Global Trade and Free Action

In an earlier post, “Maintaining and Enhancing Free Action,” I argued that increasing individual freedom in general in any significant way required production of greater wealth. I further argued that this was a necessary but not sufficient condition for enhanced quality of life and real freedom for any significant number of people in global terms.

Much of Sub-Saharan Africa provides a case in point. Most of the African continent has been quite marginal to global trade, and its population, cut off from trade and much economic development, has suffered for it. (I’d argue that most of Africa has been thoroughly enough incorporated into global trade to be dependent on it, while simultaneously not integrated enough or in a way to benefit much from it.) One of the lead articles in the April 28 issue of The Economist, “Will Africa ever get it right?” (pp. 14 – 15), puts it bluntly:

“The post-colonial continent has hitherto been a colossal flop. The killer comparison is with Asia, where many countries suffered from the same colonial humiliations and rapacity that independent Africa customarily blamed for its early failings. According to the World Bank, real income per head in the 48 countries of sub-Saharan Africa between 1960 and 2005 rose on average by 25%, while it leapt 34 times faster in East Asia; countries like South Korea and Malaysia were once as poor as Ghana and Kenya.”

I’d question whether many places in Asia suffered the same degree of “colonial humiliations and rapacity” as much of Sub-Saharan Africa, and I’d point out that trade and production of wealth in Africa was seriously set back by the continent’s role as major site for numerous Cold War proxy wars. (Parts of Asia experienced that, too, most obviously Korea and Vietnam – though in both of those cases, armed struggle ended long ago, whereas much of Africa has been beset by lingering, continuous, low-intensity armed conflict.) Still, this is to debate the cause of Africa’s economic marginality, and not its effect, which is clear: endemic grinding poverty.

Still, recently things are looking up for much of the continent. The same Economist article points out that the economies of many Sub-Saharan nations (and not just oil-exporting nations) are growing at annual rates of 6 – 7 % for the past several years. This has been accomplished via changes that have been conducive to trade and investment, such as more openness to private enterprise, moves toward democratization, freer markets, etc. There are many obstacles in the way of sustained development (continued political tension and violence in some countries, the recent election scandal in Nigeria, malaria and AIDS, recent indications that Global Warming may affect Africa especially severely, etc.), and I’m under no illusion that the wealth produced through increased trade will be distributed in equitable ways, but even small increases in the wealth of average persons could significantly alleviate the worst miseries of poverty in the continent.

In a recent article in The Washington Post, “Free Trade’s Great, But Offshoring Rattles Me,” economist Alan S. Blinder makes the case for how globalization, free trade, et al., will improve conditions for people around the world, but with the big caveat that it will not make things better for everyone. Blinder argues that two things are driving globalization, and associated phenomena such as offshoring or outsourcing. The first is technological innovation, especially in information and communication technology, the second being the more systematic entry of huge numbers of workers into the world economy in countries such as China, India, and Eastern Europe, workers willing and able to perform information based or manufacturing jobs more cheaply that workers in more developed nations.

Blinder writes:

“Looking at these two historic forces from the perspective of the world as a whole, one can only get a warm feeling. Improvements in technology will raise living standards, just as they have since the dawn of the Industrial Revolution. And the availability of millions of new electronically deliverable service jobs in, say, India and China will help alleviate poverty on a mass scale. Offshoring will also reduce costs and boost productivity in the United States. So repeat after me: Globalization is good for the world. Which is where economists usually stop.”

Blinder doesn’t stop there. He also points out that globalization will have ill effects on some. Globalization and freer trade may be related to greater total production of wealth, but it also changes the distribution of wealth. In some ways this is good, as with the degree of poverty alleviation that increased numbers of jobs brings to places like India or China. For workers in the U.S. or Western Europe whose jobs are offshored, their share of wealth clearly drops, and as Blinder writes, this will potentially affect large numbers of people. “In some recent research, I estimated that 30 million to 40 million U.S. jobs are potentially offshorable. These include scientists, mathematicians, and editors on the high end and telephone operators, clerks and typists on the low end.”

Blinder argues that some reforms could be implemented to ease the transition, such as better economic safety nets for displaced workers, and changes to education to emphasize training for flexibility and for the sorts of jobs least likely to be offshored, but he is ultimately gloomy about the prospects of such reforms being implemented and warns of a rough transition for many Americans.

