Capitalism, Exploitation, and Globalization
I got an interesting email from an attendee at my recent talk at Harvard University on globalization, in which the attendee posed the following challenge (which had been raised by a friend). I sent back an email to the attendee and thought that I should post it (with a few small changes) on my humble little site. (There were two other challenges, as well, and I might post those and my responses shortly.)
Here’s the challenge: 1) Capitalism requires the existence of poverty to function. Without a poor underclass to exploit, the wealth that capitalists brag about cannot be created. Globalization is all about finding new pockets of poor people to take advantage of. If poor people ceased to exist, it would be the end of capitalism as we know it.
Here’s my response: Let’s assume for the sake of argument that it’s true that the wealth of some requires a poor underclass to exploit. If “Globalization is all about finding new pockets of poor people to take advantage of,” then it would be because the previously exploited poor underclasses were no longer available to be taken advantage of. Otherwise, why seek out new ones? If that were true, it would be either because the previously exploited poor had died out, or because they had ceased being poor. Since we know that the former is not true, it must be the latter. And if such a system entailed that the exploitation of poor people resulted in their no longer being poor, in what sense were they exploited?
But the claim (“Without a poor underclass to exploit, the wealth that capitalists brag about cannot be created”) is not true. The view that exchange with others impoverishes the poorer parties to the exchange would entail, if it were true, that people in poor countries would be better off if people in rich countries did not exist. By the logic of exploitation, the people of Africa would be better off if a virus were to wipe out all human life in wealthy countries. If it is not true that the people of Africa would be better off if you and I and your friend were to die, then the premise that we “take advantage of them” is false.
Wealth is created, not simply taken or expropriated from others. Even wealth that is taken from others had to be created first, or it could not be taken away. And in cases of voluntary exchange, both parties must expect to benefit, or they wouldn’t exchange. If that is true, then, in cases in which wealth is created by voluntary exchange between a wealthier person and a poorer person, it means that the wealth of the wealthier is not a matter of theft, because the poorer party must also have benefited, or she would not have agreed to the exchange. And by the logic of the claim, that party must at some time cease being poor.
In any case, the amount of trade between rich and poor countries is tiny, insignificant, virtually nothing in comparison to trade between rich countries. All the worse for the people in poor countries. In fact, not having much that other people want to buy is about the same thing as saying that you’re poor.
The argument that voluntary exchange is exploitative has several loose threads which, when pulled, unravel the whole thing.
I think that you’re wrong in saying that “either because the previously exploited poor had died out, or because they had ceased being poor”, because there is yet a third reason capitalists seek out “new pockets of poverty”:
There are new pockets of GREATER poverty.
If on Monday you were paying an employee $10 per day in Country A and you’re happy about it, then on Tuesday you found out that you can get an employee for $5 per day in Country B doing the same job as the employee in Country A, would you still be happy about it?
If you’re a capitalist that only looks at the bottom line, I can bet that by Wednesday you’d be making plans to shift operations to Country B!
Re: If “Globalization is all about finding new pockets of poor people to take advantage of,” then it would be because the previously exploited poor underclasses were no longer available to be taken advantage of. Otherwise, why seek out new ones? ”
I think the answer is very simple. There is no limit to the appetite for additional profits.
The responses above are rather weak. Are people in market-oriented economies poorer than ten years ago, twenty, thirty, forty, etc? If not, then in what sense were they exploited?
And my challenge remains. If Africans (who have very little trade with the rest of the world) are being exploited by each act of trade, then they would be better off not trading. Indeed, they would be better off without the exploiters. So if the populations of Asia, the Americas, and Europe were to be wiped out, does any sane person think that the Africans would be better off? The logic of trade=exploitation requires that they would be. But it’s clearly not so. Hence, there is something wrong with the equation of trade and exploitation.
The answer given by Athanasios makes, to be charitable, no sense. In what way would “the appetite for additional profits” stop the exploitation at home? And if every act of employment is an act of exploitation, then you would expect that the jobs would have disappeared at home as they appeared elsewhere; the evidence from the U.S. indicates that that is not the case, as job growth tracks import growth rather nicely.
With regard to Mr. Seow’s point, I would ask the following. Where does most outward foreign direct investment go? To the countries with the lowest wages or the countries with the highest wages? His remark above tells us that it goes to the countries with the lowest wages. But it’s easy to check…We find that what his account predicts isn’t the case. Investment goes OVERWHELMINGLY to countries with high wages. (Consider that the US is the greatest attractor of foreign investments in the world.) The theory predicts X (low wages attract investment). We find that not-X is the case. The theory is therefore wrong. Indeed, it is wrong because it confuses wages with labor costs, which sound similar but are very different concepts. North America, Japan, and Western Europe have high wages, and low labor costs, because they have so much capital investment, so that the cost of labor is a smaller portion of the total cost of production. (The two are related; the higher the investment per unit of labor, the higher the productivity of labor, so the higher the marginal product of labor and the higher the wage.)
Antiglobalization sentiment is a matter of religious faith. I prefer reason, logic, and evidence.