it has no such artificial floor for the productivity of the people it can hire. Those who would not be employable under union conditions are made better off despite the illusion of exploitation.

The company’s critics correctly point out that the last several decades have seen a large gap open between manufacturing and retail wages. But these data must be interpreted with caution because immigration and changing labor participation have altered the distribution of the workforce. People who are today earning Walmart’s “Every Day Low Wages,” as the critics call them, might not have participated in the labor force several decades ago and their wages would not have appeared in the official data.

Supposedly, Walmart drives small local mom-and-pop retailers out of business, spreading economic havoc and weakening a community’s social fabric. In a paper published in Economic Inquiry, West Virginia University economists Andrea M. Dean and Russell S. Sobel fail to detect a statistically significant effect of Walmart on self-employment, the number of small businesses, or bankruptcy among small businesses. It is true that Walmart causes some businesses to close, particularly in sectors that directly compete with the company. However, these businesses can be replaced by businesses in other sectors. In a summary of their research that appeared in the Spring 2008 Regulation magazine, Dean and Sobel offer the example of Main Street in Morgantown, West Virginia, which was decimated by Walmart but which soon recovered as clothiers and electronics stores were replaced by small businesses in other industries.

They also discuss the obvious objection that perhaps Walmart’s wake leaves a swath of low-value, low-wage businesses. They show, however, that Walmart penetration does not appear to reduce the values of small
businesses. Stacy Mitchell, author of The Big-Box Swindle, argues that Dean and Sobel’s result relies on an incorrect interpretation of Census data. For their part, Dean and Sobel say Mitchell misunderstands the data. If they are correct, the effects of Walmart’s penetration are consistent with what economists believe about technology and economic growth as well as with Joseph Schumpeter’s well-known concept of “creative destruction.” Walmart’s expansion allows people to produce more with fewer resources and less labor, which frees those resources and that labor to move into other occupations.

Walmart also allegedly uses its raw bargaining strength to extract concessions from suppliers. It is usually able to get lower prices, but it also provides something of great value in return: access to its supply chain and logistical support. While anecdotes of Walmart’s hard bargaining abound, a 2001 Journal of Retailing study by Paul N. Bloom and Vanessa G. Perry found that while dealing with Walmart can hurt financial performance for companies that do only a small share of business with the company, “large-share suppliers to Wal-Mart perform better than their large-share counterparts reporting retailers other than Wal-Mart as their primary customers.” Bloom and Perry note that Walmart offers access to broad markets and that companies taking advantage of this prosper as a result.

Sweatshops

Another common refrain is that Walmart and other large retailers obtain their goods from third-world “sweatshops.” In an important 2006 study published in the Journal of Labor Research, economists Benjamin Powell and David Skarbek showed that “sweatshop” labor paid better than the alternatives. In a June 4, 2008, article for the Library of Economics and Liberty, Powell summarizes this research and points out that criticisms of “sweatshop wages” (like those aimed at a factory in Honduras making clothes for Kathie Lee Gifford in 1996) invariably compare the wages and working conditions to American rather than Honduran working conditions—a comparison he calls “irrelevant” because of restrictions on international labor mobility. Sweatshops are a blessing, not a burden. As Powell points out, sweatshop wages more than double the average in some countries. Unfortunately, boycotts and legislation will not improve working conditions around the world. Powell summarizes the conditions that create low wages in countries like Honduras:

Wages are low in the third world because worker productivity is low (upper bound) and workers’ alternatives are lousy (lower bound). To get sustained improvements in overall compensation, policies must raise worker productivity and/or increase alternatives available to workers. Policies that try to raise compensation but fail to move these two bounds risk raising compensation above a worker’s upper bound, resulting in his losing his job and moving to a less-desirable alternative.

Unwillingness to recognize this can lead to policies that do more harm than good. Abuses undoubtedly occur, but Walmart has the resources to be able to have an effective monitoring program—not necessarily because of explicit humanitarian impulses, but because consumers are willing to pay for the guarantees and assurances that they are not buying the products of slave labor. Since consumers demand information about the conditions in which those who make these goods labor, it is in Walmart’s best interests to monitor carefully the conditions in which people produce the goods they obtain from abroad.

The thesis that Walmart’s ethical-standards monitoring is an elaborate ruse is tempting, and a ruse might pay off in the short run. However, Walmart should be disciplined by the capital market. Failure to provide consumers with what they demand—guarantees about international labor conditions, for example—at the price they are willing to pay will hurt long-run profitability and, therefore, the stock price. It is wise to read with a critical eye, but if Walmart’s managers are running a systematic campaign of misinformation, then they are failing in their responsibility to shareholders. Someone who discovered such a ruse would be in a position to profit handsomely by acquiring Walmart stock and fixing the problem.

