Trade Winds


One World, Ready or Not: The Manic Logic of Global Capitalism, by William Greider, New York: Simon & Schuster, 512 pages, $25.00

Unfortunately, William Greider's One World, Ready or Not is the best-written book on the global economy I have yet read. It is a panoramic work: Greider tells the stories of businessmen, financiers, government officials, workers, and activists from around the world, and then combines this flesh-and-blood detail with broad and sweeping historical generalizations. The prose is clear and sharp, and energized by Greider's passionate political sympathies.

Greider does a particularly good job of conveying the dizzying, wonderful strangeness of the phenomenon he analyzes. In one well-drawn anecdote, he describes a Motorola semiconductor plant in Malaysia. The workers—young Muslim women in ankle-length dresses, heads and shoulders swathed in scarves—file into the factory, walk down a hallway hung with Norman Rockwell prints and festooned with goofy slogans like "You'll Be Prepared for Anything with Enthusiasm," and then proceed into the changing room, from which they emerge in white jumpsuits and surgical masks, ready to operate some of the most complicated machinery human beings have ever devised. Here Greider summarizes the scene:

"The spectacle of cultural transformation was quite routine—three times a day, seven days a week—but it conveyed the high human drama of globalization: a fantastic leap across time and place, an exchange that was banal and revolutionary, vaguely imperial and exploitative, yet also profoundly liberating."

As someone who has witnessed his fair share of similar scenes, I can attest to how vividly jumbled the human condition is where the Third World meets the Third Wave. Leave it to a critic of the global economy to do a better job than its friends in bringing to life this sometimes breathtaking, sometimes comical complexity.

The virtues of this book are unfortunate, however, because its vices are so colossal. At virtually every turn, Greider's economic and political analysis could not be more drastically wrongheaded. He completely misunderstands how new wealth is generated and spread by market competition; as a result he sees ruin where in fact there is promise, and then proposes "solutions" that would be ruinous if adopted. The fact that the book is well-written will only ensure that it gains readership and influence it does not deserve.

Over the past 10 to 15 years, the web of marketplace relationships that connect people across political boundaries has expanded into vast new frontier areas. Most dramatically, the communist bloc collapsed; the Soviet empire dissolved and China, while remaining under Communist Party control, has tied its economy to capitalist countries. And throughout the developing world, fear of exploitation by rich nations has given way to a desire to sell to their markets and court their investment. The international capitalist economy has thus added billions of potential new producers and consumers.

International market relationships have grown not only in geographic scope but in complexity as well. Economic growth in developing countries has changed them from mere commodity suppliers into increasingly sophisticated manufacturing bases. This process has been accelerated by investment from multinational corporations: Improvements in transportation and communication have allowed these corporations to integrate their operations on a global basis, locating facilities wherever costs are lowest. Goods and capital are thus flowing across more borders, in greater volume, along increasingly complicated routes.

With all the hype about the global economy, it is important to maintain one's perspective. After all, billions of people still live in isolated agricultural villages, where economic activity remains decidedly local. And even in developed countries, most of us work in service industries that are not traded across borders.

Nevertheless, the changes that have occurred over the past couple of decades—and those that the next decades portend—are nothing short of revolutionary. The wealth-creating powers of free people have now been unleashed to an unprecedented extent. As a result, it is possible to picture seriously, for the first time in human history, a world in which affluence and opportunity replace poverty and ignorance as the normal lot of mankind. Putting it mildly, that's pretty great stuff.

Greider, though, doesn't see it that way. Rather, he believes the new global system is hurtling toward self-destruction. According to Greider, the global economy is beset by "inherent contradictions" that are "propelling the world toward some new version of breakdown, the prospect of an economic or political cataclysm of unknowable dimensions."

What is the source of instability in Greider's view? In a word, oversupply. First, the "global overabundance of cheaper labor" is dragging down wages and living standards in rich countries. Second, global overcapacity in major manufacturing industries—only to be exacerbated by continued rapid growth in developing countries—threatens "some source of decisive breakdown, a financial crisis or an implosion of global commerce" à la the Great Depression.

In other words, the world is suffering from an excess of wealth-creating power. The opening up of the old communist bloc and Third World has made too many productive workers available to commercial enterprise; the development of competitive industries in these countries has burdened the economy with too many productive assets. According to Greider, "Shipping high-wage jobs to low-wage economies has obvious, immediate economic benefits. But, roughly speaking, it also replaces high-wage consumers with low- wage ones. That exchange is debilitating for the entire system."

