4. Kaldor's "circular and cumulative causation" as an Explanatory Principle for the Strategic Trade Practices of Firms and Nations, most Notably Japan
5. Theories of the longue duree, or Historical Discontinuity, as Explanations of the Genesis and Nature of the Global Economy
The citizen who seeks to understand the global economy is faced with a bewildering variety of scientific theories which purport to explain it. The phenomena to be explained are often painful: for example, the diminishing number of union jobs with benefits in New York, apparently due to competition with low-wage labor in places like Indonesia and Mexico, the loss of high technology jobs in Massachusetts due to high technology imports from Japan, the stagnation of economies like Haiti and the Dominican Republic with rates of unemployment near 50%. The effects on global politics are profound: they include the rise of the power of China and Southeast Asia, and the corresponding decline of the power of the West. Indirect effects to which global trading patterns are thought to contribute as causal factors are even more profound: the burning of the jungles of Brazil; the breakdown of the social order in Somalia, along the coast of West Africa, and in other regions; unstable families, violence, drugs, and mental depression; and the worldwide penetration of American popular culture, accompanied by the worldwide revival of religious fundamentalism as traditional cultures fight back against materialistic individualism.
Today people throughout the world are aware that they depend for their daily bread on something called "the economy," and they are aware that they are vulnerable because "the economy" is vulnerable. People are aware that their local economies are somehow inserted in international trading patterns, and that what happens to them personally in their daily lives is affected by distant commerce. I would argue, however, that in spite of such widespread and growing awareness, the importance of the global market for contemporary society is often underestimated.
This underestimation happens for a conceptual reason.
Statistics show that about 8% of goods consumed in the United States are imported. But statistics of this kind, for the U.S. and for other nations, do not show the full effect of living in an international market. A market is a place where goods are displayed and offered for sale. The buyers and sellers in a market decide what sales to transact (and at what prices) by deliberating in the light of the alternatives that the market offers to them. Hence the full effect of being in a large marketplace (the whole world) is not evident from physical facts such as goods crossing docks in cargo containers. The full effect includes the consequences of prices being influenced by the potential availability of alternatives not (so far) in fact chosen. Ferdinand de Saussure, the founder of modern linguistics, relied on the conceptual point just made when he explained synchronic meaning by analogy with the relative values of goods for sale in a market. The values of words, like the values of coins, depend on what they can be exchanged for and compared to.
In the light of the world's unrealized possibilities for trade, it can be seen that a person can live in the global economy without actually seeing any foreigners or foreign goods. One might, for example, spend one's entire working years earning low wages at a small factory in New Hampshire without ever leaving New Hampshire, and without ever seeing a foreign factory worker; and yet one of the causal factors playing a part in determining the amount of one's take home pay might be the mere existence of millions of able workers elsewhere willing to do the same work for even lower wages.
Besides emphasizing the pervasive influence of the global marketplace in contemporary human life, the possibility of thinking of a language as a market implies a corollary --that a market can be thought of as a language. This suggests that the scientific explanation of economic phenomena, including international trade, might proceed by considering a market as a system of meanings. For the moment, however, let us leave this suggestion in abeyance, and proceed to consider some of the scientific explanations of global economic phenomena which students of international trade have heretofore offered.
Seven, somewhat overlapping, types of theories of international trade will be considered here. They are:
Roughly speaking, what makes the theories to be reviewed scientific are their efforts to provide testable and demonstrable explanations of phenomena, which relate causes to effects. Once causes and effects are linked by a true explanation, the way is open to make policy recommendations which promise to lead to achieving desired effects, through taking actions that will cause them. (I preface this paragraph with the caveat "roughly speaking" because the concept "scientific" is an essentially contested concept if ever there was one, and every one of the concepts in terms of which "scientific" is explicated is itself also essentially contested.)
Neoclassical trade theory is an application of neoclassical economics to the field of international trade. It argues that the optimal economic strategy for a nation is to exploit its comparative advantages as efficiently as possible. The most effective way to do this is through the free operation of factor and product markets and open competition among firms. Extended to the global economy, neoclassical theory implies that free mobility of products and factors of production across national boundaries will maximize efficiency. All economic actors will specialize in what they do best, both within nations and between nations. All resources will be allocated to their highest rate of return. As a result, resources will be optimally allocated. Once the most efficient or optimal allocation of resources is achieved, no one can be made better off through further exchange without making someone else worse off.
Productive efficiency is also achieved by the exploitation of comparative advantages as firms are forced by competition in the market to use the most efficient production techniques available. Since the wider the market, the greater are the possibilities for specialization, it follows that the most efficient market is the global market; an intergalactic market would be even more efficient if beings to trade with were to be discovered in other galaxies, or if earthlings were to colonize planets of other suns in outer space.
Comparative advantage is conferred by a nation's natural endowment of factors of production. The nation that has abundant labor, relative to capital, will specialize in the production of labor-intensive goods. Nations whose high savings rates make capital abundant relative to labor will specialize in the production of capital-intensive goods. Countries endowed with natural resources will produce resource-intensive goods.
The classical articulation of the theory of comparative advantage was written by David Ricardo in 1817. Ricardo used the concept of comparative advantage to explain why Portugal exported wine, while England exported cloth. "To produce the wine in Portugal might require only the labor of 80 men for one year, and to produce the cloth in the same country might require the labor of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth."
The explananda, those things which are to be explained, are the facts of trade. Central among those facts are facts about which nations export which products.
Although which nations export which products may be taken as the clearest and simplest type of fact to be explained, another type of fact is often commingled with it: namely, facts about who succeeds in achieving export-led economic growth. This latter type of fact can be broken down by regions, by nations, by industries, or by firms. The facts to be explained can be, for example, why growth in Europe is slow in the 1990s; why Japanese economic growth was fast in the 1970s; why Germany is successful in chemical exports; or why Merck has grown to be a leading pharmaceutical firm. Neoclassical theory gives a name to the explanans, that which explains: "comparative advantage." Portugal exports wine because it has a comparative advantage in wine. England (in the early 19th century) exported cloth because it had a comparative advantage in cloth. Europe's exports grow slowly because it lacks comparative advantages; while Japan had a comparative advantage in many product markets in the 1970s, Germany still has a comparative advantage in chemicals, and Merck has a comparative advantage in several pharmaceutical lines.
Like several other well-known theories, the theory of comparative advantage is in danger of becoming true by definition, i.e. a tautology, a verbal formula which is compatible with any an all facts which have been and may yet be discovered --and which therefore tells us nothing about the real world. The risk of emptiness because of being a name for whatever happens is similar to the risk run by "positive reinforcement." If people do whatever they do because they find it positively reinforcing, then positive reinforcement motivates even the masochist; it just happens that the masochist is positively reinforced by pain. Comparative advantage, like positive reinforcement, runs the risk of being compatible with any evidence, of being true whatever happens.
In David Ricardo's original examples, comparative advantage was saved from being true by definition because Ricardo referred to certain physical facts: namely, the soil and climate of Portugal. Portugal exports wine because its soil and climate are suited to growing the kinds of grapes that make good wine. These facts could be further refined by specifying the molecular and crystalline structures characteristic of Portuguese soil, the temperatures at which desirable chemical reactions inside growing grape cells most rapidly occur....etc. The phrase "comparative advantage" could then be cashed out in Ricardo's original context as a name for certain physical facts that might and might not be true at any given time and place --which would make their being true in the early 19th century in Portugal a significant fact.
Facts about the physical characteristics of "factors of production" belonging to nations can be regarded as the home turf of the concept of comparative advantage. The concept can then be construed narrowly or broadly depending on how few or how many other sorts of reasons why trade flows as it does are brought under its umbrella. One can explain which nations export which products by calling it "comparative advantage" when labor costs are cheaper, when technology is more advanced, when environmental regulations are less expensive to comply with, when the government subsidizes exports, when a firm or a nation has a reputation for reliable and high quality products, when the seller has a superior marketing organization, when the selling firm is able to export because it bribes (or intimidates) officials in the purchasing nation, when the buying firm is a foreign subsidiary wholly owned by the selling firm .... etc. In the limiting case, one can admit that one has no clue why nation X exports product Y successfully, but nonetheless assert that the explanation of its success is that X has a comparative advantage, because whatever the reason for the phenomenon to be explained may be, the name of the reason is "comparative advantage."
But more is required for a scientific explanation, a causal explanation, than an explanandum to be explained and an explanans proposed to explain it. Disregarding for now some weaker senses of the term "cause," let us take the term in two of its standard strong senses and postulate that to say that A causes B is to say:
When we put "comparative advantage" in the place of A, the explanans, that which is supposed to do the explaining, and "the facts of trade" in place of B, the explanandum, that which is supposed to be explained, we get:
Now we have a choice, already suggested by the discussion above, concerning what kind of meaning to give to "comparative advantage."
If we choose , then the concept/theory in question is pretty clearly open to the objection that it is a theory which offers a more-or-less plausible story purporting to explain whatever facts are observed. Once the facts to be explained are known, it is possible to spin any number of theories from which they can be deduced or predicted. For example, if we already know that Detroit has become a rustbelt city, characterized by poverty, crime, and vice, then anybody with a little imagination can produce a theory about the comparative advantage of Japanese automakers, or a theory about the breakdown of American family values, or any of many other theories, for which the observed facts can be offered as confirmation --since the theory will predict the facts observed. The very generality of a concept/theory like "comparative advantage" makes it vulnerable to the charge that it can be easily manipulated to make it true whatever the facts may be.