Walmart, Communities, and the Environment

In his 2000 book, Bowling Alone, political scientist Robert Putnam documented a decline in “social capital”—which he defines as “networks and norms of reciprocity” that hold communities together—in the United States since the 1950s.  Walmart has been accused of contributing to this phenomenon. In a 2006 study agricultural economists Stephan Goetz and Anil Rupasingha reported evidence that Walmart reduced several measures of social capital like census participation, voting, and a measure they themselves constructed. However, in a study published in Public Choice in early 2009, Charles Courtemanche, Jeremy Meiners, and I use Putnam’s data to show that there is no identifiable, systematic negative relationship between increased Walmart density/longevity and measures of noneconomic “quality of life” or civic participation. As Walmart penetration increases, we cannot tell that people spend systematically less time with friends or less time civically engaged.

Others have alleged that Walmart erodes American values. United States of Wal-Mart author John Dicker calls the company a “conservative cultural gatekeeper,” and right-wing critics like those who operate the Christian website www.saveWal-Mart.com took Walmart to task for joining the National Gay and Lesbian Chamber of Commerce. (The company discontinued this affiliation in 2007.) Using similar data and methods to those used in our study of social capital, my coauthors and I were unable to find a systematic relationship between Walmart’s penetration and individual values. It appears that while people get their groceries at Walmart, they get their politics and their values elsewhere.

Finally, Walmart has been criticized for its alleged contributions to environmental degradation, but its cost-cutting has considerably reduced the amount of packaging manufacturers use. This was particularly important in 2008 as gas prices hit record highs. A May 29, 2008, article on CNNMoney.com used Hamburger Helper as an example: To meet Walmart’s demands, General Mills produces “denser pasta shapes” that can be put into a box that is 20 percent smaller, saving “890,000 pounds of paper and eliminat[ing] 500 trucks from the road.” Conditions create solutions: Walmart has been able to use recent increases in fuel prices to trim additional fat from the supply chain and to innovate in ways that will lead to permanent increases in productivity.

Discrimination, Health Care, and Subsidies

Finally, Walmart has been criticized for alleged systematic discrimination against women and for aggressive patterns of seeking local government subsidies. Walmart is the defendant in the largest class-action civil rights lawsuit in history—Dukes versus Wal-Mart, in which an estimated 1.6 million women allege a decades-long pattern of discrimination—but the central tenet of the case is inconsistent with Walmart’s alleged morbid obsession with profits. In spite of their incompatibility, these criticisms often appear side by side. There are conditions under which firms can maximize profits while discriminating in employment, but before we can reconcile discrimination with profit maximization we have to prove that these conditions are in place. Otherwise, the hypothesis of profit maximization works against discrimination and discrimination works against profit maximization. If an employer insisted on discriminating by refusing to hire productive women or by paying them less than they were worth, he would create profitable opportunities for competitors to scoop up members of the victim group and earn profits by paying them something closer to their market value. An employer’s ability to discriminate will be sharply limited by competitive pressure.

Walmart’s critics have also argued that the company places undue burdens on the government’s public health infrastructure. But this is a “problem” that exists because that infrastructure exists and not because of Walmart as such. One could argue more plausibly that by paying better than their employees’ next-best alternatives, Walmart actually relieves some of the pressure on the public health infrastructure. The critics also miss that Walmart’s existence provides a larger pool of resources that can be taxed to provide these benefits.

One robust criticism remains: Walmart has sometimes used the State to redistribute resources to itself and to cripple its competitors. Walmart is aggressive about seeking subsidies, such as acquiring properties through eminent domain, from governments eager to “attract new jobs” and new tax revenue, as critical groups like Good Jobs First, WalMartWatch.com, and WakeUpWalMart.com point out. These subsidies distort patterns of economic activity and sometimes can have the perverse effect of taxing one firm to subsidize a competitor. The problem is compounded further by the alleged need for more subsidies to redevelop areas blighted in Walmart’s wake. This issue provides a setting in which Walmart’s critics can play a constructive role.

In 2005 Walmart supported an increase in the minimum wage, and in July 2009 it earned a front-page mention in the Wall Street Journal for teaming up with the Service Employees International Union and the Center for American Progress to advocate mandatory employer-provided medical coverage. Walmart’s seemingly counterintuitive advocacy is a classic example of what economist Bruce Yandle terms the “Baptists and Bootleggers” phenomenon. Among the supporters of Prohibition were Baptists, many of whom felt that consuming alcohol is a sin, and bootleggers, who stood to profit handsomely if the government crippled potential legitimate competition. In the health care scenario the “Baptists” are groups that believe everyone has a fundamental right to health care. The bootleggers are large firms (like Walmart) that know that mandates will hurt their smaller competitors.

There is also reason to believe that Walmart’s business model is partially underwritten by transportation subsidies. Critics often overlap with people who criticize the American “love affair” with the automobile. The two are related. While it is true that, all else equal, Walmart has been good for consumers, it is also an unintended consequence of the massive subsidies to transportation infrastructure that created today’s urban sprawl. To the degree that Walmart is undesirable, it is a symptom of a larger pattern of interventionism rather than a cause.

