Reflections on Globalization: Part II

Last week, we introduced this topic by discussing the Cold War. This week, we will continue our analysis with a reflection on markets, an examination of hegemony and a discussion of the expansion of globalization and the rise of meritocracy and its discontents.

What about Markets?

Market economics is based on how humans actually behave and has been proven to be a superior method of solving the economic problem. However, it works best when those competing, negotiating or trading are doing so under conditions of near-equal footing. According to David Hume’s analysis, justice can only occur among near equals. Under these conditions, pitting self-interest against self-interest leads to the most optimal outcome. However, when there are great differences in power between parties, justice doesn’t really occur and the weaker party is forced to rely upon the mercy of the powerful.[1] Simply put, in unequal relationships, Hume calls for mercy but realizes there will be no justice.

Again, Adam Smith crystalizes Hume’s thought with regard to the economy in this famous quote:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or some contrivance to raise prices.[2]

This condition is a flaw of market economics. Governments and society have attempted to address this situation through regulation and charity, respectively. In other words, to improve the lot of the poor, regulation, which limits the power of capital, and charity, which gives the poor an opportunity to improve their situation, were supported. During the Cold War, there was a clear effort to prove market economics and democracy were superior to communism by generally building the middle class and creating something of a “worker’s paradise.”

This effort can be seen in the following two charts. The first chart shows the level of income captured by the top 10% in the U.S.