If we choose  we give "comparative advantage" some specific content. But then it becomes clear that the facts it names are not complete explanations. Even in the simplest case, Ricardo's Portuguese wine, it is clear that in addition to the soil and climate of Portugal, many other things must be the case before barrels of wine actually move over the docks of Lisbon into the holds of ships bound for foreign climes. The "comparative advantage," thus specified is not a sufficient condition for wine export; you could not produce wine export by relying only on the factors of production Ricardo cites as giving Portugal a comparative advantage.
(The converse point is also valid. That is to say, just as the existence of a natural comparative advantage is not sufficient to cause international trade, conversely the existence of international trade does not necessarily reflect a natural comparative advantage. Here is one example among very many that might be cited: "The large quantity of grain that Poland exports every year, a dictionary of commerce explains (1797) would give the impression that this country is one of the most fertile in Europe. But those who know it and its inhabitants will judge otherwise, because even if there are fertile and well-cultivated regions there, elsewhere there are more fertile regions which are even better cultivated and which still do not export grain. The truth is that the nobles are the only landowners there, and the peasants are slaves, and the former, in order to maintain themselves, appropriate the toil and products of the latter, who form at least seven eighths of the population and are reduced to eating barley and oats. Whereas the other peoples of Europe consume the major part of their best grains, the Poles retain only a small portion of their wheat and rye so that one might think they only harvest it for foreign lands."
Thus, regarded as an explanation of the observed facts of international trade, "comparative advantage" is either too broad, or too narrow, or somewhere in between. When it is too broad it is a superfluous comment on whatever happens; when it is too narrow it is not a causal explanation. When it is somewhere in between it lacks substance to the extent that it is a broad theoretical construct, and it lacks explanatory power to the extent that it is specific.
Neoclassical prescriptions for international trade appeal to at least three types of ethical principles:
(One might object that here I am reading history backwards. One might say that historically capitalism developed first, and then it produced ideologies to justify itself, including neoclassical economics, the relevant versions of natural law theory, utilitarianism and its successors, and Kantian ethics. I will for the moment ignore this objection, and treat arguments that advocate following the principle of comparative advantage in international trade as grounded in ethical principles, rather than treating modern ethical principles as themselves part and parcel of the ideology of our commercial civilization.)
The natural is good.
Above it was suggested that physical facts like soil and climate are the home turf of comparative advantage regarded as an explanatory principle. Then I suggested a list of other factors explaining trade flows that might or might not be brought under its umbrella. One of them was that nation X exports commodity Y because the government of X subsidizes the export of Y. That suggestion should have stood out as one of the odd items on the list.
What is odd about counting export subsidies as a comparative advantage is that it is often said that subsidies interfere with the natural play of comparative advantages. Government intervention in the market is said to distort the market, and to create artificial prices. Although it is true that the concept "comparative advantage" can be broadened to include a competitive advantage created by a government subsidy, it is also true, and more common, to narrow the concept in order to say that the subsidy violates the natural principles of trade. Such an allusion to nature (sometimes explicit, sometimes implicit) illustrates the general tendency of neoclassical economics to make an invidious distinction between certain practices and institutions viewed as natural and others viewed as unnatural. Those viewed as natural (private property, the market, freedom of contract, trading shares in stock markets, taking security for loans....) are endowed with a positive moral halo. Practices and institutions viewed as unnatural (social ownership of the means of production, tariffs, subsidies, labor unions, rent control, cancellation of debt.... ) are stigmatized with a negative moral shadow.
It should be mentioned, however, that neo-classical policy prescriptions have often drawn strength, not from the view that what is natural is good, but from the rather different view that human nature is bad. It is argued that the decisions made by the market are better than those made by governments because governments are made up of people. Competitive markets are not made up of people in quite the same way that governments are. Competitive markets are impersonal. Markets impose a discipline that is said to make humans behave, although not perfectly, better than they would otherwise behave; and, on the whole, markets manage to harness selfishness and make it work for human welfare. Given that human nature is bad, any deliberate policies designed to improve society by interfering with market mechanisms will necessarily be flawed because of power politics, corruption, dishonesty, influence-peddling, prejudice, and so on. Similarly, any appeals to higher motives will be less effective than the appeal to lower motives that market competition makes.
Utilitarianism and its successors.
Neoclassical economics revises and restates the propositions of classical economics which were articulated in late 18th and early 19th century England and France. In those optimistic days, leading thinkers expected freedom and the advancement of science to lead to happiness for all humanity. It was the task of the science of political economy to show what a free economy would lead to, i.e. to happiness. It was the task of the philosophy of utilitarianism to justify the expected outcome of free markets and free trade, by showing that happiness was the goal for humans to pursue.
One of those optimistic thinkers, Jeremy Bentham, defined happiness as pleasure. Bentham advocated evaluating legislation (in order to decide whether to enact it or to repeal it) by measuring how much pleasure it produced. Jean-Jacques Rousseau suggested a way to measure happiness even cruder than Bentham's schemes for measuring the quantity of pleasure produced by any given law. Rousseau suggested measuring happiness by counting the population. What he had in mind was that under unhappy conditions of extreme misery most infants do not survive. Whether children survive, and hence whether the population grows, was therefore taken by Rousseau to be a measure of how much happiness there is.
Mainstream economics was at first allied with utilitarianism in maintaining that the specialization of labor guided by the law of supply and demand, and its international corollary, free trade guided by the principle of comparative advantage, would lead to the greatest happiness of the greatest number. John Stuart Mill refined the concept of happiness so that educated tastes and perhaps even spiritual regeneration would count among the desirable outcomes the wonderful economic quasi-machine was expected to produce.
However, mainstream economics later backed away from the happiness principle. It became clear in many ways that free markets sometimes did and sometimes did not lead to happiness. This became clear, for example, in the proposition of welfare economics that an extra dollar for a poor person buys more happiness than the same extra dollar would buy for a rich person --which implies that sharing the wealth, rather than free markets, would maximize happiness. Mainstream academics discovered that happiness was a vague and unscientific concept; economics could and should be rewritten without it. Instead of taking happiness as the aim, one could rewrite, for example, the law of supply and demand, starting with schedules (i.e. lists) of people's "revealed preferences." Preferences were simply people's choices. They became revealed whenever people walked into markets and took one product off the shelf instead of another --with an economist standing by to observe the phenomena of choice and to count them.
The move from happiness to preferences made economics more rigorous, and at the same time insulated it from criticism. Having given up utilitarianism's happiness principle, mainstream economics retained utilitarianism's premise that an optimum is always a maximum or a minimum. It continued to borrow from physics and pure mathematics tools for calculating maxima and minima --in general, the optimum prescribed was to maximize preferred choices (benefits) and to minimize costs. That the principle of comparative advantage ought to be followed became a mathematically precise tautology. A society in which everybody reveals all their preferences will be a society in which there is a maximum of preferences revealed. Similarly, whenever there is international trade, whoever traded revealed that they preferred what they got to what they gave. The conclusion "the more trade the better" does not require any premises once the definition of "better" has become "preferred," because "trade" is just a name for bargains that people, firms, or nations choose to make.
In the practice of economic research, the magnitude of the preferences revealed is measured by how much money changes hands, and it follows from A = A that the more people buy the more people buy. Measures of "welfare" such as gross domestic product per capita are established for the most part by counting how many dollars worth of goods and services are produced, which depends, in turn, on how much people are willing to pay for what they acquire. Thus ensued an oft-noted paradox. Where traditional cultures are being monetized, people are becoming pauperized by being separated from their means of production and dependent on unstable opportunities for wage labor for their subsistence. At the same time they are becoming normless (suffering from what Durkheim called "anomie") because of the dissolution of the traditional social structures. For these two reasons among others people are becoming more miserable. Nevertheless the standard statistical tools of mainstream economics (for example, per capita income measured in dollars per year) report that welfare is increasing.
Critics of neoclassical economics have called for measures of economic performance with a basis in physical reality. Hazel Henderson, for example, favors measuring such things as longevity, air quality, nutritional adequacy, water purity, and sustainability. In a sense she proposes to restore the division of tasks between the science of political economy and the utilitarian philosophers. The successors to the political economists are the Hendersonian social scientists, who study what combinations of markets and planning, what distributions and forms of property, what institutions for organizing work, what processes of international exchange.... lead to what outcomes. The successors to the utilitarian philosophers are the Hendersonian evaluators and social critics, who provide the rationales for the measurements used to assess the outcomes. In such a framework, questions about the merits of following the principle of comparative advantage, however broadly or narrowly the concept might be construed, would become once more empirical questions, to which it would be relevant to offer physical and psychological facts as evidence in order to answer them.
The advocates of free trade have backed away from trying to prove that when each nation specializes where it has comparative advantages, the result is to make people happier or better.
They have not backed away from the claim that consumers are better off when they have more access to inexpensive foreign goods, but they have backed off from claiming that this makes consumers happy. Now it is enough to say that they get what they want. The moral case in favor of free trade thus relies less on a theory about what is good for people. It relies more on an appeal to freedom per se, regardless of its consequences.
