We all have heard of Adam Smith and his theory of the invisible hand of the free market. Few know the name of David Ricardo, a nineteenth century British economist who developed the theory of comparative advantage that is the basis of the current system of international trade. It has since morphed from a mere economic theory to an ideology used to justify corporate and elitist power. It’s fixation on efficiency has shamelessly fueled inequality and ignores its own weaknesses in explaining the real world of today’s economy.
Ricardo’s theory posited that countries should specialize in producing goods in which they have a comparative advantage in either labor, capital or land costs. The classic example is a difference in labor costs. If a country could produce a good at a lower cost because of lower wages, then other countries should trade with that country for good and concentrate on producing others. When countries specialize based on comparative advantage, global production increases, leading to more efficient resource allocation and lower consumer prices.
Comparative advantage formed the basis of the growth of international trade over the last decades of the 20th century. However, it remained only an economic theory until New York Times columnist Thomas Friedman began championing the process in a series of books that quickly became the gospel of corporate globalism. In his book “The World is Flat”, Friedman regaled his readers with how Asians were lifting themselves out of poverty by performing low wage jobs in the new “flat” world of free trade. At the same time, he unwittingly demonstrated the dangers of this trend when he told the story of New London, Connecticut, and its transformation in the new world. An economy once based on shipbuilding and defense work declined to become a gambling mecca with a small elite pharmaceutical research center. Friedman celebrated this decline in an eerie echo of Ayn Rand when he wrote
Change is hardest on those caught by surprise. Change is hardest on those who have difficulty changing too. But change is natural; change is not new; change is important. Work gets done where it can be done most effectively and efficiently. That ultimately helps the New Londons, New Bedfords and New Yorks of this world even more than it helps the Bangalores and Shenzhens.
Here are the tenets of corporate globalism for all to see, The American Dream, national strength, and family income security are all offered in sacrifice to the god of corporate efficiency and income. Indeed, Friedman said it should be a primary goal of public policy to foster this trend and improve the lives of everyone around the world, despite the impact on its own citizens and national security.
In the process, Friedman and corporate globalists glossed over the real world weaknesses of this socioeconomic model. First, it assumes markets are in perfect competition and there are no trade barriers, a practical impossibility in a world distorted by the mercantilism of Chinese and other countries. Comparative advantage also assumes that externalities such as environmental pollution are confined to the country that elects to endure them. Carbon emissions know no such boundaries and so developing countries and China can power their economies with coal while exporting the climate costs to the rest of the world.
A more recent economic theory highlights the real hypocrisy of corporate globalism. Known as the Stolper-Samuelson theorem, it admits that comparative advantage increases national wealth and efficiency but shows that the benefits of this wealth flow mainly to holders of capital and land at the expense of labor, especially in developed countries. Hence, corporate elites have an economic incentive to promote international trade at the expense of wage earners. They then can exploit national differences in taxation and regulation to further enrich themselves.
As Theodore Roosevelt pointed out, corporate greed and power can be as much of a threat to freedom as the government. In a world of multinational corporations often subsidized by foreign states, it is an even bigger threat. National governments are often a more effective check on this power than the imperfect market of international trade. In the late nineteenth century, contemporaries of Ricardo (and Roosevelt) tried to address these problems with globalist methods that, in the end, failed and ended up creating new methods of exploitation instead.
Next: Socialist globalism and the god of equality