Nature of Inequality Term Paper

Pages: 11 (3958 words)  ·  Bibliography Sources: ≈ 20  ·  File: .docx  ·  Level: College Senior  ·  Topic: Economics

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Ricardo also argued that consumers would have more purchasing power because they would be able to purchase foreign goods at a lower cost. Ricardo's philosophy became known as the "classical school" of economics and development economists that favor trade are referred to as "neo-classical economists."

This argument is made today. Proponents argue that if third world countries produces goods in which it maintains proficiencies, that these countries will benefit tremendously from the lower cost of production. This has already transformed the economies of Southeast Asia. According to the Economist, "In 1950, the typical East Asian woman had six children. Today she has two. As a result, between 1965 and 1990, the working-age group rose from around 57% to over 65% of the total population, increasing four times faster than the number of dependants." As East Asian workers voluntarily move from subsistence farming to factory work in the textile industry, they are able not only to afford their own consumer goods, but also manage to send money back to their villages. East Asia has also benefitted from increased western tourism, another way in which western money can find new goods and services.

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In The Race to the Top, Thomas Larsson gives the example of Thai prostitutes. These girls are now able to make living wages in western-style resorts such as Pattaya, rather than languishing in traditional Thai brothels, where they suffer from virtual serfdom. According to Larsson, "Foreign exploitation of Thai resources assumes perhaps its most brutal manifestation in the sex industry. But to [Thai prostitutes] - just as for the child workers of the small workshops - school and ordinary employment are not genuine options. They make their way to the Trat Inn, Pattaya, and illegal factories for lack of better alternatives. They do not end up there solely because of the demand for commercial sex and the labor of deft little fingers."

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Richard Cobden, a Whig member of Parliament in the 1830's and 1840's, was the first to address trade in the context of development economics in his role as the co-founder of the Anti-Corn Law League in Manchester. At the time, the English refused to allow imported corn, which would have allowed English workers to eat more cost-effectively, much to the chagrin of Britain's protectionist grain producers (mostly landed aristocratic members of the conservative Tory party.) It was believed that normalized trade would lead to world peace, and the league adopted as its slogan "Free Trade, Peace and Good-Will Among Nations." Cobden's group was the first to recognize and condemn the Irish potato famine of the 1840's, which most argue could have been prevented if tariffs hadn't existed.

One is lead to wonder who is the driving force behind global free trade, as political theorists such as Ricardo and do-gooders like Cobden belong to another century. The exertion of economic influence in the political arena is done by manufacturing concerns on a comparative finance basis. Capital budgeting mandates that if two profitable projects are presented, a company will chose the project is more profitable after the two projects are weighted for risk. This is why corporations have found it more profitable to influence federal trade policy than other government activities in the fields of labor relations and environmental regulatory control. Immanuel Wallerstein, in an article in Foreign Policy, describes it by saying:

Domestically, conservatives tried to enact policies that would reduce the cost of labor, minimize environmental constraints on producers, and cut back on state welfare benefits. Actual successes were modest, so conservatives then moved vigorously into the international arena. The gatherings of the World Economic Forum in Davos provided a meeting ground for elites and the media. The IMF provided a club for finance ministers and central bankers...and the United States pushed for the creation of the World Trade Organization to enforce free commercial flows across the world's frontiers.

Put simply, it costs less for an American company to normalize trade relations with a country to which they can out-source something that is only done at great expense in the United States due to the "progressive" legislation of the 20th century. This acts to the benefit of places that have never experienced a domestic need for manufactured goods, although living standards remain low by western standards.

This is nowhere more evident than in the maquiladoras south of the Rio Grande River on the U.S.-Mexico border. According to a 2001 article in the Economist, "Border-state maquiladoras now employ over 1m people, an increase of 150% since 1990." Despite this, "On average, an American border worker makes three to four times what a Mexican does, up from 2.5 times in 1990. In certain jobs, it can be 12 times as much...it would cost $2 billion-3 billion just to get all the Mexican border towns equipped with basic water and sewerage services." NAFTA and other free-trade agreements are advocated by capital lenders and manufacturers because these organizations realize that the cost of transporting industrial goods from a region like Mexico, coupled with the expense of hiring lobbyists to advocate the legislation, is less expensive than the cost of intra-national transportation, if coupled with wage and regulatory costs. John Boli in The Globalization Reader notes that the idea of global outsourcing predates Smith, and was instrumental in determining mercantilist policies for what were to become the great powers in the 16th century.

Higher real incomes in developing countries would be augmented by greater purchasing power, while unprofitable companies in both countries would risk capital flight. Similarly, skilled workers in developing countries would have a market for their labor, which one can see in the emerging computer programming industry in India. Because of the mitigating effect of a lower real income on purchasing power, unskilled general laborers in first world countries would not reap the full reward of globalization if companies lowered wages to remain competitive. The chief beneficiaries of both countries would be the owners of capital that sought a diverse portfolio. If taken together, these effects of free trade demonstrate the Ricardian principle of comparative advantage.

Robert Zoellick, a devout Ricardian who serves as the United States Trade Representative, was invited by the Economist to write an article several weeks ago on the Doha round of World Trade Organization talks. In this article he excoriated the opposition to trade, which is comprised of "protectionists, special interests, anti-globalisation nihilists and partisanship against the president."

One argument of Zoellick's anti-globalization nihilists and partisans that of dependency theory, which was proposed by neo-Marxists in the 1960's and gave rise in Europe to the concept of "Brazilianization."

To the critics of modernization, the nature of dependency between northern countries and southern countries is one whereby industrialized nations develop core manufacturing and technological proficiencies while outsourcing peripheral functions to the south, which in turn becomes dependent on the consumer products of the north. This concept may seem intuitive to Americans, who suffered under the mercantilist policies of the United Kingdom in a series of events that precipitated the American Revolution. Problems associated with westernization occur when indigenous cultures are not able to adapt to western lifestyles. A cited example is that of the emergence of eating disorders in Polynesia, which accompanied the introduction of American televisions and magazines.

According to dependency theorists, the only way people in traditional cultures can pay for their new western toys is to allow American and European manufacturing concerns to relocate to their countries. In doing so, the manufacturers are able to forswear the accreted legal mandates of their home countries, which have been implemented on behalf of trade unions and environmentalists. A notorious example is that of the disaster caused by a massive leak at the Union Carbide plant in Bhopol, India. If such a plant had been in the United States, its maintenance would have been subject to the mandates of the Toxic Substance Control Act.

Dependency in the international system is predicated on the existence of foreign direct investment, the continuing influence of western governments, and the softer effects of the western media. It has increased dramatically in the past 50 years due to the aforementioned capital budgeting decisions of manufacturers, and the desire of corporations to expand sales into foreign markets. Together with the traditional procurement of raw materials, which occurs from the diamond mines of South Africa to the offshore oil wells of the north Atlantic, these global initiatives result in Foreign Direct Investment and as some would argue, dependency. However, it is important to look at these phenomena separately as some encourage a broad-based increase in the wealth of foreign countries whereas others don't.

In many African countries, trade is limited to the sale of commodities and profit in trade is limited to the owners of those commodities, who often act in collusion with the local governments in order to maintain the stability of their operations.… [END OF PREVIEW] . . . READ MORE

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