The appeal to the freedom of the consumer to choose what to buy, and therefore the case for free international trade guided by comparative advantage, finds philosophical support in those theories of ethics, like Kant's, which make right and wrong independent of the consequences or results of actions. Such theories typically enshrine freedom as an overriding value that ought to be respected, come what may.
Similarly, the same overriding value is applied to the distribution of wealth, in the principle known as "Pareto optimality." This principle holds that the distribution of goods in society is optimal when all voluntary trades have been made and there are no longer any two parties willing to exchange what one has for what the other has (even if the rich are still rich and the poor still poor); the possibility that the distribution of the world's goods could be further improved by compelling someone to give something up involuntarily is ruled out as ethically unacceptable.
The theory of comparative advantage can be regarded as the application to international trade of neoclassical economics. Neoclassical economics, in turn, can be regarded as the application to a particular social science of the metaphysics of economic society. The general presuppositions of economic society form the background from which implicit and explicit premises of neoclassical economics are derived.
My choice of the term "metaphysics," instead of the more familiar terms "ideology" or "worldview" has several motives. One of them is optimism. "Metaphysics" is the name of a traditional deliberate activity of philosophers, which has contributed to the construction of western ideas generally and of economic ideas in particular. I want to emphasize the extent to which social reality is deliberately discursively constructed, because I want to encourage efforts to reconstruct it. I share the romantic optimism of the early nineteenth century because I expect the right combination of ethical philosophy and advancing social science to lead to happiness for all humanity. Calling the presuppositions of neoclassical economics "metaphysical," is, among other things, a way of saying that economics can be improved, and even superseded, by deliberately constructing a better social reality.
What I prefer to call "the metaphysics of economic society" is what Louis Dumont calls "economic ideology." Dumont compares the ideology (the metaphysics) of modern economic civilization to the ideologies of other great human civilizations. He sees similarities between the central concept of his own work, "economic ideology," and a number of well-known concepts and theories in social science: "We verge here on the forceful demonstration by Karl Polanyi in The Great Transformation of how exceptional the modern era is in the history of mankind with regard to the segregation of the economic aspects and the sacrosanct role of the market and its concomitants in the "liberalism" that dominated the nineteenth century and the opening decades of the twentieth. I am only proposing a somewhat wider view, while at the same time building on an old sociological tradition. The holism/individualism contrast as it has developed from my study without any conscious imitation is in line with Maine's Status and Contract, and with Tonnies Gemeinschaft and Gesellschaft."
That neoclassical economic theory begins with and presupposes "the market and its concomitants," viz. private property, rational economic actors, competition ... is old news. What may be somewhat novel here is relating the institutional structure of modern society, and its ideological reflection in economic theory, to the concept of scientific explanation; and to ethics; and to a tradition called "metaphysics."
What can be called a "metaphysical shift" can challenge some ways of thinking of scientific explanation, and promote other ways. In his seminal essay "Interpretation and the Sciences of Man," Charles Taylor proposes what I would call a "metaphysical shift." He argues that social science is now in a position to improve the quality of its explanations by taking a more perceptive view of the regularities observed in social behavior. After Wittgenstein, social science can improve its accounts of social phenomena by acknowledging and exploiting the relationship of human action to language depicted (shown) by Wittgenstein in his later works. Wittgenstein thought of human action as governed by the constitutive rules of "language games" (Sprachspielen) in which discourse and practice are inextricably connected. A great deal of social science, in contrast, and in particular neoclassical economics, has taken the machine rather than the language game as its implicit and sometimes explicit metaphysic. Thus much of the vocabulary of economics is borrowed from the science of mechanics, in such terms as "equilibrium," "stability," "elasticity," "expansion," "inflation," "contraction," "flow," "force," "pressure," "resistance," "reaction," "movement," and "friction." Human behavior is simplified in order to analyze it in terms of mechanical metaphors.
In an effort to dissolve and dispel metaphysics in general, and in particular mechanistic metaphysics (the kind by which he was himself most tempted), Wittgenstein wrote that to think of reality in terms of machines presupposes --what is frequently not the case- - that it is made of parts which function consistently in standard ways. Wittgenstein wrote: "If we know the machine, it seems that everything it will do, namely the movements it will make, are already exactly determined. We speak as if the parts could only move in a certain way, as if they could not do anything else. Why is it that we forget the possibility that they might bend, break, melt, etc.?"
Wittgenstein's machine-with-unstable-parts that fails to produce the usual product (output) from the usual "factors" (inputs) sheds light on the failure of mainstream neoclassical economic theories to provide accurate predictions of economic behavior when the "parts" do not function as expected. Samuel Huntington provides an example: "The easy assumption by Western economists in the 1980s that devaluing the dollar would reduce the Japanese trade surplus proved false.... As the yen appreciated to less than 100 yen to the dollar, the Japanese trade surplus remained high and even increased. The Japanese were thus able to sustain both a strong currency and a trade surplus. Western economic thinking tends to posit a negative trade off between unemployment and inflation, with an unemployment rate significantly less than 5 percent thought to trigger inflationary pressures. Yet for years Japan had unemployment averaging less than 3 percent and inflation averaging 1.5 percent.... Japan's uniquely low level of manufactured imports, one careful study concluded, `cannot be explained through standard economic factors. The Japanese economy does not follow Western logic.'"
The unstable parts that falsify explanations and predictions offered by social theories rooted in the image of the machine are human beings, members of that species whose adaptation to its ecological niche is culture. Since economic culture is only one form of culture, the kind of culture whose metaphysics is that of economic society, social change projects conceived and planned as exercises in economics do not fit non-modern cultures. Thus Larry Naylor reports on Operasi Koteka, a major development project undertaken in Indonesia: "For example, Operasi Koteka provided for the introduction of new agricultural practices, cash crops, and the wearing of clothing. Without the development of a market-exchange system, wage-labor jobs, and knowledge of money, these changes had little chance of being implemented. The requirement that the local people wear new styles of clothing was clearly out of step with economic reality. It simply did not fit with local conditions, let alone traditional culture. Clothing had to be purchased and cared for, both things requiring money. Although the concept of money had been brought by the Dutch, Indonesian money was a recent introduction into the lives of the Dani. As their traditional culture had neither markets nor money, the Dani had little understanding of money, and, just as important, they had little of it, and even fewer opportunities to acquire it."
I noted above in connection with Ricardo's classic example of comparative advantage, the export of Portuguese wine, that comparative advantage (when it is not a tautology) is an incomplete causal explanation. The sun shone on Portugal, and microbes beneficial for viticulture thrived in its soil, for many years before a single keg of "porter" crossed a Lisbon dock bound for England. Metaphysics (institutional structures reflected and articulated as logical ideology) supplies some of the additional conditions needed to complete the causal explanation of the wine trade. There had to be a market, money, rational economic actors, accumulated capital devoted to business for profit, a government disposed to encourage and protect trade .... It follows that metaphysics have causal powers. Where a different metaphysic prevails, different human behavior will result.
The term "metaphysics" has traditionally designated a system of fundamental concepts which frames an outlook and provides basic premises for both epistemology and ethics. In such a framework epistemology and ethics support each other. I have argued elsewhere that such was the character and social function of the first book to bear the name, the Metaphysics of Aristotle. That the market and its concomitants provide a common root and mutual support for a certain version of scientific knowledge and for a certain version of ethics is another reason for thinking of the theory of comparative advantage as embedded in a metaphysic. Thus, when the market appears to produce a result that is ethically unacceptable --for example, when, as Frances Moore Lappé puts it, the peasants of El Salvador who have no money are left voiceless at the dinner table-- neoclassical science rescues the market from ethical indictment. The answer to the indictment is: that's just the way it is; there is no effective demand for rice and beans in rural El Salvador; rural El Salvador has a comparative advantage in the production of cotton to use in manufacturing clothing for export; so, naturally, the land is used to produce textiles for export while the people who live there go hungry. The scientific theory of the market is used here to explain how the world works, whether we like it or not.
On the other hand, there are occasions when it is ethics that rescues science, by permitting the desired conclusion to be drawn, by denying that the facts as they are must simply be accepted. For example, when Japan declines to import American TV sets, the hard facts flicker and grow dim in the shadows of terms that rely for their connotations on ethical criteria: the Japanese market for television sets is distorted, its prices are artificial, the government interferes with its free operation --here the "market" reappears again, but this time not as brute inescapable fact, but rather as a normative ideal which has been violated. The market and its concomitants thus bridge the is/ought divide in a most remarkable way --a way that provides conceptual foundations both for statements of fact and for value judgments. This is another reason for calling neoclassical economics a metaphysic.
A logical extension, but with different consequences, of the theory of comparative advantage, is found in a group of recent theorists who since the late 1970s have developed a focus on the "new international division of labor" and "the globalization of production." According to these theorists, conditions in the late 20th century have made it possible to realize the rationalization of production on a global scale. Firms can now transfer advanced technology to countries with low labor costs, and simultaneously exploit the advantages of cheap capital in capital-rich countries. As in the theory of comparative advantage, relative production costs determine global patterns of trade.
As a consequence of enhanced global mobility, a new capitalist world economy has emerged. Its main feature is a massive migration of capital from the industrialized countries to low-cost production sites in the third world. Because of capital mobility, capital- rich countries have no economic rationale for producing where the capital is; it is more logical to produce where the well- disciplined, inexpensive labor is.