Perhaps most unsettlingly, Walmart’s embrace of the proposed health care mandates and advocacy of a higher minimum wage illustrates a disturbing truth about the reality of doing business in the twenty-first century. By backing President Obama’s health care proposal, Walmart might be able to use this to fend off more damaging legislation later. In short, Walmart could be aiding and abetting what Ayn Rand called “an aristocracy of pull.” A 2006 volume of critical essays called the company “the face of twenty-first-century capitalism.” If twenty-first-century capitalism means competition by politics rather than competition by production, we will see lower economic growth as a result. This does not excuse the company’s use of the coercive power of the State for its own benefit, but Walmart is an effect rather than a cause.

The economic, political, and social case against Walmart has been tried and measured against the best available data. For the most part, it has been found wanting. We are left with a rather flimsy criticism, which is that for all its virtues (or at least its non-vices), Walmart is aesthetically unappealing. This visceral reaction to capitalist aesthetics has been called “the yuck factor,” and economist Alvin Roth has argued that we have to take “repugnance” seriously as a political constraint. However, just because I find another’s choices repugnant, I don’t have the right to supplant those choices with my own. People have argued that what happens in someone’s bedroom is none of the government’s business. By the same logic, what someone puts in his or her shopping cart is none of the government’s business. Even if Walmart causes people to make bad aesthetic choices, the civility necessary for a functioning society must take over.

Walmart’s “Every Day Low Prices” policy has been alleged to reduce labor standards, to squeeze suppliers, to decimate small retailers, and to tear the social fabric. In virtually every instance, the empirical evidence available suggests that what Charles Fishman called The Wal-Mart Effect is at best positive, at worst benign. Walmart is a retailing innovator and a force for competitors and suppliers to reckon with. As a social phenomenon, however, the alleged negative spillovers from Walmart are greatly overstated.

In a large park in the heart of the Indian city of Jamshedpur, however, stands an exception to this story: a statue of and public memorial to Jamsetji Tata. Jamsetji Tata was truly a hero and indeed the founder of what we may call a dynasty of heroic figures who have played a major part in the history of modern India and, increasingly, the world. Born into a Parsee family in 1839–when Britain still ruled India–young Tata came to live in Bombay (now Mumbai) when his family moved there and set up in the cotton trade. He worked in the firm and established trading links to Hong Kong and east Asia. In the 1860s the firm went bankrupt due to the disruption caused by the American Civil War. However, he refounded the company and went into manufacturing, setting up a large cotton mill at Nagpur.

Early Liberal and Visionary

As a successful businessman by the end of the 1870s, he became involved in public life in India and was associated with the early classical liberal elements of Indian nationalism as represented by people such as Dadabhai Naoroji and Pherozshah Mehta. He also came to have four great goals or visions. These were to build a truly world-class hotel in Bombay, to create a top educational institution, to set up hydroelectric power in India, and to create a profitable domestic steel industry. He devoted the rest of his life to realizing these, with the help of his cousin Ratanji Tata and his sons–particularly the elder, Dorabji.

In 1903 he opened the Taj Mahal hotel in Bombay, built at a cost of $250,000. In 1901 he and Dorabji hired American technical experts to search for sources of iron ore and coking coal in a suitable location for building a steelworks. The search began seriously in 1904 but Jamsetji died while visiting Germany that May. Dorabji carried on the search and in 1907 discovered an ideal site and a virtual hill of iron ore at the village of Sakchi, about 150 miles west of Calcutta. The Tata Iron and Steel Company was incorporated that year. Unable to raise capital on the London market but undaunted, Dorabji and Ratanji returned to India and raised what was needed by subscription from more than 8,000 domestic investors. The first steel ingots rolled out of the new plant in 1912. Meanwhile another of Jamsetji’s goals had been realized with the formation of the Tata Power Company in 1911 to provide the required power. The firm also had to construct its own railroad, locomotive, and railroad-engineering works.

Following this the Tata firms continued to grow and develop, although they only survived the 1930s economic slump because Dorabji and other family members pledged their entire wealth as security. Dorabji died in 1932. In 1938 Ratanji’s son J. R. D. Tata stepped in to run the firm. He would remain chairman until 1991. He was the first qualified Indian pilot and a pioneer of aviation. He founded India’s first airline in 1932. It became Air India in 1946 before being nationalized by the Nehru government in 1953. When J. R. D. took over, the Tata group contained 14 companies. It had grown to 95 by the time he retired, with expansion into areas such as chemicals, automobiles, and tea. In 1945 he realized the last of Jamsetji’s goals by creating the Tata Institute of Fundamental Research, now one of India’s leading universities. Unlike many of his contemporaries, who became hugely wealthy by exploiting the so-called “permit-raj”–the nightmare of regulations and permits created by the Nehru administration–J. R. D. refused to give bribes to politicians or use the black market. He insisted instead on high ethical standards, first-class performance and customer service, and concern for the welfare of employees.