Globalization is not a panacea for people in China or India or Sub-Saharan Africa either. The jobs being offshored to such countries are generally low-wage (or else they wouldn’t be offshored there), and sometimes associated with dangerous working conditions. In an earlier post, “A Different Globalization for Labor,” I wrote:

“Another common assumption is that such globalization processes are also bad for labor in the developing nation contexts that manufacturing and service jobs are being outsourced to, e.g. promoting sweat shop labor conditions. Robert J. Flanagan has recently published an important book on this topic, Globalization and Labor Conditions (Oxford University Press, 2006). Flanagan closely examines the available data on labor conditions around the world. He is clearly sympathetic to critiques of globalization, but comes to the conclusion that overall, globalization has led to improved conditions for labor in much of the world. He in no way implies that globalization processes make things wonderful for workers in developing countries. As he documents, there are things like sweatshop labor associated with globalization, but there are more overall jobs and fewer jobs with the worst labor conditions in more open developing economies – hardly what I’d consider a ringing endorsement, but still having more crappy jobs available might be better than having fewer or no crappy jobs available, even while still not good.”

What do I conclude from all this? Globalization and more trade (and the greater production of wealth associated with it) has its problems – and major problems at that for workers in all countries. At the same time, globalization is here to stay, and to the extent that production of greater wealth is a precondition for increasing individual human freedom in general, there are positive developments associated with globalization as well. As Blinder points out, economists and other free trade apostles often emphasize what is positive or what they see as positive about globalization and ignore the rest. Leftists of a variety of stripes just as often emphasize what is negative or what they see as negative and ignore the rest. The goal, as I see it, should be an emphasis on more equitable distribution of wealth (which would entail things like better social safety networks, better job training and re-training programs, better regulation of work conditions globally, emphasis on freedom of speech and assembly so that workers could better organize and act collectively, emphasis on often neglected aspects of “free” trade – freer movement of labor and reduced agricultural subsidization in rich countries, etc.) within a system of global trade and development which is sustainable (which would require positive work on global warming and major diseases, such as malaria and AIDS).

Taxes and an Upward Redistribution of Wealth

The Florida House of Representatives is debating a measure that would eliminate property taxes on homesteaded property, with the budgetary shortfalls that would result to be made up for by a 2.5% increase in the state’s sales tax. This is being presented as a move to relieve the economic burden of the state’s permanent resident homeowners. (It should be noted that such a radical move faces an uphill battle to adoption. It would first have to pass through the legislature, and then, since it involves a state constitutional matter of taxation, it would have to be approved by a 2/3 vote, which wouldn’t occur for at least a year and a half, according to current news reports.)

To judge from the comment boards to articles on the issue in the past two days’ (February 21 and 22) online editions of The Pensacola News Journal, this would be a move highly popular among many homeowners. This is understandable in the current context. For starters, the elimination of property taxes probably sounds on the surface like a good deal to any property owner. Further, many if not most Florida homeowners are currently economically burdened by increases (sometimes drastic) in home insurance costs as a result of the hurricane damages in the state during the past few years. Right now, any reduction of total house payments for any reason sounds like a good thing to many Floridians. On the News Journal’s comment boards, the vast majority of posters are clearly in favor of the proposed changes.

One rare dissenter, who posted that this move would place the tax burden on the poor, those who rent, and those with currently low property taxes, was promptly rebutted with the claim that he or she (comments are generally anonymous, without clear indication of gender) was using faulty logic, that clearly the burden for the shift to higher sales tax would be on those who spent the most – not the poor. In one sense, that thinking is correct – as with sales tax in general, those who spend the most pay the most sales tax, so the increase in sales tax revenue will come more from those who spend the most. But I think the problem with the dissenter’s post was not in its logic so much as in its rhetoric. If instead of asking who will bear the burden, we ask who will be burdened, or who will benefit and who will be disadvantaged relative to their current situation, we see a different perspective.

Regardless of whether one feels the proposed tax changes are fair or unfair, moral or immoral, on objective economic terms, the proposed changes in how taxation works will cause some people to pay more in total taxes than they do now and others to pay less than now.