Central among the explananda which globalization of production theorists seek to explain are a set of interrelated phenomena which can be summarized as: (1) the "deindustrialization" of traditional first world manufacturing areas, due to plant closings and other forms of capital disinvestment; and (2) the shifting of production activity overseas, often to third world countries with low labor costs; while (3) continuing to market the products in the first world, and indeed (4) expanding marketing to create a truly global market, corresponding to a (5) "global factory."
In a study titled Capital and Communities: the causes and consequences of private disinvestment two leading exponents of this type of theory, Barry Bluestone and Bennett Harrison, outline an explanandum which "makes sense" of these phenomena by explaining why they happen.
Under capitalism, the means of production are for the most part owned by private owners. These means of production, machinery and equipment of all kinds, are needed in order for society to be able to produce more than the simplest and most minimal subsistence for its members. To some extent the ability to produce depends on the skills of employees; to some extent it depends on the capital, i.e. the tools and the money used to purchase the tools, that the employees work with. When the products are sold, the revenue is divided between people who earn wages and salaries ("workers"), and the owners. The owners have, Bluestone and Harrison say, "every incentive" to keep employee compensation down.
Their point survives, I believe, the objection that it is often possible to make high profits by paying high wages, because high wages attract highly skilled employees who are loyal and enthusiastic. Such exceptions prove the rule because if it were possible to buy the same skill, the same loyalty, and the same enthusiasm, while paying lower wages, then profits would be even higher. Bluestone and Harrison write, "...employers must keep their costs of production down, which requires them to coax as much productivity out of their employees as available technological conditions will allow."
Managers, representing the owners, use a variety of means to hold down labor costs in their firms. At the same time, they are in constant competition with other firms.
Workers, on the other hand, use a variety of means to bring wages up. Notable among these means in Europe and America in recent decades have been actions taken through labor unions and through the use of the ballot box. Through the ballot box workers are able to force owners to pay a portion of revenue as taxes to support social programs. Besides higher wages and overtime pay, labor victories have included unemployment insurance benefits, pension rights, public assistance, disability insurance, minimum wage laws, health and safety regulations, seniority rights, and some degree of job security. Thus a "social wage" and "fringe benefits" augment wages narrowly so-called.
In their never-ending battle to counter the efforts of workers to bring wages up, the owners are driven by necessity as well as by ambition. They are forced by circumstances, i.e. by the basic structure of the economic system, to keep the costs of production down. Markets have their ups and downs; technology changes and it is expensive to keep up with it; aggressive competitors are tireless in their efforts to sell a better product at a lower price. Every crisis drives many employers out of business, especially the smaller and weaker ones. There is intense, and now global, competition among the survivors.
The never-ending battle to lower production costs is a battle owners must wage in order to survive; those who win expand commercial empires and amass wealth; those who lose go out of business. Against the heavy artillery of the workers, their organizing drives, their strikes, and their right to vote en masse for pro-labor candidates, the owners have even heavier artillery. "...the employers' legal right to move their property from one place to another, to open and close stores, factories and offices, and to seek out friendlier governments and cheaper labor, becomes a tool to be used against both workers and other competitors. Trade unionists are especially concerned with how firms use capital mobility to keep labor off guard, to play off workers in one region against those in another, and how the threat of capital relocation is used to weaken labor's ability to resist corporate attacks on the social wage itself."
Thus Bluestone and Harrison outline an explanandum (i.e. an entity that does the explaining). The explanandum produces, and therefore explains, the phenomena observed. The explanandum is a socially constructed quasi-mechanism. The input going into the quasi-mechanism (opportunity for profit) leads to the production of its output (relocation to low wage production sites). The causal mechanism producing the result is the "market force" driving firms to locate production at low-cost sites; the enabling condition is property ownership, which gives the firms the legal right to move.
There is nothing new in Bluestone and Harrison's account. Its main elements were stated by Ricardo in 1817, and before him by Adam Smith in 1776. Bluestone and Harrison simply extend the classical logic of comparative advantage to the contemporary international division of labor.
Ever since economics began, almost three centuries ago, its quasi-mechanisms have been compared to the mechanisms-properly-so- called of physics. Galileo's law of freely falling bodies (s = 1/2 g t2) can be compared to Bluestone and Harrison's explanation of industry relocation. Galileo's driving force is gravity. (Compare to economics' market forces.) The enabling condition is the free space the body falls in. (Compare to private property.) The values of just a few variables permit Galileo to calculate the location of a body freely falling in space at any given time. In Bluestone and Harrison's quasi-mechanism, the values of more variables enter into the calculation, but the result is similar: knowledge of where industries will move from, and where they will move to.
Perhaps most important, the economic quasi-mechanism and the Galilean mechanism are alike in that they are scientifically valid even though from a superficial viewpoint they sometimes contradict experience. If you hold a feather up in the air and let it fall, its trajectory, seen from a superficial viewpoint, will not conform to Galileo's law. Nevertheless, Galileo's law is valid. When you correct for friction, for wind, for air pressure .... you will, in the end, explain the trajectory of the feather. And without Galileo's law you will not be able to explain its trajectory.
Similarly, Ricardo, in 1817, already realized that classical economics' description of market forces implies that capital will move wherever higher profits are to be made. Ricardo already recognized that greater profits can be achieved by lowering production costs, notably (exclusively, he thought) by lowering wages. Aware that the economic mechanisms he was analyzing implied that capital would pursue profit around the globe, he asked himself why the phenomena predicted by the theory did not (in his day) occur more often. He answered: "Experience, however, shows that the fancied or real insecurity of capital, when not under the immediate control of its owner, together with the natural disinclination which every man has to quit the country of his birth and connections, and intrust himself, with all his habits fixed, to a strange government and new laws, check the emigration of capital. These feelings, which I should be sorry to see weakened, induce most men of property to be satisfied with a low rate of profits in their own country, rather than seek a more advantageous employment of their wealth in foreign nations."
The explanandum for Ricardo, for Bluestone and Harrison, and for Galileo, threatens to prove too much. It threatens to stultify itself by postulating a cause with simple and uniform results, contradicting the complexity of the phenomena actually observed. To be true to reality, the causal quasi-mechanisms that have been discovered must be supplemented by accounts of the various kinds of "friction" that modify the effects that the causes produce.
For Ricardo, the major source of "friction" that impedes the globalization of production was the capitalist's fear for his security and that of his property. Bluestone and Harrison agree, and suggest a corollary: when the world becomes better policed, so that investors everywhere can feel assured that their property will not be stolen anywhere, the inherent tendency of market forces to bring about the globalization of production will come to the fore and assert itself. Describing the first great wave of globalization, the expansion of American industry overseas after World War II, Bluestone and Harrison recount the political and military policies of the era that contributed to making the world safe for American capital, and, in the end, for anybody's capital. In retrospect the many third world civil wars of the era, in which right-wing regular armies put down left-wing guerrillas, can be viewed as pacification paving the way for investment. The guerrillas, even when they had Soviet support, tended to promote traditional and ethnic values; it was the regular army, with American and sometimes European support, that was revolutionary. The army was preparing the way for the massive social change which in fact came to pass -- the McDonaldization of the world.
About this era Bluestone and Harrison write: "U.S. military policy and American foreign aid were vitally important in extending the global reach of American industry. Whatever their manifest military purposes, American troops, military advisors, offshore cruising naval vessels, strategic long-range bombers, and, eventually, long-range ballistic missiles, all helped at least indirectly to protect and extend U.S. business abroad. During these years, the U.S. government made commitments to a whole network of antidemocratic dictatorships, whose leaders seemed dedicated, along with keeping themselves in power locally, to promoting the entry of American business enterprise into their economies. In this context, many of America's new third world allies --South Korea, Taiwan, Brazil, and Argentina-- courted U.S. firms by offering terms that were unbelievably tempting, especially low wages and prohibitions on free union activity."
Bluestone and Harrison distinguish between a "cause" and a "reinforcement." A cause, like Galileo's gravity, is a fundamental operating factor; but the cause can be mitigated or reinforced, slowed down or speeded up, as the force of gravity is slowed by friction or accelerated by a downward push. Thus they find that American tax laws after World War II accelerated globalization, mainly because they favored big business, which was the kind of business that was in the process of becoming multinational. Similarly, technical improvements in communication and transportation were important reinforcements of the trend toward globalization --but not important enough to be bumped up to the status of "cause." Bluestone and Harrison write, "As with the new technologies in production, transportation, and communications, it is not the case that the preferential tax and tariff treatment of foreign investment caused U.S. corporate managers to shift their capital abroad. Rather, these public policies reinforced corporate decisions that were based on more important factors: markets, labor costs, and political security."
Those who praise globalization attribute to it ethical merit. It is said to proceed according to sound moral principles, to maximize that-which-ought-to-be-maximized, and to spread throughout the world modern ideals of liberation and toleration.
In addition to positive value judgments grounded on principle, praise for the new international division of labor sometimes appears not to rely on any principle, but nevertheless to express a sense of satisfaction or triumph, such that globalization is cast in the glow of a favorable light. Rehman Sobhan, for example, advocates, "labor services being treated as a commodity like any other commodity," (p. 116). "South Asia," he writes, "remains the principal source of global trade in labor." (id.) The colonial tradition of labor export, "...only showed the way to the post- colonial generation, who, in response to their limited opportunities for employment at home and the greater opportunities open to enterprising young men willing to work long hours at low wages in the most inhospitable terrains, sustained this flow in even greater numbers throughout the 1950s and 1960s, as improved communications contracted the global village." Like those scholars from Malaysia and Taiwan who proudly set forth statistics showing the growth of their nation's economies, Sobhan celebrates a global labor market that creates new opportunities for the most impoverished and desperate, while it confers a new status on nations and regions previously neglected which are now preferred by investors because of their plentiful supplies of willing labor.