Real Heroes of Indian Independence

The Tata group, now headed by J. R. D. Tata’s son Ratan Tata, is of course still very much with us. Tata Steel is now the world’s sixth largest steel company, while Tata Power is the largest private electric power producer in India. In fiscal year 2009 the group grossed $72.5 billion and it continues to expand and innovate. Thus in 1998 it launched Westside, a major retail chain, and in the same year launched the Nano, a car priced at just $2,200. The village of Sakchi, which became the site of the original steelworks, is now a small part of the city of Jamshedpur, which has a population of over one million. The company built the entire city from scratch and still runs it. Unlike other major Indian cities, it has reliable supplies of electricity and potable water. Politicians have moved to set up a municipality but have met resistance from the local population, which values the honesty and efficiency of the current administration. Jamshedpur is perhaps one of the largest examples in the world of the provision of a huge range of “public goods” by a private entity. Among other things, it is a model for environmental protection, despite still being the home to a huge steelworks and many other massive manufacturing plants.

In a sane world this family would receive the kind of kudos that scholars give to politicians and soldiers. The objection of course is that these are mere businessmen (and businesswomen–Simone Tata is the head of Westside, for example). In fact the stories of Jamsetji, Dorabji, and J. R. D. Tata show the qualities of classical virtue, which we traditionally associate with heroism. They had a vision that they pursued and realized in the face of seemingly insuperable difficulties, obstacles, and setbacks. They achieved their vision not through the use of force or fraud or by compelling people by threats, but by open, free exchange and agreement. It was done and continues to be done by providing products and services of high quality that people buy voluntarily. Throughout, there has been an emphasis on honesty and high standards.

Jonathan Swift famously observed that the man who made two blades of wheat grow where but one grew before did more for humanity than the entire tribe of philosophers and politicians. Who has done more for India over the last hundred years? The Tata family shows that we should never forget that commerce and business at their best are virtuous activities more worthy of respect than many kinds of activity that get far more attention.

The big message of the book is simple: If you want prosperity, leave people alone. The proper role of government is to keep the peace; it should not dictate what should and shouldn’t be produced; it shouldn’t impose tariffs or trade quotas; it shouldn’t interfere with the value of money; it shouldn’t give foreign aid or impede the flow of workers from place to place. The reader who pays attention will end up with a better grasp of global economics than the typical college economics major, whose professors often teach interventionist, anti-market nonsense.

Almost immediately, Hovey and Rehmke drive home the crucial point that economic freedom works far better than central planning–that is, domination and control by government authorities. That’s because knowledge is widely dispersed. Free markets tap into that knowledge while government authorities act in a state of ignorance and blindness. In a passage reminiscent of Leonard Read’s famous essay I, Pencil, the authors state, “What is amazing in the modern world is that we so easily benefit from vast knowledge distributed across the globe, from how to grow foods and spices, locate and mine minerals, cut and sew, design and assemble, carve and shape, program and debug, and all the vast range of skills that few of us possess but most of us use in finished products every day.”

Cognizant that many readers will have absorbed elements of what Ludwig von Mises called the anticapitalist mentality, the authors include numerous little “Warning, Pothole Ahead!” features in each chapter to deal with common misconceptions. For example, they confront the notion that profits are the evil consequence of greed and exploitation early on. They observe that profit just means obtaining benefits in excess of costs: “The saint who helps shelter the homeless and the cold-blooded bond trader both have profits in mind–that is, gains over and above the effort they invest.”

Perhaps the most persistent error in thinking about global economics is the idea that trade between nations needs to be balanced. Hovey and Rehmke attack that error at its roots, explaining, first, that trade really doesn’t take place between nations, but between people who happen to reside on different sides of a national border. If you think that individuals can and should manage their own buying and selling, then there is no problem, no matter what aggregate trade statistics show. But what about the menacing “trade deficit”? Don’t “we” lose jobs in the face of one? Relax, say the authors: “As much attention as is paid to job losses resulting from imports, little notice is given to how this promotes the creation of new businesses, jobs, and wealth.”

A favorite line of the anti-capitalists is that “globalization” is to blame for the poverty of underdeveloped nations. The authors show that’s pure bunk. International trade and cultural exchange do not keep poor people poor, but many formerly poor people have become pretty wealthy as a result of trade and cultural exchange. The crucial ingredients for economic progress, including freedom, stable money, and the rule of law, are not indigenous to most “third world” countries. Hong Kong and Singapore, to cite just two examples, are no longer poor thanks to globalization.

The authors ask if foreign aid is necessary for poor countries to break out of poverty. When people are poor, how can they save and invest? Isn’t foreign aid essential? No: Under the proper conditions for economic growth (noted above), even very poor people can save, invest, and progress economically. Foreign aid, by giving money to government officials, usually gets in the way of progress.

