From Flat World To Free World
Dr. Yaron Brook's latest Forbes.com op-ed
06.16.08, 6:00 AM ET
Considering the many jubilant boasts by "flat world" devotees in recent years, you might have been tempted to regard economic globalization as a juggernaut, powered by inexorable forces of technology and history.Big mistake. There's no preordained direction for the world economy–only an undetermined future that will take the shape of whatever ideas and policies we choose to uphold. The lack of an intellectual defense of capitalism has left free markets vulnerable. "The power of the state is reasserting itself," said Daniel Yergin, co-author of The Commanding Heights and a free-market optimist , in The Wall Street Journal recently.
In Latin America, the pro-market reforms of the 1990s are being swallowed by resurgent nationalism. Hugo Chavez's program for national socialism in Venezuela includes the gleeful seizure of foreign assets in oil, mining, cement, steel, telecommunications and electricity.
Ecuador, Bolivia, Nicaragua and neighboring nations have fallen into step with Venezuela, further chilling international trade. Argentina, already burdened by high inflation, recently imposed taxes on grain exports so painful that farmers went on strike nationwide.
Russia has pursued nationalization less noisily than Chavez, using selective prosecution and other threats to bully foreign investors like British Petroleum (nyse: : BP – news – people ) into surrendering valuable oil and natural gas interests. Even England–which for decades embraced Margaret Thatcher's privatization program, despite a long tradition of state-run enterprise–decided earlier this year to nationalize a private bank, Northern Rock (other-otc: NHRKF.PK – news – people ).
Other ominous symptoms of nationalism's growth are the massive sovereign wealth funds springing up in the Middle East, China, Brazil and wherever else oil and export revenues fatten up government coffers instead of private balance sheets.
The International Monetary Fund estimates such funds may control $12 trillion in assets globally by 2012, up from $3 trillion today. Few question such funds' legitimacy, even as their state-appointed managers pursue hidden political agendas from which market distortions and political fallout predictably follow.
In America, politicians are embracing this strong state role so that no matter which party prevails this November, the reform agenda will include trade policies that retreat from economic globalism.
In little more than a decade, Congress approved both North American Free Trade Agreement (1994) and Central America Free Trade Agreement (2005), encouraging speculation that the Free Trade Area of the Americas (FTAA) would soon topple trade barriers throughout the hemisphere. Although such agreements don't establish actual freedom of trade, they represent improvements nonetheless over highly protective tariffs.
But this year, the House of Representatives has deep-sixed trade bills negotiated in good faith with Colombia and South Korea, and the FTAA is in cold storage. Meanwhile, Congress has blithely pushed through a farm bill whose trade-distorting provisions seem certain to frustrate the ongoing World Trade Organization talks aimed at lowering trade barriers worldwide.
So why is the world retreating behind nationalistic walls–even in America, where you might least expect it?
The short answer is this: The expanding economic freedom of the past few decades was primarily a response to the bankruptcy of communism and socialism; it was not based on acceptance of capitalism as an ideal. Without such acceptance, recent political advances–despite the economic success they generated–are vulnerable to the new wave of anti-capitalist measures.
For all of capitalism's astounding accomplishments, the intellectual underpinning sufficient to deflect its critics has never been fully identified or understood. Capitalism and the profit motive continue to be viewed with suspicion.
After all, even in America, we live in a culture that lauds self-sacrifice, community service and "giving back" as its moral ideals. Businessmen who selfishly pursue profits, in contradiction to those ideals, are consigned to a moral dungeon from which they can only hope to escape on evenings and weekends. This is why Barack Obama can get away with belittling the "money culture," his wife can smugly counsel youth to shun "corporate America" and John McCain can brag about working "out of patriotism, not for profit."
The odor of moral suspicion that clings to capitalism helps explain why, decade after decade, businessmen are first to be blamed for the never-ending crises actually caused by statist market distortions. Whenever some new emergency arises, culpability falls first on greedy capitalists, whose profit-seeking is regarded as morally suspect, and rarely on government regulators, whose selfless policies are regarded as morally unquestionable.
The resulting pattern is depressingly familiar. Are people in Latin America still poor? The cause must be "exploitative" multinationals, and the cure must be state ownership of natural resources and more forced wealth redistribution. Are food prices rising? Blame the "ruthlessness" of global supply and demand and the "machinations" of speculators, then jettison free trade and ban exports.
Are domestic companies sending jobs overseas? Then temper the "cruelty" of the world market: Ban outsourcing of government projects, weaken the dollar and use tax policy to keep jobs at home.
Capitalism will remain the world's punching bag until such time as the profit motive is rescued from moral oblivion. Ideas shape history–and therefore political reform requires active, fundamental intellectual change, not passive reliance on favorable trends.
What ideas and ideals are needed for freedom to flourish?
History offers no better answer than the American story. Two centuries ago, the Founding Fathers blazed the path to a capitalist future by creating a nation based on the individual's right to life, liberty, property and the selfish pursuit of his own personal happiness.
For the first time, a nation's social system embodied approval of profit-seeking, the lifeblood of capitalism. America's founding principles, all but forgotten today, facilitated the explosive economic globalization of the 19th century and remain our only hope for freedom in the 21st century.
Those founding principles withered because no one could morally defend self-interest. For individual rights to prevail in politics, nothing less than a revolution in ethics will be required–a bloodless revolution–not of arms, but of ideas. You'll know that struggle is over when businessmen are finally viewed not as moral pariahs or ciphers but as paragons of virtue, precisely because they pursue profits.
Yaron Brook is managing director of BH Equity Research and executive director of the Ayn Rand Institute.