The principled justification of globalization begins with the ethical underpinnings of the quasi-mechanism that causes it. The market and property rights. Market forces and property rights are the essential elements of Bluestone and Harrison's scientific explanation of the phenomena observed. Freedom is the ethical ideal embodied in the market. The classics of modern ethical philosophy --Jean-Jacques Rousseau, John Locke, Benedict Spinoza, Jeremy Bentham, John Stuart Mill, Immanuel Kant ...-- are alike in establishing principled moral foundations for economic society, i.e. for freedom and for property. The logical apparatus used to derive the conclusions differ from author to author, but the main conclusions are the same: the basis of moral legitimacy is free consent, respect for property rights is a moral imperative -- a "categorical imperative" in Kant's version, i.e. one that (along with respect for other people's freedom and keeping promises and contracts) is a moral command valid for all rational beings.
As long as the elements of the quasi-mechanism producing it (market forces and property rights) are intact, globalization will move forward, and as long as modern liberal ethics defines the moral rules, it can move forward legitimately. This is not to say that globalization always moves forward legitimately. History is made of lies and violence, and the history of the globalization of labor and capital markets is no exception. It is to say that a great deal of ink and a great deal of breath is wasted in printing and shouting matches attempting to establish whether the partisans of grassroots local self-sufficiency or the partisans of free trade, the left wing dictators or the right wing dictators, have lied more, tortured more, or massacred more.
Globalization, on its best behavior and dressed in its Sunday clothes, is a faithful student of Ethics 101 as it is taught in western and western-influenced universities around the world. When, for example, electronic assembly factories move across the border from the United States to maquiladoras in Mexico, the maquiladoras can be justified by appealing to standard ethical principles. The young Mexican women hired to assemble television sets freely consent to their employment, to their wages, and to their working conditions. Further, the property rights of the owners of the factories authorize them to locate their assembly operations wherever they choose to locate them.
Capitalism is a western institution that has become a global institution, and to some undetermined extent wherever it goes it carries western values with it. Sometimes when incorporation into the global economy means that work for wages replaces household work or feudal forms of labor, the result is to liberate the wage earner (the wife, the young girl, the young man, the sharecropper....). In this way the globalization of production sometimes gets credit for liberating the oppressed and thus morally improving traditional societies; at other times, and sometimes simultaneously, globalization is condemned for spreading materialism everywhere; while at still other times international or local capitalists organize sweatshops or patriarchal forms of production that effectively combine the worst of the old with the worst of the new.
Similarly, any increase in the use of money to govern human relationships and practices can be seen as an increase in tolerance. Money is a cipher, a neutral medium, a pure abstraction consisting entirely of quantity with no qualities. Money is exactly the same whether it is received from a Jew, a black, a woman, a man, a Muslim, a Japanese, or a Catholic. Money is wholly indifferent to the personal qualities of the people who use it to enter into commercial transactions with each other; and for that very reason it draws together people of the most diverse ethnic backgrounds from all parts of the globe, makes them acquainted with each other, and gives them an opportunity to appreciate the richness of each other's cultures.
The internationalization of production, with the free flow of capital and labor across national boundaries, guided only by the principle of profit-seeking, i.e. by money, can therefore be seen as the fulfillment of the ideal of tolerance. Nobody with money is discriminated against, whatever their other qualities may be.
Thus the globalization of production has an affinity with the best modern ideals: freedom, personal autonomy, independence, tolerance, multiculturalism, and in some respects equality. Free trade is considered by many to be a corollary of the ideals of the Enlightenment. Those of us who are offering constructive alternatives to globalization work under the handicap that we may be perceived as opposed to the moral progress of the last three centuries.
On a more technical level, globalization is justified by mainstream economists as "efficient." William Baumol prescribes as a criterion of efficiency: "Never take resources out of a use where they bring in (say) 9 percent in order to utilize them in a manner which yields 6 percent!" Thus maximizing the rate of return is clothed with a moral imperative derived from society's need to be sure resources are used efficiently.
Progressive economists criticize the mainstream's efficiency criteria with examples like this: Suppose Ford Motor Company gradually lets technology become obsolete at a plant in Michigan and eventually closes it. Instead Ford builds a plant in Brazil. The move is "efficient" according to Baumol because the yield on investment goes up from 6% to 9%. It is a profitable move for Brazilian workers, who now make $2 an hour instead of $1 an hour. It is unprofitable for American workers, who suffer from psychic depression, move their kids to new schools in new towns, and eventually, on average, end up making $10 an hour instead of $20. In addition, communities are torn apart, buildings are at least temporarily abandoned, real estate values fall, the tax base falls, social services are cut back .... and when all the pluses are added and the minuses subtracted, the net result is that the move was socially inefficient, even though from the point of view of Ford's shareholders it was efficient. Otherwise put: if Ford had "internalized," all the "external" costs it was imposing on others by its decision, it would have made a different decision.
I believe that the economists on both sides of such debates have the best of intentions, but I suggest that Hazel Henderson's approach is a better ethical framework for evaluating international trade institutions and policies. The term "efficient" has no meaning until the objective to be pursued is specified. To be "efficient" means to achieve the objective at the least cost (or to achieve it to a higher degree at the same cost). For starters, in terms of my Ford Motor Company example, I, for one, would agree with Buckminster Fuller that manufacturing automobiles of the kinds usually made is not an ethically defensible objective at all; hence whether they should be made in Brazil or in Michigan ought to be a moot question. We should be making light rail and bicycles.
The term "efficient" seems meaningful to economists because they treat revealed preferences (and therefore sales, and therefore revenues measured in dollars) as if they indicated that something worthwhile were being achieved. They excuse themselves from asking what or why. Seen in this light, the claim that globalization is "efficient" has no meaning. Allocating resources by market criteria is a form of ethical skepticism. Not knowing what "good" means, and consequently not being able to define a good objective, the economists settle for calculating how to allocate resources to maximize profits. They hope that profits reflect making-whatever- people-with-enough-money-to-buy-our-products-want well enough to justify considering profits to be some sort of indication of how "efficiently" resources are allocated, which hopefully in some indirect way reflects how much "welfare" was derived from the resources consumed, where "welfare" in turn, is defined as an ethical skeptic would define it: as people getting whatever they appear to want.
Henderson's approach, ecology, and the wisdom of the world's great spiritual traditions (which are elements of the approach to ethics I have advocated elsewhere) show ways to make a concept like "efficient" meaningful. "Efficiency" is a concept that (if it is going to have any prescriptive force) logically requires justifying the goals to be pursued.
However, even with legitimate Hendersonian objectives specified, the concept of "efficiency" is still defective because it implies, as a general rule, that there is one best way to do something (subject to any given set of constraints) and that the one best way can be calculated mathematically as a maximum or a minimum. Nature, Aristotle, and the traditional wisdom of East and West agree that the good is characterized by redundancy, not by putting all eggs in the basket of the "one best way;" and that the good is characterized by moderation, not by any extreme.
Apart from its association with the enlightened morals of modern times, and apart from its specious claim to be efficient, the globalization of production is convincingly advocated on the grounds that its opponents have no superior alternative to offer. Do you want to compel capital to stay forever where it is? Are you for prohibiting imports? If you want the government to manage trade and to slow down the rate of capital mobility, what criteria will determine its policies? And how will it enforce its policies without simply driving capital to secret Swiss bank accounts? Should peasants be compelled to give up cash crops and go back to producing for use? Should each nation produce mainly for itself? Is it feasible for labor unions to organize multinationally to be a countervailing power to that of the multinational corporations? How could Japan survive with less trade? Should we go back to barter? How would you enforce a law against the mobility of capital? Should all international trade be state trading? Should we go back to the potlatch, replacing trade with gift giving? Or to self-sufficient medieval manors? Would it be possible for all corporations to be nonprofit, and would it do any good if they were? Such questions challenge those who complain about the global economy to show that there is a better way.
"Metaphysics" has not become a less controversial term since I suspended my discussion of it a few pages back at the end of section 1c. It is for many a synonym for meaninglessness, for nonsense, for words without content. For others "metaphysics" denotes an abstract form of religion, a withdrawal from the world to contemplate ultimate reality; its concerns are so distant from the sorrows of life that they could not possibly be relevant to the price of bread, or to any other practical issue.
Strangely, however, while it is the consensus of many 20th-century minds that metaphysics is an irrelevant nothing, nevertheless our century has seen a number of philosophers build their careers on attacking it, as if it were a ghost that needed to be buried over and over again. Some of these anti-metaphysicians, such as Rudolf Carnap and Sir Alfred Ayer, are willing to grant that a metaphysic may express the subjective attitude of the person who believes it, provided that it is understood that metaphysics has no cognitive content. For others, such as Jacques Derrida and Ludwig Wittgenstein, metaphysics is a harmful error that humans can hardly avoid; we are constantly tempted to it by language, as we are constantly tempted to lust by our bodies.