This book covers a lot of economic terrain and does so effectively. It would make enlightening reading for anyone who isn’t familiar with international economics (or economics at all) but wants to learn.

So, just what is Vermeer’s Hat?

It’s a little bit of everything, organized around several Vermeer paintings. Vermeer’s canvases, Brook points out, don’t merely depict scenes of Dutch life, but also help us understand an era of rapid economic change. There are stories to be teased out of these exquisite paintings, and the author does so brilliantly.

As a young man, Brook was cycling through Holland and had a minor accident in the city of Delft.  A woman who had seen his accident took the scraped, muddied cyclist in for a meal and some rest. Thus began Brook’s fascination with Delft, which soon came to include the paintings of its most famous artist, Vermeer.

The title comes from a painting of a man in a fancy coat and impressively large hat, seated at a sunlit table speaking with a young woman. (It can be seen in The Frick Collection in New York City.) Brook explores various socioeconomic features of the painting, but devotes most of his pages to the hat. How had it come to be? The material was beaver, not an animal native to Holland. Beaver hats had become highly popular due to their durability and fashion, which meant a lot of commerce in beaver pelts. They came through Amsterdam along with a fabulous array of exotic goods that led French philosopher René Descartes to proclaim it “an inventory of the possible.”

At this point, Brook embarks on an extended discussion of the great Dutch trading empire. Before the seventeenth century most commerce was local. Once the Dutch (and a few other seafaring nations) established global trade routes with centers in Asia, Africa, and the Americas, the quantity and variety of goods available increased dramatically. Beaver pelts from North America, spices from tropical islands, porcelain from China, and much, much more became available to consumers at steadily falling prices. Trade enlivened the previously drab existence of most people.

In the seventeenth century, however, trade was beset not only by the frailties of wooden ships and the hazards of weather and navigation but also by violence. Armed ships of the trading nations regularly preyed on cargo vessels of other nations. Naturally, piracy also ate into profits. Officials of the Dutch East India Company, seeking a justification for having seized a Portuguese ship, turned to a young lawyer named Hugo de Groot (now known as Grotius) for a legal brief. What he produced was a document entitled Freedom of the Seas. Brook writes that Grotius made several bold arguments: “The boldest of all is one that no one had thus far thought to make: all people have the right to trade.” Eventually, it became an accepted canon of international law that no government has the right to prevent nationals of other states from using the sea lanes. This principle’s effect on living standards is obvious.

Especially intriguing to Freeman readers will be Brook’s chapter on money. Global commerce depended on specie payments, chiefly in silver. His discussion of that subject is triggered by a Vermeer painting showing a woman weighing something with scales. Once Brook identifies that something as silver coinage, the chapter takes off on a global tour that includes mining, minting, and the exchange of goods for money. Brook’s readers learn some important lessons about money. After he observes that Europe had coinage from different countries in circulation, he writes, “Fortunately for the burgeoning commercial economy, the substitution of one type of coin for another did not interfere with the main purpose of money, which is to calibrate the relative value of objects.”

Another illustrative historical lesson concerns the futility of attempting to ban allegedly harmful substances, tobacco in particular. Globalization in the seventeenth century brought tobacco and smoking to the Far East, and some rulers wished to prevent the people under their control from indulging in the pastime. Banning tobacco, however, didn’t work any better than banning alcoholic beverages worked in the United States early in the twentieth century.

For a stimulating read that digs far into our history and unearths a wealth of information about trade and cultural exchange, I highly recommend this beautifully produced volume.

Preface: 

The globalization of culture, politics and economics is arguably the defining characteristic of the past half century.   English has become the international language of commerce, Chinese holiday toys entertain children in Nebraska and Norway, American political consultants sell their advice to candidates in Israel, and  the Bollywood film industry holds its annual awards event in Bangkok.   That an enormous expansion in global wealth has accompanied this increase in global interconnection is self-evident.  That the former is a result of the latter is the Smithian premise. 

129 authors responded to FEE’s Call for Papers in competition for the Eugene S. Thorpe Award, and spoke with near unanimity to the benefits of globalization, the causative relationship between the expansion of markets and wealth creation, and the limited ability and frequently destructive consequences of governmental attempts to manage the process.   

The choice of a “best” paper was a difficult one, and the selection committee wants to thank all of the Award participants for their contributions.  Only one paper could win and we will let that paper speak for itself; but special recognition and honorable mention are in order for several of the runner-up contributors.   In particular, two runner-up contributions addressed the issue of “government facilitation” of globalization in a more sophisticated manner than most, recognizing that the concept of government facilitation can and should include not just the destructive mechanisms of market manipulation and management, but also the supportive and (for Smith) essential mechanisms of preserving and protecting the legal infrastructure necessary for free markets to function.     

