The AFL-CIO and our affiliates believe the ultimate test is whether globalization increases freedom, promotes democracy, and helps to lift the poor from poverty; whether it is empowering the many, not just the few; whether its blessings are widely shared; whether it works for working people. Clearly, the global market that has been forged in the last decades fails this test.
These words, spoken by AFL-CIO president John Sweeney at the inauguration of the Campaign for Global Fairness, cut to the heart of the opposition in many quarters to free trade and “globalization.” But does globalization truly fail to make the grade?
Trade, in itself, is a human right. The freedom to say “yes” or “no” in an exchange is what enables each of us to seek out and realize opportunities in keeping with our own values and needs. Freedom of the press means very little if ownership of a printing press and the freedom to use it are curtailed. Governmental restrictions on trade in pencils and paper or in computers and a printing press restrict the freedom of writers to exercise and develop their God-given talents. Private property and the freedom to contract are fundamental human rights, as each person is entitled to enjoy the fruits of his labor. And these rights do not stop at water’s edge.
Trade barriers place limits upon the freedom to engage in mutually beneficial exchange, and they are predicated upon the mistaken belief that people are unable to judge what is best for themselves and their families. When the judgment of politicians and a politicized process are elevated over the judgment of individuals, governments prevent people from making decisions that are in their own best interests. Diminished opportunities and increased prices are the result of limited choice.
In a free economy, on the other hand, an organic system of production develops among those interested in trade. Consumers and producers in one area of the world seek out consumers and producers in another, and an international division of labor permits greater efficiency in meeting human needs worldwide. Contrary to Sweeney’s claim, the effect of this is not diminishing opportunities for the poor and working families, but greater opportunities to generate wealth and achieve a higher standard of living.
There exists near unanimous agreement among economists that free trade serves the interests of all people. On an aggregate level, countries open to international trade grow at a much faster rate than countries less open to trade. A well-known paper by Jeffrey Sachs and Andrew Warner of Harvard University reports that developing countries with open economies grew by an average of 4.5 percent annually during the 1970s and 1980s while closed economies grew by only 0.7 percent. Developed countries with open economies grew during the same time period by 2.3 percent annually while those countries with closed economies grew by 0.7 percent.
The growth that results from international trade is directly felt in the wallets of working families. The American Economic Review published a paper last year that found trade exerts “a qualitatively large and robust … positive effect on income.” In fact, according to the 150 country analysis conducted by economists Jeffrey Frankel and David Romer, an increase in the ratio of trade to gross domestic product (GDP) by one percentage point raises real income per person by between 0.5 and 2 percent.
The Development Research Group at the World Bank released a similar report this year examining the macroeconomic policies of 125 different countries. The report concludes that openness to trade is part of a “core set of institutions and policies” necessary for improving living standards, without concentrating wealth in the hands of the few. The authors of the report explain their findings this way:
Openness to international trade raises incomes of the poor by raising overall incomes. The effect on the distribution of income is tiny and not significantly different from zero. The same is true for improved rule of law, which raises overall per capita GDP but does not significantly influence the distribution of income. Reducing government consumption and stabilizing inflation are examples of policies that are “super pro-poor.” … From this we conclude that the basic policy package of private property rights, fiscal discipline, macro stability, and openness of trade increases the income of the poor to the same extent that it increases the income of the other households in society. This is not some process of “trickle-down,” which suggests a sequencing in which the rich get richer first and eventually benefits trickle down to the poor. The evidence, to the contrary, is that private property rights, stability, and openness [to trade] directly create a good environment for poor households to increase their production and income.
“Globalization is associated with improvements in overall human well-being,” writes Jay Mandle, a liberal economist at Colgate University, in the June 2 issue of Commonweal. Mandle’s positive view of globalization is founded, in part, upon his comparison of the level of exports and GDP per capita for a country, with the country’s score on the United Nations Human Development Index (HDI), which combines information on life expectancy, education, and material well-being. “The countries with the lowest HDI are those that score lowest in the other two measures; those with the highest human welfare scores export the most and have the highest output levels.”
Sweeney overlooks an additional benefit to trade between nations, outside the purely material advantages that trade clearly brings. As goods and persons freely flow across borders, so do ideas. Many countries only begin to encounter Christianity and Western concepts of liberal democracy when they begin to trade with people in other countries. Just as foreign goods enter a country and soon find their way into the hands of willing consumers, foreign ideas also find their way into willing hearts and minds.
As wealth grows in a country, typically so does the call for democratic reform. Dictatorships or monarchies that permit some freedoms in the market have a tendency to evolve into political democracies, evidenced in recent years in Greece, Portugal, Spain, and other nations. Acton Institute President Rev. Robert A. Sirico testified on this point before the House Ways and Means Committee in the context of permitting trade with China:
Economic exchange, within China and with the rest of the world, is helping to strengthen the civil sector in countries, made up of churches, business associations, and local governments, over against the state sector bureaucracy still dominated by old ways of thinking. ... It is creating pockets of independent wealth that allow people to separate themselves from material dependence on the state. This is especially important to churches, which have to depend, to a great extent, on the charitable sector to flourish. The dissemination of technologies like phone systems, computers, and the internet allow dissident religious groups to be in contact with each other and with other groups around the world, and thereby draw attention to the plight of those persecuted for their beliefs.
“Building a truly global economy,” writes Bishop Diarmiud Martin, “means, above all, building a system that permits the active participation of all persons and nations in realizing the God-given potential with which they have been endowed, an economy that is truly at the service of the entire human family.”
Avoiding the temptation for nations to turn inward and choosing instead to embrace the free economy and the entire human family is the only moral course of action. When globalization is put to the test, it passes with flying colors, as people flourish in freedom internationally, as they do closer to home.