Globalization and the New Robber Barons

I’ve always been interested in economic analysis, especially at the macro-level. I would have majored in Economics if I had been better at math, but I wasn’t, so I didn’t. The concepts and theories of Economics are easy to understand, creating the models and testing hypothesis are where Economists make there money.

There is no better example of this than “Globalization.” Most people can intuitively comprehend the ins-and-outs of a shift from national markets to a global market. But it is extremely difficult to accurately measure or even quantify many of the effects of global integration. Globalization works in amorphous and mysterious ways. It slowly erodes traditional modes of economic organization and produces new ones at break-neck speed.

Globalization is, on balance, a good thing. But in the current geo-political landscape it could create a large number of “losers.” I am not about to argue against the gains freer trade and more efficient allocation of labor activities produce. Global trade has no doubt increased the absolute wealth of the world. Ultimately everyone will be better off if countries resist the urge to engage in various forms of protectionism. But I do have a problem with unflinching faith in free markets, especially on a global scale. Until there is a powerful independent form of global governance, I am skeptical that the global community will be able to avoid repeating some of the most disastrous mistakes of our past.

America’s economic experience since the Industrial Revolution illustrates a couple of free-market-evils. The average America has been defrauded numerous times by the “Robber Barons” of the 19th century, Ken Lay, Bill McGuire, and many, many other like minded shysters. And while Capitalism is without a doubt the most efficient and productive form of economic organization, it has its flaws too.

Federal Anti-Trust law was created to battle monopolistic tendencies that are inherent in Capitalism. With out anyone looking over their shoulder, robber barons got ahead by using any and all means necessary to dominate their industry. If one company was better situated economically, its leader would leverage that power against rivals until they collapsed. Eventually the remaining company (or companies in the case of cartels) had tremendous power over its piece of the economic pie. This is why independent governance is necessary. Without the ability to break-up capitalism’s “winners,” monopolies wield a frightening amount of power.

As those at the top concentrate power, they typically concentrate wealth. Twenty-five, thirty years ago CEOs made 20 times the average laborers salary. Today, CEOs make 400 times the average laborers salary. This growing disparity is driven by both the devaluation of labor, and a second coming for the “robber baron mentality.”

Strong, independent governance is needed to prevent widespread corruption. Business people are, by their very nature, competitive. And competition is the engine that drives Capitalism. But without proper oversight, competition entices many to bend the rules. Ken Lay and his Enron cronies thought they could get away with pencil-whipping Enron investors. Bill McGuire and a host of others thought they could back-date their stock options without anyone noticing. Both of these scams were wildly successful, even with the SEC around.

Unfortunately neither the WTO, nor the UN are equipped to assume oversight or redistribution responsibilities. Nor is the United States ready to retrain or compensate those who have lost their jobs to cheaper sources of labor abroad. Until these systemic problems are solved, or at least somewhat mitigated, the rich will get richer and labor will get poorer.

It’s good to be a baron.