Mr. Lorenz Kraus of Albany, New York, in his paper “Liberty of Contract and the Division of Labor,” reminds us that “One of the great feats of intellectual history has been the discovery of the crucial connection between a thriving division of labor and a thriving civilization,” and that “the division of labor…depends on the laws and institutions a nation adopts.”    Just so.  Adam Smith was not an anarchist, and his vision of the optimal role of government was not that of no government at all.   Two of the three legitimate functions of government he identifies are the national defense and the administration of justice.   Mr. Darin Clark of Bradenton, Florida, in his paper “Cooperative Exchange, the Occurrence Necessary for the Division of Labor,” emphasizes that “voluntary exchange” can only take place when we have “a necessary framework of laws…This framework of laws is the respect for contractual agreements and rights to private property.” 

Government can play a positive role to “facilitate” globalization by enhancing the rule of law in those areas of the world where it is lacking, and by defending property rights whether against the thuggery of high-seas piracy or the high-tech assault of electronic spam.    Honorable mention to Messrs. Kraus and Clark for elaborating on this point. 

And honorable mention likewise to Mr. Mark Hendrickson of New Wilmington, Pennsylvania, who offers the insight that modern governments’ attempts to manage trade through bi- and multi-lateral trade agreements is a modern form of the mercantilism prevalent in Adam Smith’s time.   “It turns out that a democracy can be as harmful as a monarchy to the economic well-being of a people, if special-interest politics force the common people to subsidize the privileged few and abrogate the right of a free person to buy from his or her seller of choice.”  Mr. Hendrickson makes a powerful argument in favor of the unilateral removal of trade barriers. 

The globalization of the world’s markets is almost certainly a Hayekian effect emerging from the technology of the twentieth century, but it is one that poses a direct threat to the power of governments to control individual behavior.    Governments, whether democratic or autocratic, do not react well to loss of control and will act to retain their power by whatever means necessary.   As the political environment in the U.S. shifts, and with the convenient excuse of recent disruptions in global financial markets (occasioned themselves by government interference), we can expect new efforts on the part of sovereign and meta-sovereign institutions to re-impose their control over international trade.   Hayekian processes tend to persist over time – but the pace at which they proceed is more problematic.   

Congratulations to Mr. Gennady Stolyarov II of Hillsdale, Michigan, on his winning article, “Globalization:  Extending the Market and Human Well-Being.”     
 

Dr. Karl Borden

Professor of Financial Economics

University of Nebraska

Chair, Eugene S. Thorpe Award Selection Committee

Much of the prosperity of today’s world arises from the division of labor. Globalization, by extending the market’s scope to the entire world, enables the division of labor to become as developed as the current world population allows. However, to be truly in the interests of consumers and a boon to economic prosperity, globalization needs to occur spontaneously through the workings of the unhampered free market. Government attempts to meddle with this process—even with the sincere intent to facilitate or accelerate it—will only undermine its efficacy at benefiting us all.

In his 1776 classic, The Wealth of Nations, Adam Smith explained that “the division of labor is limited by the extent of the market.” This is not hard to understand on an individual and local scale. Imagine you are somewhat skilled at making tables. If you live alone in a cabin in the woods and can only personally use the tables you make, you might create four or five of them—but there your need for them would stop. You would have little further reason to continually develop your table-making skills. You would not be able to turn table-making into your full-time occupation. After all, you also need food, shelter, non-table furniture, and myriad other goods to have even a meager standard of living. You would have to create all these goods yourself, with no time to develop anything beyond a rudimentary table-making ability.

If you have a few friends who also use tables, you can devote more of your time to making them and improving your craftsmanship, while exchanging the tables for other goods your friends specialize in producing. If you live in a village, your ability to obtain most of the goods you desire solely by producing tables increases along with your likelihood of finding enough people who demand tables to keep you busy during all of your working hours. As you sharpen your skills, you might even begin to incorporate artistic flourishes into your tables and learn how to make tables suited to specific purposes. Perhaps you might become a master craftsman of coffee tables or desks. In a large city, the demand for either of these types of tables alone might keep you employed.

But imagine that your passion in life is to carve elaborate geometric designs into your tables and turn them into unique works of art. This kind of table-making takes many days of hard work, and only a few people in the world would appreciate the merits of your table art. You might be able to command a high price for each of your special tables—say, $10,000—if you could find a buyer. But let us say that only 60 people out of the world population of six billion would be willing buyers of one of your tables each year. In your large city, there are six million people, so your probability of finding even one buyer in your city would be a mere 0.06—giving you an expected annual income of $600 if you specialized in making your unique tables. But if you were able to access customers from all over the world easily, then you might fulfill all the existing demand for your work and thereby receive an annual income of $600,000. You can live lavishly by only serving the needs of 60 people—if your market extends to the entire world. If you could only sell in your city, you would likely never have made many of your special tables, leaving so much potential value uncreated.