Simply put, the poor, those who rent (whether poor or not), and/or those with currently low property taxes will generally end up paying more total taxes. If you don’t currently pay property tax, you can’t benefit from its elimination (unless one assumes that landlords would pass on their savings on property tax to renters, something I find hard to imagine happening en masse, and certainly not something to count on). If you don’t currently pay much property tax, you won’t benefit much by its elimination. And at the same time, the poor along with everyone else will end up paying more sales tax, with therefore the result being more total taxes for the poor, and in many cases, as a proportion of income, considerably more tax.

For most of us in the middle class economically, the proposed changes won’t amount to much one way or another. Some will gain a bit when the elimination of property tax is weighed against the increase in sales tax (by my own quick and dirty calculations, I figure to fall into this situation myself); some might lose a bit; most middle class homeowners probably don’t stand to gain or lose much by these changes (I again place myself here), though the subjective weight of the eliminated property tax bill might be heftier than the increased sales tax spread over many small purchases, i.e. it’s likely to feel like a better economic deal than it is for many.

Those who are wealthy will pay lower total taxes than now. They’ll pay more total sales tax on an individual basis than anyone else, just as now, but in proportion to income this will affect them less and will be outweighed in most cases by the elimination of large property tax bills.

In short, and again whether one finds it right or wrong, fair or unfair, what the Florida House’s proposed changes amount to is an upward redistribution of wealth where the poor will pay more taxes than they do now and the wealthy will pay fewer taxes than now.

The Wealth Explosion and a "Classless" America

One of the pleasures of reading The Wilson Quarterly is that its editorial positions and articles do not fall out neatly along contemporary vernacular notions of “liberal” and “conservative” (it’s more of an “Old School” liberal magazine whose political and economic positions tend to be congruent with 19th Century / early 20th century liberalism and progressivism). Which is to say that I enjoy the pleasures of both agreeing and disagreeing within the same magazine.

The Quarterly’s Winter 2007 issue features a special section on “The Wealth Explosion,” three articles which focus on the recent expansion of wealth in America and elsewhere in the world economy, as well as on some of the effects of this expansion.

The most interesting, and problematic, of the essays is “Lux Populi” by James B. Twitchell. Twitchell discusses luxury goods’ loss of standing as positional goods. One of the things that makes luxury goods markers of class status is and has always been not just their expense but their inaccessibility to the masses. Not only could most not afford luxury goods, but most did not opportunity to acquire them even when being potentially able to afford them. In today’s world, luxury goods are widely available to whoever may afford them (one of Twitchell’s examples is Gucci handbags being sold on the Home Shopping Network), and the middle class, at least, can afford more of them than ever before. Twitchell sees this as a problem for the wealthy. “Ironically, what this poaching of deluxe by the middle class has done is make things impossible for the truly rich.” Alas for the poor rich – what are they to do when the luxury goods, which “have little intrinsic but high positional value,” lose there positional value in marking their status of wealthiness?

I have two main problems with Twitchell’s piece, despite finding it thought-provoking. First is the overall tone of the piece, which seems to imply that the loss of positional marking (to the extent that this has occurred – clearly he’s onto something, but it’s hardly the case that the wealthy [or the blue collar, for that matter] lack any means of marking their class status today) is a bad thing, a tragic loss. Twitchell says, “‘Luxury for all’ is an oxymoron, all right, the aspirational goal of modern culture, and the death knell of the real thing,” but if luxury goods have low intrinsic value but high positional value, what is lost with the greater availability of such markers is not the “realness” of the markers, but simply their restriction to a particular class – not in itself a bad thing (unless you really think that the wealthy deserve to pretend through the display of essentially valueless commodities that they are intrinsically better than everyone else). Twitchell’s reference to the middle class’s “poaching” of luxury goods is a further affirmation of his sense of the impropriety of the spread of luxury items. This is topped in the final paragraph with flippancy: “In a sense, the filthy rich have only two genuine luxury items left: time and philanthropy. As the old paradox goes, the rich share the luxury of too much time on their hands with the very people on whom they often bestow their philanthropy. Who knows, maybe poverty will become the new luxury…”

Second, and more problematic, Twitchell seems to misdiagnose why luxury goods have lost much of their standing as positional goods. His point is essentially that luxury goods are more available to more people because everyone is wealthier. To an extent, this is correct. There is little absolute poverty in the U.S. (or Canada or Western Europe) (though there is some – and more in the U.S. than in Canada or Western Europe). The middle and working classes are able to buy more stuff of all sorts than ever before, though a lot of this purchasing is financed on the continued extension of debt. Another thing that’s really changed, though, is that the purveyors of luxury have changed their selling strategies, marketing somewhat downmarket versions of their goods to much larger numbers of people via shopping malls, cable shopping networks, and the internet.