Greider thus sees the emerging global economy as a zero-sum game: "The history of industrial development has taught societies everywhere to think of the economic order as a ladder. The new dynamic of globalization plants a different metaphor in people's minds—a seesaw—in which some people must fall in order that others may rise."

Greider looks with particular fear at China, which if it continues to develop "could underbid almost everyone in the world on wages and prices." Although he does not welcome this outcome, Greider speculates that "the global system will be spared its nightmare" only if "some sort of disaster will befall the Chinese." For China, Greider states, "it is difficult to know not only what to expect, but also what to wish for."

Greider's analysis falls prey to the classic protectionist fallacy (it's no surprise that Clyde Prestowitz is warmly praised in the acknowledgments): the assumption that work is an end in itself. In this view, a nation is rich because it has profitable businesses that pay high wages. Anything that imperils those businesses, or those jobs, imperils the nation's standard of living.

In fact, however, the whole genius of capitalist wealth creation runs in the opposite direction. Adam Smith stated the principle in The Wealth of Nations: Consumption is the end of production, not vice versa. We don't drive cars to give people in Detroit something to do; people in Detroit build cars because they think we want to drive them. Effort for its own sake, or just to keep busy, is economically meaningless. A producer is a producer only if there are willing consumers; otherwise he is a hobbyist.

Capitalism—whether it operates on a national scale or internationally—creates abundance by encouraging people to maximize the value to other people of their efforts. We grow richer because we are constantly both adding new value and reducing effort. Wealth creation, then, is an ongoing process of doing more with less. A Chinese peasant works to exhaustion just to feed himself and his family; an American farmer feeds thousands. The productivity of the American farmer liberates those thousands from the necessity of growing their own food, and allows them to spend their time building computers, selling insurance, making movies, and so forth.

Accordingly, economic progress is made possible by eliminating work, thus freeing up resources to do other things. This can happen by building machines that save effort, or by trading with people who can make things more cheaply than we can ourselves.

In reality, then, Greider's "oversupply" is not a problem, but a magnificent windfall. The enormous pool of new labor now available for productive use, the new low-cost producers in developing countries, are the functional equivalent of some fantastic new piece of labor-saving machinery that will allow people in rich countries to spend their time on other things. Both rich and poor stand to get richer.

Of course, this process is painful for some. People who lose their jobs and savings when businesses fail or shrink suffer real hardship. Predictably, Greider focuses on the capacity and employment reductions experienced by U.S. smokestack industries, such as the integrated steel mills. But he ignores the rise of mini-mills like Nucor—not to mention the ferment of wealth creation in other industries, from microchips to software to discount retailing to entertainment. To look at creative destruction and see only destruction is to miss the main point of economic life.

Greider trots out the usual claims of declining wages to support his claim that wealth creation abroad is a threat to living standards at home. Among others, W. Michael Cox and Richard Alm have shown these claims to be bogus. (See "The Good Old Days Are Now," December 1995.) And recently, the Boskin Commission's findings that the inflation rate is being systematically exaggerated knocked the props out from under the Chicken Little crowd.

Greider argues that the proper response to the oversupply "problem" is to stimulate demand: "An aggressive effort aimed at rapidly bringing up the bottom of the global wage ladder would directly contribute to the greater purchasing power needed worldwide to consume the world's surpluses of goods and thus narrow the supply gap." In particular, he advocates unionizing the work force in the developing world, thus "freeing workers to demand a larger share of the returns from their burgeoning economies."

Here again, Greider betrays his complete lack of understanding of how capitalist wealth creation works. The fundamental reason for low wages in poor countries is not the absence of collective bargaining, but rather the low average productivity of labor in those countries. A quick look at gross domestic product per head shows that the developing world still generates relatively meager wealth. Only continued growth and investment can raise productivity, and consequently overall wages.

Meanwhile, the policies Greider advocates to encourage unionization abroad would throttle poorer nation's prospects for such continued growth. Specifically, Greider urges rich countries to impose a "social tariff" against countries that do not observe what he considers to be appropriate labor standards—this on top of an "emergency tariff" of 10 percent to 15 percent to reduce the U.S. trade deficit. It is hard to imagine a policy better designed to keep the developing world impoverished—not to mention start a trade war that could send the whole world into an economic meltdown.

According to Greider, the malignant effects of global capitalism are registered not only in declining living standards but also in a fraying of the social safety net. Once again he sees catastrophe where in fact there is cause for optimism.

