Capitalism, globalization, and income inequity

Thomas L. Friedman's definitive crash course on globalization, The Lexus and the Olive Tree, claims that since the end of the Cold War, the free market system idealized during the administration of Ronald Reagan in the United States and the concurrent premiership of Margaret Thatcher in the United Kingdom has been applied as a "Golden Straitjacket" to virtually every country around the world (with a few notable exceptions). He notes that the ubiquity of economic liberalism has resulted in economic growth but fewer political choices. Political parties, of which there are usually only two of any relevance anymore, tend to only offer slightly different permutations of the same system as "opposing ideologies." He points out that in 1996, Paddy Ashdown of the U.K. Liberal Party accused Labour PM candidate Tony Blair and incumbent Conservative PM John Major of engaging in "synchronized swimming." I might add that consumer advocate and perennial U.S. presidential candidate Ralph Nader similarly called 2000 presidential rivals Al Gore and George W. Bush "Tweedledum and Tweedledee." Gore, the Democratic candidate, filled his partisan hole as the ostensible left-winger, when in fact he was a centrist Southerner (by U.S. standards, which are different-- more on that shortly). Bush, the winner of the election, ran as a Reaganite compassionate conservative on a noninterventionist foreign policy; his presidency saw the launch of two major foreign wars and a domestic policy described by the libertarian publication Reason as "disaster socialism." What do these labels mean?

If you'll grant me the liberty to go off on a small tangent, I'll demonstrate that the answer to that is "not much." Look no further than our current president. Barack Obama is the scapegoat of what we will call for simplicity's sake the far right. (It's not actually that "far"-- at least, not far away from anyone else.) He has been described widely as a socialist by them, and even by some as a "radical Communist." In fact, President Obama is right of center on both economic and social issues according to objective measures. This is, of course, compared to the whole political spectrum, which is more liberal in, say, Europe than it is here, and Obama is indeed quite liberal for an American politician. He is not very liberal among the American people; for example, he opposes single-payer health care and gay marriage, both of which receive considerable support among citizens. (Not a majority, though: Obama supported both as an Illinois state legislator; presidential politics can change a man.)

My point: Friedman is correct in his assertion that modern politics are very narrow. Obama, a center-right politician, is called a socialist; this is one consequence of a free-market society. Almost all mainstream American politicians are right of center on economics and social issues because they are free marketers; everyone is. Obama is just less to the right than many.

This is what makes the Golden Straitjacket a straitjacket-- it restricts national politics to a very precise and narrow economic ideology (the golden comes from the prosperity that free market economics brings). Friedman positions it as an inevitability even for totalitarian countries like North Korea and impoverished ones like Sudan. Obviously the concern of this blog is with the latter and countries like it. So why is it that these countries have not adopted the Golden Straitjacket? Why are the desperately poor seemingly the last holdouts from a system that guarantees prosperity? Are they enjoying the status quo?

This blog has not yet put forth many of the sobering facts of income disparity so far, and this seems as good a place as any to start. Ready? The Big Five billionaires-- Microsoft's Bill Gates (U.S.), Berkshire Hathaway's Warren Buffett (U.S.), Telmex's Carlos Slim Helu (Mexico), Oracle's Lawrence Ellison (U.S.), and IKEA's Ingvar Kamprad (Sweden)-- are collectively wealthier than the poorest 10% of the world combined (that's 670 million people, more than twice the population of the United States. If they all made the average income of a U.S. citizen, they would have 125 times more than those five combined). That is not in spite of globalization. It's because of it. As other nations adopt free market principles, the labor starts spreading thin. Powerful, established corporations like Microsoft outsource jobs to poor countries (not ones that are so poor that they lack infrastructure, like anywhere in sub-Saharan Africa; let's use the common example of India), where competition for labor is fervent but standards of living are already low. People thus compete for a pittance in a market similar structurally to our own, where people compete to justify the Jag convertible or the little place in Aspen. (I realize this is not an entirely fair example, and it should go without saying that poverty remains a pervasive problem in the United States. Let's be honest with ourselves here, though: it's easier to get rich in this country than in the Congo.) The adoption of free markets in poor countries has allowed corporations to game the system even easier than they did when it was isolated to the U.S. and Europe. But free markets are obviously a necessity; we've established throughout history that capitalism is, in the words of P.J. O'Rourke, "the worst economic system anyone ever invented, except for all the others." So how can we reconcile free markets with a world in which people in poor countries actually have the ability to fairly compete? How do we eliminate that gap, torn open wide by globalization, without resorting to some clearly unfeasible form of global socialism?

Well, that's the $64,000 question.