Globalization is the process of the ever-increasing extension of markets, past national and even regional boundaries. Three principal factors drive globalization. First, improved transportation and communication technology enables previously formidable barriers of distance and geography to be overcome. Adam Smith remarked on the extent to which water transport facilitated the division of labor and consumers’ ability to get more and better goods faster: “A broad-wheeled wagon, attended by two men, and drawn by eight horses, in about six weeks’ time carries and brings back between London and Edinburgh near four ton weight of goods. In about the same time a ship navigated by six or eight men, and sailing between the ports of London and Leith, frequently carries and brings back two hundred ton weight of goods.” In our age, air freight and the Internet can be added to the list of technologies facilitating the extent of the market.

The second factor facilitating globalization is the removal of government restrictions on trade. Tariffs, quotas, subsidies to domestic producers, and other trade barriers make it difficult for businesses located outside a country to compete with domestic producers based solely on the consumer-evaluated merits of their products. Such interventionist measures tax domestic consumers and foreign businesses and artificially inflate the incomes of some—though by far not all—domestic businesses. The favored businesses have reduced incentives to cut costs and increase product quality, since the government shields them from the most intense competition. In the long run this leads to poor products, widespread waste, organizational inefficiency, and consumer dissatisfaction. When government trade barriers are removed and no regulations are put in their place this burden is lifted from millions of consumers and producers, who are now able to extend the market to the degree desired by consumers. Since reaching a high point with the Smoot-Hawley Tariff Act of 1930, tariffs levied by the United States against imported goods have generally declined up to the present day. Tariffs and other protectionist policies in many other countries have been likewise reduced, especially from the 1980s onward.

Increased Tolerance and Respect

The third factor responsible for globalization is increased tolerance by people throughout the world for others of different national, ethnic, and cultural backgrounds. As trade among people begins to take place, it becomes easier for people to see one another in terms of the goods and services they offer, rather than in terms of negative stereotypes, hatreds, and fear of “the other.” In a virtuous cycle, people in globalizing markets begin to extend increasing respect, understanding, and willingness to cooperate to those who are unlike them. A more cosmopolitan, individualistic outlook emerges: Each producer and consumer is judged on the basis of personal actions and merits, not circumstantial group identity. This in turn makes it much easier for people to engage in trade with still more others, unhindered by unwarranted negative preconceptions. The prevalence in the United States of Mexican food, Japanese automobiles and electronics, Chinese manufactured goods, South American fruits, and hundreds of thousands of other goods imported from virtually all parts of the world illustrates the seamless merger between economic and cultural exchange—a ubiquitous characteristic of globalization. Richard Cobden, perhaps the most outspoken free-trade advocate of the nineteenth century, saw this growth of tolerance as a desirable aim and outcome of the extension of trade: “The people of [France and England] must be brought into mutual dependence by the supply of each others’ wants. There is no other way of counteracting the antagonism of language and race . . . and no other plan is worth a farthing.”

More Variety

The benefits of globalization are manifold. Economists recognize that globalization lowers prices for a wide array of consumer goods, thereby making consumers better off in real terms. But increased product variety is another outcome, well documented by Christian Broda and David Weinstein in their 2006 Quarterly Journal of Economics paper, “Globalization and the Gains from Variety.” Broda and Weinstein note that “in 1972 the US imported 74,667 varieties (i.e. 7,731 goods from an average of 9.7 countries) and in 2001 there were 259,215 varieties (16,390 goods from an average of 15.8 countries).” Some of these goods were already common in their regions of origin but have now been able to spread elsewhere and find willing consumers. The spread of other products was only made possible by the ability of their providers to find enough customers by extending their market to the entire world. In his essay “Spicing the Gains from Globalization with Product Variety,” Neel Chamilall emphasizes “that consumers value this greater product variety for its own sake, on top of the lower prices that globalization also generates.” A wider range of possible satisfactions is valued since the more kinds of products exist, the likelier a particular product is to fulfill the specific tastes of an individual consumer at any given moment.

But globalization’s extension of the market facilitates more than the production of greater numbers and varieties of material goods. The intellectual division of labor—as well as the opportunities for intellectual cooperation extending throughout the world—are also greatly magnified by globalization. In “Globalization: The Long-Run Big Picture,” George Reisman explains that globalization brings about a “substantial increase in the number of highly intelligent, highly motivated individuals working in all of the branches of science, technology, and business. This will greatly accelerate the rate of scientific and technological progress and business innovation.” Reisman observes that “one of the greatest of all gains that results from the division of labor is the ability of geniuses to devote their full time to activities representing the discovery and application of new knowledge.” The broader the division of labor, the greater the likelihood that a creative genius in business, science, medicine, engineering, or another vital field will not personally need to manufacture most of the goods he desires. Moreover, the likelihood that he will find a market receptive to his own endeavors increases to the maximum extent if he can interact with anyone in the world.