Greider correctly observes that increased foreign competition, along with loosened restrictions on the mobility of capital, have put pressure on governments to reduce tax and spending burdens. From Greider's perspective, a real achievement is now under attack from short-sighted penny-pinchers. "Rich nations," he says, "are all confronted in different ways by the same assault, the same question: Must they now undo what the twentieth century created—the strong social presence of the state?"

In other words, Greider remains an unreconstructed welfare statist: "The welfare state was, in fact, an attempt to devise a fundamental compromise between society and free-market capitalism. The aid programs and labor laws were intended to compensate for the social consequences of unfettered enterprise—the poverty and unemployment and family dissolution—without destroying the energies of the capitalist process."

Greider is living in a time warp. There is absolutely no acknowledgment in his book that any government policies have failed, or that there are any better ways to pursue agreed- upon policy goals than through existing programs. In the United States, the war on poverty created or at least exacerbated horrible social dysfunctions, while Social Security is a demographic time bomb. In Europe, labor laws and unemployment/disability benefits conspire to produce double-digit unemployment year in and year out. Greider doesn't say a word about any of this: By his account, attempts to address these serious policy failures are just callous and mean-spirited Scroogism.

The inability of domestic firms to compete with less encumbered foreign rivals, and the decisions of domestic firms to pack up and move, are merely signals that present policies are in need of change. Greider blames the alarm bell for starting the fire and seems to think everything would be fine if it just stopped its infernal ringing: He proposes to lock capital in place with taxes and other controls.

Thus, he believes that a new burst of statism is needed to save global capitalism from itself: "The world's nations must eventually turn to political solutions of this nature: collective reform to ameliorate or slow down the destructive forces, to correct the economic imbalances of supply and demand, to reassert control on capital and restore the social understandings, to foster a more stable promise of prosperity." In addition to the trade and capital restrictions I've already mentioned, he advocates progressive taxation, a populist monetary policy, and subsidies and controls to promote "sustainable development."

Although Greider recognizes that his enthusiasm for interventionism is currently out of favor, he warns that the alternative is dire: "Respectable opinion is now enthralled by the secular faith that Austrian economist Karl Polanyi long ago described as 'the utopian endeavor to establish a system of self-regulating markets.' Today, there is the same widespread conviction that the marketplace can sort out large public problems for us far better than any mere mortals could. This faith has attained almost religious certitude, at least among some governing elites, but, as Polanyi explained, it is the ideology that led the early twentieth century into the massive suffering of global depression and the rise of violent fascism."

Well, well. Once again Greider has put his finger on the exact opposite of the truth. The totalitarian horrors of the 20th century may indeed be blamed on a secular faith—not laissez faire, but the belief that central planning and top-down control were the wave of the future. That same belief, stripped of the bloodthirstiness, helped cause the Great Depression and underlies the chronic ills of the welfare state. Now, at century's end, the world is finally beginning to unburden itself of this misconceived faith, making possible the emergence of the global economy and all its liberating potential.

If the beneficent process of globalization does suffer future reverses—and that is certainly a live possibility—they will be due to Greider's beloved "strong social presence of the state," not the lack thereof. In the developing world, warfare or theocratic regimes could isolate markets from the global system. In the advanced economies, a protectionist reaction or continued fiscal profligacy could trigger a major worldwide economic shock. Less drastically, misguided policies around the world that shackle private initiative will reduce the enriching benefits of global commerce.

Ironically and unwittingly, Greider has done all he can to ensure that his prophecies of a future crackup are self-fulfilling. He has advocated, with eloquence and conviction, policies whose adoption could well precipitate just such an economic collapse.

There is no mincing words: This is a truly awful book. It would be easy, but I think improper, to chalk up the book's failures to the author's leftist leanings. One can imagine a book, as yet unwritten, that offers a powerful and challenging critique of the new global economy from a leftist perspective. As Greider notes in his first paragraph, creative destruction on a world scale "throws off enormous mows of wealth and bounty while it leaves behind great furrows of wreckage." A book that engaged our compassion for those left behind and urged some amelioration of their condition would have made an important contribution to the political debate.

There are glimpses of such a book in Greider's opus, but they are swamped by all the pernicious nonsense I have outlined above. Greider's book deserves round condemnation—richly deserves it—not because of his perspective or priorities, but because of his woefully flawed understanding.

Contributing Editor Brink Lindsey (102134.2224@compuserve.com) practices trade law in Washington, D.C.