Two decades ago the general educated public found a use for the word "metaphysics" when critics of the Vietnam War attributed to advocates of the war a "military metaphysic." Because of their "military metaphysic" they could not see the reality of the suffering in South East Asia. Their perceptions were filtered through the lenses of a general way of viewing the world, such that everything was interpreted in military terms.
Similarly, I am arguing that people today do not see the reality of the suffering in South East Asia, or anyplace else, because of economic metaphysics.
Here I will resume my discussion of metaphysics and make two points: that the globalization of production is the consequence of the metaphysics of economic society, and that it is useful in practice to regard mainstream economics as a metaphysics.
The cause of the globalization of production has been shown to be market forces and property rights. These are metaphysical concepts.
They are metaphysical for a reason already given. They are fundamental ideas from a matrix which generates both explanation and prescription. In answer to the question, "Why?" both mainstream economists and progressives like Bluestone and Harrison say, "Because of market forces." In answer to the questions, "With what right? By what authority?" the classical philosophers and jurists of economic society answer, "By the authority of contracts freely entered into, by the consent of the parties." And then these contracts freely entered into (sales, leases, hirings, currency exchange transactions, investments ....) turn out to be just the phenomena whose behavior is described by economists in terms of market forces. The same is true of property; property is a fact. It is a fact which serves as a premise for Bluestone and Harrison's explanation of global capital mobility. It is also a value: according to John Locke it is that value for the protection of which humans first entered into social contracts and thus formed political societies. According to John Stuart Mill the moral rules defining property rights are so fundamental to society that they are the moral principles to which the word "justice" primarily refers, and they are the moral principles whose violation is properly punished by imprisonment.
The quasi-mechanism producing the globalization of production is also metaphysical for another reason. It is presupposed more than discovered. Employing the term used by Aristotle and Kant, market forces and property rights are "categories," i.e. concepts in terms of which whatever is experienced is understood. The economist does not set out to discover whether markets exist, or whether forces exist. That reality can be understood as a play of "forces," or, what amounts to the same thing, "factors," or "variables," is not a discovery of economic science. It is an element of a worldview that is already built into the mathematical tools and the statistical methods that the economist employs. "The [economics professor's] hypotheses were usually quantified as propositions about the impact of some X on some Y, and therefore X and Y were constantly on the blackboard. If one were of a mind to cavil about minor inefficiency, one might complain that chalk and human energy were wasted every evening when the janitor erased the X axis and the Y axis, because shortly after 9 a.m. the following morning, the professor would invariably draw them again." Similarly, whether there is such a thing, at any given time and place, as a market, or property, is a question an anthropologist might ask. Or an historian like Polanyi or Braudel. Inside the worldview of economic society, and inside mainstream economic science, markets and property are concepts in terms of which experience is understood. They give form to economics; their existence or non-existence is not data the economist goes out to look for.
Yet it is these normative entities, markets and property rights, presupposed by economic metaphysics, constituted by social practices and the rules governing the practices, that constitute the quasi-mechanism that moves capital around the world in search of profits, and moves people around the world in search of jobs.
It is useful to be aware of the metaphysical character of the deep causes of the globalization of production. For the sake of humanity and the eco-system, for the sake of life, we want the quasi-machine to stop operating like a machine. It helps to know that it is not a machine, but only a quasi-machine.
It is useful to acknowledge that to reconstruct the global economy for the sake of peace and social justice, it will be necessary to change not just what mainstream economics considers, but also what it presupposes.
It is useful to recognize that by changing norms, we can cause facts to change. As Rom Harre puts it, by reinterpreting social institutions, we change their causal powers. (Social Being, p. 237)
It is useful to bear in mind that the explanations given by economic science depend on the existence of a metaphysical framework that has a history. There was a time when its categories and the institutions they describe (its "language-games") came into existence. And it may have an end. Humanity may graduate to a more adequate metaphysics, which will articulate the categories presupposed by a more adequate set of institutions.
At a more specific and practical level, it is useful to understand the metaphysical character of society's dominant guiding worldview when we evaluate. Obviously, we cannot transform the basic structure of global society all at once. Obviously too -- perhaps not obvious to everybody, but obvious to professionals in peace studies and peace research -- we cannot build positive peace without transforming the basic structure of global society. So we undertake small projects, that we hope contribute to transformation. We plan a curriculum, we support an alternative approach to community organizing, we lead a work camp, organize a cooperative, conduct a conflict resolution workshop for prisoners in jails ....
Whatever we do in our daily lives, when we evaluate it, we seek to ascertain whether we are taking a step in the right direction. Are we reconstructing society, or are we just temporarily alleviating some particular consequence of its dysfunctional structure?
Whatever we do, it is useful to build into our evaluation criteria questions that concern the root causes of poverty, and therefore seek to rewrite the metaphysical categories of mainstream economic science, such as: Are we (in however small a way) building a world governed more by cooperation and less by market forces? Are we encouraging sharing? Are we encouraging the socially responsible use of property? Are we demonstrating (in however small a way) that there are better and more just alternatives to living in a profit-driven "global factory," that really work? Are we empowering people at the grassroots to interpose some "friction" that will slow down the pitiless operation of the global quasi-machine, and hopefully gain more time to reorient it and transform it? Is what we are doing here and now a step in the direction of a profound transformation of the deep structure of the global economy?
I am writing this chapter for my brother, who wrote the screenplays for the film Powaqatsi (a sequel to the better known film Koyanisqatsi) and for the Home Box Office production "Earth and the American Dream." I am also writing this for my friends who support the late R. Buckminster Fuller's concept of a "design revolution." "Bucky" was convinced that politics was useless, and he devoted his life to serving humanity by inventing a "livingry" technology that would enable humans to "do more with less."
Neither ecological consciousness-raising films like my brother's, nor Bucky Fuller's inventions and theories are theories of international trade. Their relevance to my topic is that if you believe in them --and I do-- then you might think that you do not need a theory of international trade.
In green videos, such as the tribute to Fuller called "Ecological Design" featuring more than a dozen of his contemporary admirers, and films about ways of life happier than ours, such as Helena Norberg-Hodge's Ancient Futures: Learning from Ladakh, the viewer can see the contrast between modern high energy, high resource use, inhumane technology on the one hand, and on the other hand the pre-modern and post-modern soft energy paths. The difference is palpable. A modern city is like Dante's hell, made up of ugly sights, unnerving noises, poisonous smells. Images of fields cultivated by peasants with centuries-old sustainable technologies, or images from Australian public television of one of Bill Mollison's permaculture sites (or of Findhorn) remind us that one is "nearer God's heart in a garden than anyplace else on earth."
You can see for yourself, watching the screen, that what went wrong was that humans chose the wrong technology, and therefore the wrong way of life; and that what we ought to do is to choose the right technology and with it the right way of life. The calculations used to make the choice of technology, the dollars and cents, are not shown on the screen; they are purely numeric, less visible. Financial statements project no images, since they are made of pure monetary abstractions.
A three-hour American public television special, "Planet Neighborhood," sponsored by Bank of America, goes a step further. Its repeated message is that green is profitable. The way to make money is to employ environmentally responsible technologies. The way to organize communities is to cultivate a mentality that is simultaneously greener and more entrepreneurial. John Todd, a leading "Bioneer" in the Fuller tradition, appears in the video showing a beautiful system he designed to purify the polluted waters of Lake Champlain by biological means. One cannot tell from the film whether John Todd really believes that market forces and private property will from now on serve to bring about a successful adjustment of human society to the earth's reality. He may believe that now the new motor of history will be green technology, that once it is invented existing institutions and existing patterns of motivation will insure its adoption. And he may believe that once they are adopted, the green technologies will themselves create ways of life in which poverty and violence will be rare or absent. Or it may be that John Todd did not fully agree with the message of the film he participated in, but thought it best not to say so.
Not everyone who claims that mass production factory technology built the global economy, rather than vice versa, is a film maker. I will excuse myself from considering the views of any of the extreme technological determinists, and instead consider two authors who advance a sophisticated moderate argument that attributes a considerable causal role to technology choice in history. I think their moderate argument is more worth considering because it is more likely to be true, and, indeed, in many respects, I think it is true. Michael Piore and Charles Sabel explicitly argue in their book The Second Industrial Divide: possibilities for prosperity that the quasi-mechanical market forces described by people like Bluestone and Harrison do not provide an adequate account of how the global economy has developed. They project their interpretation of history forward in order to argue that it would be possible to improve human life through wise choices of technology.
By examining Piore and Sabel's study of how technology and markets influence each other, I will analyze their assessment, and make my own assessment, of a premise many thinkers and artists appear to hold. The premise in question is that it is mainly technology choice that has made the global economy what it is today.
Instead of employing a linear concept of causality, in which an explanans (a cause) produces an explanandum (an effect), Piore and Sabel develop a method for explaining the economic history of "a world in which technology can develop in various ways: a world that might have turned out differently from the way it did, and thus a world with a history of abandoned but viable alternatives to what exists."