Further, the realities of the distribution of the current expansion of total wealth are far different from that implied by Twitchell’s article. The editors of The Wilson Quarterly preface the special section with (emphasis added), “Not since the late 19th century has America experienced such a flowering of new wealth. The surge of dot.com whiz kids, handsomely paid CEOs, and lavishly rewarded entertainers is transforming everything from the market for private jets to the nature of philanthropy. A few rungs lower on the ladder, the merely affluent vacation in the Caribbean and cart home big-screen TVs from Costco. But while the money is flowing freely, most of it is flowing uphill. As fortunes large and small pile up, there is cause for celebration, and some healthy skepticism too.” Less cautiously, in another article in the special section, Steven Lagerfeld argues, “…no embrace is unconditional, and there are already signs that the public’s ardor for the new era of riches is flagging. The economic progress of many people on the middle and bottom rungs of the economic ladder – even allowing for understatement by some statistical indicators – is slow or nonexistent. Getting ahead is getting harder, as the costs of health care and a college education to rise faster than the rate of inflation, and the ordinary insecurities of life on the job are magnified by the stresses of globalization, outsourcing, and technological change.”

The extent to which getting ahead is getting harder is made clear in an article in The Nation (February 5, 2007 issue) by Jeff Madrick. Madrick quotes Isabel Sawhill and Sara McLanahan from the journal The Future of Children defining the ideal of America as a classless society as “one in which all children have a roughly equal chance of success regardless of the economic status of the family into which they were born,” before reporting on the extent to which America has lived up to such an ideal. Madrick reports that studies from a few decades ago indicated an America living up to such a classless ideal (at least in Sawhill and McLanahan’s terms), with “only 20 percent of one’s future income…determined by one’s father’s income.” Compare this with a recent study by Bhashkar Mazumder of the Federal Reserve Bank of Chicago that argues “that 60 percent of a son’s income is determined by the level of income of the father. For women, it is roughly the same.” In other words, far from a burgeoning of classlessness, we are seeing an ossification of America’s class system in terms of income – even while the buying habits and markers of class are becoming more homogenous.

The markers of socioeconomic class standing have certainly not disappeared. It is still possible to visit virtually any public space in America and make assumptions (and be reasonably certain about the accuracy of these assumptions) about the class background of a person based simply on such things as clothing or physical bearing. Such class markers have never been purely about economics but also about class subcultures. Just as previously possession of luxury goods marked not just economic wealth but social access to certain milieux, the group of men I observed eating at a barbecue restaurant, each wearing mesh ball caps and button up shirts with patches bearing their names over one breast pocket, were clearly blue collar workers, though some of them might well make as much money as I do as an assistant professor of anthropology at the local university. At the same time that class markers have not gone away, the appearances of class have grown more homogenous. More people, in the United States at least, do have access to more stuff, including luxury and other positional goods, than ever before. That in itself is not a bad thing. The American ideal of a classless society is a worthy one, even if it has never matched economic realities. While I do wish that our consumer goods were produced in more environmentally sustainable ways, the availability of more things to more people is a good thing. While material things and comforts don’t alone bring happiness, the absence of a certain amount of material comfort certainly inhibits happiness, and I for one would be highly hypocritical if I tried to pretend that I don’t enjoy the pleasures of the stuff that I own.

The problem is not the growing homogenization of class markers nor the extension of positional goods such that they mark a classless society. The problem certainly isn’t that the rich can’t distinguish themselves anymore. The problem is that the extension of luxury and other consumer goods to more people is accompanied by burgeoning debt, an increasing precariousness of middle class standing, and the ossification of economic status and loss of the American dream of upward mobility, with the result that we now live in an increasingly rigid class structure which manages to masquerade (and to a greater extent than before) as a classless society.