When creative geniuses—or creative people in general—communicate with one another, exchange ideas, and build on one another’s work, additional economies of scale emerge. Many creators relying on each other’s utmost strengths can produce more discoveries, inventions, structures, and organizational innovations than the sum total produced by each creator working in complete isolation—just as the division of labor in the pin factories Adam Smith observed could raise the number of pins produced per worker by orders of magnitude. When national, geographic, and cultural boundaries no longer pose barriers to creators exchanging ideas and undertaking joint ventures, some of the greatest possible benefits to all humanity can be realized.

Raising Everyone’s Standard of Living

If globalization proceeds unhampered, it will achieve, in Reisman’s words, “the elevation of the productivity of labor and of living standards all across the globe to the level of the most advanced countries, and at the same time the radical improvement in productivity and living standards in what are today the most advanced countries.” As everyone is enabled to participate in a truly global division of labor, its benefits will spread throughout the world—eradicating true poverty and much other human suffering in all areas where governments do not forcibly restrain their people from peaceful economic and cultural exchange.

But aside from staying out of globalization’s way, governments cannot act efficaciously to promote or accelerate it. As George Washington is reputed to have said, “Government is not reason. It is not eloquence. Government is force; like fire it is a dangerous servant—and a fearful master.” Government’s entire modus operandi is force or the threat thereof. If the government promotes anything in an affirmative fashion, it can only do so through the use of force. Calling a particular exertion of government force a “free-trade agreement” or a “free-trade organization” does not alter its nature, and the facts attest to this. In “Can Trade Ever Harm a Country?” Robert P. Murphy comments on the NAFTA “free-trade agreement”: “The NAFTA is over 1,000 pages, detailing all sorts of environmental and labor regulations and establishing supranational boards to rule on disputes. If NAFTA really did nothing but establish free trade, it would be the size of a postcard, and there would currently be no tariffs between Mexico and the US.” It is true that NAFTA lowers some tariffs and lifts other trade restrictions, but the government’s affirmative exertions in this agreement amount to regulating and intervening more in certain aspects of commerce by controlling thousands of tiny elements of production, employment, and property ownership that would otherwise have been left to individual choice. There is no clear way of determining that the “free-trade agreement” resulted in more freedom than would have existed otherwise.

International institutions devised by Western governments allegedly to promote deregulation and globalization have often achieved the opposite purpose. Much of the apparatus of the World Trade Organization (WTO) engages in the imposition of retaliatory tariffs on the products of countries whose governments are deemed uncooperative. From a free-market standpoint, this is a travesty. Because the government of a particular country has infringed on economic freedoms, must the private individuals and businesses of that country suffer further infringements of their freedoms as a result? Moreover, having tariffs imposed through the WTO merely legitimizes them and falsely assures many who would otherwise have opposed them that trade barriers are necessary somehow to bring about free trade.

Unilateral Action that Works

The only legitimate government policy regarding globalization is to let the process develop spontaneously through the interactions of billions of private individuals and to lift all trade restrictions unilaterally. Even if other governments have tremendous trade restrictions against American producers, and even if they completely prohibit imports into their countries, the U.S. government should permit all foreign goods to enter the country without at all taxing them, restricting their quantity, or regulating their quality.

The reasons for unilateral renunciation of all trade restrictions become clear once one considers that American consumers are subject to two distinct sources of harm. The first source is the trade barriers set up by other governments. But trade restrictions established by the United States government perpetrate even greater damage to American consumers, resulting directly in higher prices and lower quality. The presumption behind multilateral “free-trade agreements” has been that only foreign-imposed trade barriers hurt domestic consumers, while domestically imposed trade barriers are simply defensive or retaliatory measures. But if both foreign and domestic trade barriers hurt domestic consumers, then it is always preferable to have just one of these sources of harm—the foreign trade barriers—instead of both.

The benefits of unilateral renunciation of trade restrictions do not stop at freeing consumers from domestically imposed tariffs, quotas, regulations, and subsidies. Such a course of government inaction sends an unambiguous message to foreign governments and businesses that we are willing to benefit from anything they have to offer us, while respecting them enough to let them operate as they see fit. This gesture of goodwill is likely to be reciprocated, just as Cobden’s success in getting Britain to abolish the Corn Laws unilaterally in 1848 led multiple European countries to eliminate many of their own trade barriers.

The way to truly accelerate globalization is not to wait for all nations to agree warily to the conditional removal of restraints on their own people, but rather to boldly proceed alone in knocking down one domestic trade barrier after another. With the passage of time, it will become evident that not having retaliatory trade restrictions against the producers of other countries does not in fact harm American consumers or producers. Other governments, seeing the mercantilist fears falsified empirically, will become increasingly inclined to join in the rising prosperity by opening their markets to globalization. As globalization fosters a truly international division of labor, billions of people will come to benefit from unprecedented product variety, technological growth, and cultural exchange.