Given at some particular time in history the state of knowledge in the natural sciences and the practical arts, technology offers humanity multiple avenues of possible development. Which avenues will be followed is a matter of choice, and which choice will be made depends mainly on political and economic power. The technology that is adopted will be the one that those who have power believe will serve their interests and ideals. (An example of an ideal influencing technology choice is the patriotism of the Japanese elites who after the Meiji restoration decided that Japan needed to adopt western-style mass production.) After a technology becomes entrenched, other lines of possible development are left behind and forgotten. Large investments have already been made along the line of the technology chosen; detailed problems of application now need to be solved; the investments already made need to be amortized through sales. No funds are available for making another huge series of investments to cover the startup costs of going in a different technological direction.
An "industrial divide" or "branching point" is a time when it is still undecided which direction technology, and therefore industry, and therefore society, will take.
Modern mass production in steel, in automobiles, in meatpacking, in consumer durables, in chemicals ... offers many examples of technologies that might have developed along different lines. Speaking more generally, mass production itself might not have come to pass, but it did. Except for the case of the USA, the decision to adopt mass production techniques was a national political decision made by powerful elites. Once having decided to go that route, the nation found itself required to follow through; what yesteryear was not even envisioned as a possibility, became a necessity.
The most important economic feature of mass production is that it requires long production runs. The firm must produce and sell many units in order to pay off the sunk costs required to get production started. It is expensive to stop and start. Frequently shutting down assembly lines, and then frequently starting them up again, in order to respond to fluctuations in market demand, destroys the low cost per unit of product that motivated mass production in the first place. Further, any firm that stops production when the market goes down will not be prepared to take advantage of the next upswing in the market; it will be undersold by competitors who during the downswing prepared themselves to manufacture more units at a smaller cost per unit.
The story of mass production is a story of chronic excess capacity, coupled with massive obstacles to fine tuning capacity to match demand. The principles can be illustrated by a simple hypothetical case which mirrors many more complex real cases: suppose that Japan, Brazil, South Korea, Australia, Germany, and Canada all decide to mass produce refrigerators. The result is a world with more refrigerators than refrigerator-buyers. If refrigerator factories run at 25% of capacity, then costs exceed revenues and nobody makes money. If then one country, say Japan, decides to reduce capacity in the light of reduced demand, then (simplifying the hypothetical by assuming free trade) instead of selling fewer refrigerators, Japan may well sell none at all, because if South Korea, say, goes ahead and expands capacity in spite of slack demand it will have longer production runs and therefore lower unit costs. The stakes are high: those who win conquer the mass markets; those who lose end up with closed rusty factories that cannot profitably be operated.
Investors do not want and cannot endure instability and high risks such as those in the hypothetical refrigerator example. Therefore, the advent of mass production technology brings with it the desire and the need to manage the market and to stabilize demand. This is the historical explanation of the origin of the modern giant corporation, as exemplified in the meatpacking and petroleum industries, which were among the first to amalgamate in order to form corporations large enough to throw their weight around in the market and in politics; the ability to achieve economies of scale went together with the ability to manage demand. This is the historical explanation of the rise of Keynesian economics, through which the government deliberately shored up aggregate demand. This is the historical explanation of pattern bargaining between Big Labor and Big Business, through which wages were tied to productivity. (In the USA, the pattern set by negotiations between General Motors and the United Auto Workers rippled throughout the economy, thus effectively regulating the technology of mass production --reducing work stoppages and increasing consumer purchasing power.) This is the historical explanation of the rise first of radio and then of television as advertising media creating mass desire for the products of mass production.
Piore and Sabel thus reverse the causal analyses of comparative advantage theory and globalization of production theory. Instead of market forces determining which technology will be used, it is the technology that is used which dictates that the market must be molded to fit technology's requirements.
The classic age of stable demand for mass produced products was the age of the American-dominated world economy after World War II. In the 1970s the "regulation" of the world economy broke down, and there has been confusion since. The breakdown is symbolized by the defeat of Big Labor, by the end of the practice of pegging wage increases to productivity gains, and by the free-floating exchange rates among the world's currencies that take away the privileged status formerly held by the U.S. Dollar. Superficially, the causes of the breakdown are commonly said to be a series of "shocks" rocking the international trading system: the social protests of 1968, a huge increase in oil prices because of the OPEC oil cartel, the failure of the Soviet harvest which drove up grain prices, another oil shock produced by the Iranian revolution .... But on a deeper level, the cause of the breakdown was inherent in the tendencies of mass production technology itself. "The most consequential and long-term postwar development was the saturation of consumer-goods markets in the industrial countries, and the consequent interpenetration --through trade-- of the industrialized economies..... Because of this saturation it became more and more difficult to increase economies of mass production through the expansion of domestic markets alone. Further development along the trajectory of mass production thus brought the major industrial economies into direct competition for one another's markets and for those of the developing world. It also exposed the limits of the postwar regulatory system."
Given the collapse of the several national systems for stabilizing demand that had for a time made it possible to manage mass production economies in the USA and elsewhere, Piore and Sabel see two possible futures for the global economy. One is to regulate mass production technology by reviving and extending to the global level the market management mechanisms formerly in place in the United States and in several other countries. This would mean worldwide Keynesian economic policies; worldwide market- sharing agreements; worldwide labor standards and collective bargaining. The second alternative is a different economy based on a different technology.
Let us take as granted (I) that technology choices are not entirely driven by blind forces beyond human control, and (II) that once made, technology choices have far-reaching consequences. Piore and Sabel powerfully illustrate these propositions by tracing the history and consequences of mass production technologies. It is reasonable to generalize, and to say that the adoption of any style of technology has far-reaching consequences, and that included among them is the consequence that it will require some social system of (in the language Piore and Sabel adopt) "regulation."
Recently powerful arguments have been made for a third proposition, (III) that humans ought to adopt sustainable technologies. If one interprets "sustainable" as meaning conducive to sustaining life, as distinct from meaning that the particular technology employed is one that could or should be used forever, then (III) is a proposition that must be true. By definition, it would only be desirable to adopt technologies which make human life on this planet unsustainable if it were desirable to end the existence of the human species. But (III) is more than a truism: it is part and parcel an indictment which alleges that the technological trajectory on which our species is now embarked is not sustainable. It implies, among other things, that establishing Keynesian economics on a global scale in order to rescue modern high energy high-resource-use mass production would not be desirable even if it were possible --indeed, it would be disastrous.
Those who downplay or overlook the radical implications of (III) do not argue that we should use unsustainable technologies; what they argue is that the transition from the technologies of today to the technologies of tomorrow will not require major institutional shifts, either because the market itself will guide wise choices, or because the problems are mainly technical, and will be solved at a technical level.
The biologist John Todd, a designer of living sustainable technologies that use plants and animals instead of chemicals to dispose of sewage waste, argues that mass production has created the potential for destroying everything humans desire. If, as Aristotle and a long tradition held, the good is that toward which human desire aims, then Todd implies that mass production is leading us away from the good.
R. Buckminster Fuller calculated that resource constraints are such that by spreading around the globe the designs for living prevailing in the industrial mass production societies it would be possible to meet the needs of at most 44% of the world's people. Therefore, he concluded, a design revolution, which does more with less, is a moral imperative because the alternative is to condemn more than half the world's people to misery.
A utilitarian ethic that defines the good as the greatest happiness of the greatest number, or a care ethic, which sees the moral life as attention to and responding to the needs of others, would imply that if Fuller's facts are correct, then it is true that doing more with less is a moral imperative.
Paolo Soleri links the idea of doing more with less with preserving the earth, as well as with meeting everybody's needs. He points out that if we project a world population of 8 billion, and calculate the resources needed to provide a single family dwelling for each family, one result is that the end sought is unattainable; another result is that attempting to reach it would spell disaster for the earth.
Amory Lovins declares sustainable technology to be a moral imperative for another reason. It is unjust to future generations to bequeath to them a planet with fossil fuels exhausted, biodiversity reduced, and the atmosphere poisoned. Even if it is true, as optimists contend, that human technological ingenuity is infinite, and will devise new solutions to whatever problems arise in the future, it is not just to put our descendants in a position where they and the flora and fauna of the planet will survive if and only if technological optimism proves to be true.
Advocates of sustainability argue that a human-centered ethics is too narrow. Instead of taking something like the preferred choices of human consumers as the standard of value, we should stand back and think of living systems as wholes, and take the welfare of the whole as the standard of value. Humans should be partners with nature. As Bill Mollison puts it, our ethic should be "the care of the earth," not just the care of our own species, and much less the care of our own individual selves.
E. F. Schumacher (echoing Gandhi) argued in Small is Beautiful that small scale technology could and should be used to generate work in the countryside, and thus (among other benefits) to stem the tide of migration to India's overcrowded cities. Among other considerations he thought relevant to technology choice were whether it was conducive to enjoying work, whether it gave scope to creativity, and whether it was consistent with what Buddhism calls "right livelihood" (although he held no special brief for Buddhism, saying rather that economics could be improved by a meta-economics taken from the spiritual teachings of any of the world's great religions).
The anthropologist Mary Catherine Bateson and many other green writers have suggested deriving norms for sustainable living by studying the ethics of so-called primitive peoples. The so-called primitives knew and sometimes still know sophisticated techniques for sustaining communities and for sustaining a relationship with the soil and with wildlife. But our challenge is greater than theirs; replicating the achievements of so-called primitive peoples is not enough because the human populations to be sustained are now much larger.
A principle often suggested for a technology at peace with nature is that humans should live within the earth's energy budget. Every year a certain amount of new energy arrives from the sun. Instead of every year drawing down on the earth's stored energy, humans should learn to give back as much as they take, and to leave the earth no poorer at the end of the year than it was at the beginning. This principle is an example of the more general idea of thinking of human economic systems as subsystems of the larger systems that function to make the biosphere habitable.
Compared to the ethical arguments for green technology, the ethical premises of neoliberalism and comparative advantage theory can be called "formal." The green arguments can be called "substantive." What I mean by this is that when prosperity or welfare is measured by economic indicators that ultimately depend on counting the revealed preferences of consumers, the procedure is "formal" in that the writer refrains from making value judgments. The writer just counts data.
Ethical skepticism is of a piece with market liberalism. Without needing to know right from wrong, or good from bad; or without presuming to have any opinion on such questions that would be valid for anybody but oneself; one can nevertheless derive an ethic by asserting everybody's right to decide for themselves. Consent is the source of legitimacy. The economic theory of the market fits the ethical theory of self-determination like a hand in a glove. If consumers decide to buy hamburgers, then that is their preference; how many of them they buy will be counted in measuring welfare, in calculating the gross domestic product, and in evaluating the success of economic policies.
The greens, on the other hand, are in the business of making substantive value judgments. They think they know something about what it would take to get homo sapiens off the endangered species list, and they are willing to assert that what is necessary for the survival of the species ought to be done. The free choices of human consumers have been overrated as foundational premises for policy decisions. Thus Schumacher, "In a sense, the market is the institutionalization of individualism and non-responsibility. Neither buyer nor seller is responsible for anything but himself." Humans ought to regard themselves as responsible participants in living systems; they ought not regard themselves as morally licensed to pursue their own short term self-interest.
Amory Lovins criticizes the market as a decision-making mechanism just because it rests on the ethical legitimacy of whatever purchases consumers choose to make. Lovins points out that the market will discount the importance of long run consequences to zero over just a few years --over an infinitesimal period of geologic time. The market interest rate (the mirror image of the discount rate) is a measure of consumers' preference for satisfaction now instead of satisfaction in the future. The moral imperative is just the opposite: save the earth for the future.
Piore and Sabel's account of the need to advertise to create desires that match the outputs of mass production can be regarded as a reductio ad adsurdum of the ethics of freedom. If the ethical foundation of the whole system is the sovereign consumer's free choice, then the foundation crumbles when it is necessary to manufacture consumer choices in order to stabilize the system. Similarly, Bluestone and Harrison's account of the defeat of labor by the power of capital to move elsewhere undermines the argument that wage rates are what they ought to be because they are determined by free agreements.
It is tempting to respond to assertions that the ethics of self-determination has been violated by criticizing just its distortion, not its principle. It is tempting to say that if advertising were truthful, then consumers could really make free choices, and then market demand would indeed be the only legitimate guide to technology choice. It is tempting to say that if labor unions were strong, then there could be real collective bargaining, and wage rates would really be based on the free agreements of the contracting parties.
But the green "substantive" arguments noted above are not just arguments for correcting the distortions which prevent economic actors from making free choices. Indeed, the greens claim that if the kinds of technology they prescribe are not chosen, the consequence will be the extinction of many species, including our own.
R. Buckminister Fuller used to say that the challenge before the human species was "to graduate" before it is too late. Our "graduation time" will be the time when we learn to organize ourselves and our interaction with the planet in a way compatible with physical reality. Physical reality compels us to think in terms of whole systems; more importantly, it compels us to act in terms of whole systems.
One might be tempted to regard a philosophy of design revolution as the metaphysics of humanity's graduation. It might seem to be an adequate worldview, because of its focus on the physical basis of life. I suggest, however, that only one half of the needed reform of the reigning economic metaphysics concerns technology. The other half concerns social relationships. I will now sketch a way of looking at the history of metaphysics which hopefully will make this point clearer.
It is useful to think of the insertion of human groups into the physical reality of the earth's living processes in terms of two related structures. A "techno-structure" governs the relationship of the people to the environment; it is what is sometimes labeled "tools," and the planning of its construction is called "design." A "command structure" governs the relationship of people to each other, and for the most part it also governs the inner workings of the individual personality; it defines rights and duties; it provides the logic for deciding who is to do what when.
The human being, the species the anthropologist Clifford Geertz has defined as the animal for whom culture is its adaptation to its ecological niche, has invented throughout its pre-history and its history a series of technical and command structures. Human interaction with the earliest technologies was organized and directed by myths, as is shown, for example, in Hesiod's Works and Days. The time for plowing, the time for planting, the time for harvest, the time for celebration... and the roles that different individuals played in these activities were given meaning and guided by religion. The origin of language itself --the communication and guidance quasi-mechanism that is characteristic of our species-- is inseparable from the earliest stories (myths) that humans told one another.
Philosophy, and later its daughters the sciences, arose in ancient Greece, in China, in India, in Mesoamerica, in Peru, and other places, in cultures that already had already had techno-structures, command structures, and languages. The basic founding idea of western philosophy, out of which science later grew, was to use the expertise achieved in the techno-structure to reform the command structure. (Thus Plato: "there is no law higher than episteme, where episteme is the Greek word for the craft-knowledge of the different specialized technai, techne being the Greek word from which our word "technology" comes.)
"Metaphysics" (sometimes called "first philosophy") became, in the West and with parallel developments in other civilizations, the name of the part of philosophy that unified discourse. It provided, as mythical cultural cosmologies had provided previously, a common foundation and context for all the main uses of language. It became the conscious articulation of the worldview that defined who human beings are, their roles in society, and their place in nature.
The coming of modern society was the coming of economic society. As the historian Karl Polanyi puts it, economic relations became "disembedded" from social relations generally. The economy took on a life of its own. Instead of being, as its etymology implies, household management, the economy became the overall international context which provided the necessities of life and defined the social institutions and the worldviews of larger and larger percentages of the world's peoples. A new command structure emerged, a democratic command structure in the sense that according to its ideology everybody commanded only themselves; in it money came into its own as unit of account, medium of exchange, and store of value. Primarily through money the relationships of human beings to each other were governed; it defined rights and duties; it provided the logic for deciding who was to do what when.
Philosophers invented modern philosophy. Formally regarded as anti-metaphysics, beginning as polemics against the "metaphysics of the schoolmen," it carried on the social function of traditional metaphysics by providing society with a unifying discourse, and with logical foundations justifying its principal institutions. Part and parcel of the new philosophy was an ethics of freedom and property rights, which legitimated markets and market forces. Part and parcel of it were empiricist and rationalist theories of knowledge which kept at bay reactionary tendencies to revert to the ancient cultural cosmologies, which could have thwarted progress. The ethics of freedom sacralized a democratic command structure, consistent with treating the decisions of sovereign consumers, aggregated by the market, as the justification for modern industry. In principle, the techno-structure was to be constantly revised by institutionalized science, employing a systematically critical scientific method. Science was to do basic research that would produce never-ending improvements in technology. In practice, what philosophy made a matter of principle was what had to happen, because entrepreneurs needed to constantly revolutionize technology in order to stay ahead of their competitors. Thus the new metaphysics, yclept anti-metaphysics, carried on the traditional social function of providing a common discourse, heavily armed with powerful intellectual weapons, that unified the techno-structure and the command structure.
By putting the evolution of techno-structures in the context of their interaction with command structures, the considerations just mentioned show why it is a mistake to make technology into a metaphysics. That is to say, it is a mistake to see all issues as technical, all problems as technical, and all solutions as technical. The design revolution is only half the revolution. Suppose we grant that R. Buckminister Fuller is correct when he says that with the prevailing approach to technology, it is possible to meet the basic needs of only 44% of the world's people; it follows that to take care of everybody we need to learn to "do more with less." But it does not follow that if sustainable technologies were adopted, then everybody's needs would be met -- it follows that they could be met, but it does not follow that they would be met. Technology has a certain force of its own, so that it is as much a cause as a consequence of historical events. But it does not follow that market forces, property laws, and culture have no influence on history. It does not follow that if we make the right technology choices we can ignore the issues that divide investors from workers, and divide both from the unemployed.
On social issues, the inventors of green technologies tend to be on the side of the angels. They want humans to "graduate" to becoming a sustainable species, and at the same time to preserve the democratic ideals of modernity. Democracy is implemented by designing cheap and simple tools that ordinary people can control. They want to employ everybody in pleasant and meaningful work. Their motivation for doing more with less includes the desire to make it feasible to meet everybody's basic needs. They want to build human habitats that strengthen community because the very physical layout makes it easy to cooperate and easy to enjoy one another's company.
Whether markets, laws, and mentalities can be transformed so that the good intentions built into human-friendly and earth-friendly technologies can be implemented, depends mainly on whether humans can do better at relating to each other. In searching for resources for building better human relationships, it is useful to regard anthropology and the history of culture (and within it the histories of religion and of philosophy) as a large toolbox. By studying exactly how cultures have been constructed, we can learn to use the tools of culture construction. With community-building tools, we can facilitate the emergence of a mosaic of diverse human ways of life, which will be compatible with living together for many centuries more on the soil of our common mother, the earth.
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4. Kaldor's "circular and cumulative causation" as an Explanatory Principle for the Strategic Trade Practices of Firms and Nations, most Notably Japan
5. Theories of the longue duree, or Historical Discontinuity, as Explanations of the Genesis and Nature of the Global Economy