Atti e Trascrizioni

Interventi Convegno 23 maggio 2001

ETHICAL AND MORAL ECONOMIC VALUES IN THE ERA OF GLOBALIZATION

Lawrence KIein

Moral Philosophy in Economics

The dating of the origins of modern economic thought is usually associated with Adam Smith in connection with is writings during the latter part of the 18 century - particularly from The Wealth of Nations. Smith covered the economic landscape so broadly that diverse many groups claim his thoughts in order to advance their own narrow areas of focus.

Mainly economists interpret Smith and cite his thoughts in connection with the invisible hand which guides free markets to generate prices that wi11 provide signals to keep the economy on a “good” path. It is true that the invisible hand is a remarkable and deep idea, but Smith had many other ideas that are associated with his title as Professor of Moral Philosophy, and it is in that context that I want to start the present discussion.

Smith opened the analysis of a complicated economic process of interrelated producers, consumers, and public bodies that were shown by intellectual successors to come to socially desirable, or even optimal, decisions for their economic activities in a free, liberal environment. While it is true that under very strict conditions, free market outcomes (represented as mathematical solutions) are optimal in a restricted sense — in the economic welfare sense — of the great Italian economist, Vilfredo Pareto (a Pareto Optimal Solution).

But in order for free markets to be properly guided by the invisible hand, there must be a completely level playing field. i.e. a free flow of transparent information equally available to all economic agents; freedom of entry into and out of types of economic activity: and there must be some arbitrary distributions of income and wealth. If there is imperfect information, asymmetric information, imperfect markets without free competition, and with other imperfections, Paretian optimality wi1l not necessarily be achieved. For different distributions of income and wealth, there will be different Paretian solutions to the economic system. If there are failures of transparency, emergence of monopolistic powers, illegal transactions, significant technological changes, or other disturbing factors, the system may not provide the guidance that a moral philosopher would want to see. Therefore, Adam Smith, Vilfredo Pareto, and scores of other economic thinkers over a span of more than two centuries will not have been able to deliver economic values that meet many of the best moral and ethical standards.

Additional Guidance for the Modern Economy

If an economy is prone to dynamic movements, known as business cycles, there wi1l be favorable and unfavorable times. In the latter phases there will be unemployment, such as we find in Western Europe and in many developing areas, and the optimality properties of market systems do not prevail in a world of less than full employment. Also. many of the self regulating or self correcting properties of liberalized markets do not give price signals that lead to optimality conditions. The unemployed do not participate fully in social benefits from economic performance.

These dynamic movements of the free market economic systems are not well understood in present circumstances in which extremely large and fast technical changes are occurring. The propositions of welfare optimality do not make allowance for unusual technical change. Some members of society will enjoy very great benefits from technical progress, while others may get marginalized and fail to benefit from potential economic gains because the distributions of income and wealth tend to become highly unequal and those 1iving below the poverty line, particularly in developing countries, do not benefit.

In the information sector of the modem economy, such as telecommunications, computing, robotics, new methods of medical practice, and highly involved financial engineering are changing society so fast that regulatory branches of government lose control for periods of time, and the marginalized groups get left out of social richesse.

In the 1980s, the world debt crisis impacted many indebted developing countries, and the who1e development decade was essentially lost for them. Even an advanced country, such as the United States, had a debt crisis in the area of thrift banking - called the saving & loan crisis - in which many middle-class families fared poorly. After the world debt crisis of the 1980s, there was a different kind of financial crisis in Mexico, followed by an East -Asian crisis in many developing countries. Russia had a debt-service crisis in 1998 followed by threats to Brazil and other Latin countries. Fortunately, Brazil worked hard to avoid a crisis in 1998-99, but they and other Latin American countries are not vet in the clear. To a large extent, the Russian financial crisis, and the East Asian crisis occurred because globalized institutions that could have made the situation much less painful were not put into place in time for liberalized markets to function property in one developing country after another.

In the midst of the economic turmoil of the 1980s and again at the beginning of the 1990s. there was a debilitating arms race, between the two superpowers, the United States and the Soviet Union. These two giants drained so much from the civilian sectors of their respective economies for the build-up of the military sectors in a not very favorable way: that there was a definite setback, in social welfare terms.

Although the large-scale military spending of the US and USSR did not turn into a Peace Dividend, on cessation of the defense policies, for any but the United States. At least, it led many countries into a comparatively peaceful era. Main military action was taken in developing areas (especially Africa) and in transition areas of Eastern Europe (especially Yugoslavia), where people were made much worse off again by changing the income distribution and distribution of economic gains that resulted from the extra-ordinary period of technological innovation.

On the whole, if countries adopt an obviously moral stand on issues of war or peace, the economy will benefit. The “guns vs. butter” trade-off, as it is taught in elementary economics, from the beginning day of lectures, in many cases, is a relevant and correct method of analyzing the possibilities for economic gain, but in cases such as intervention in Kosovo, or in Rwanda, or other African conflicts, it is often the case, almost inevitably, that all sides have losses. When the United States intervened to support Kuwait vs. Iraq or to keep warring sides apart in Somalia, or to bomb Serbian positions in the former Yugoslavia. it was often done in the interests of humanity at large. A powerful force cannot stand idly by, while racial genocide takes place. Intervention with loss of life is often a certainty, yet the injustice must he stopped. Without open warfare, however, there can be great gains by producing more “butter” and fever “guns”.

It is not, however, always a life or death matter that requires action in support of moral causes, such as protection of the environment versus exploitation of resources for profit that goes to a small number of business or government enterprises. That is the point at which the distribution of income and wealth are seen to he arbitrary in favor of a selected few.

There is an especially important issue now in the forefront of debate over working conditions, for children. The supporters of unfettered free trade and free markets, in general, argue that the working children and their families are better off with meager wages than with unemp1oyment and no income source. Yet, university students and others, even including protesters at international gatherings (Seattle, Quebec) keep pushing for their perceived just causes. While one must deplore their tactics, it must be admitted that their protests against trade with South Africa under apartheid ultimately became an accepted position. They have reason to pay attention to the environment after the (Valdez) Alaskan and recent Brazilian oil spills.

In the case of child labor, the issue is more serious, because it means that education, learning, childhood activities are taken away from entire generations of people. It is to their and to society’s advantage that these children must be educated. It is necessary to have some slowing down of output growth in order to cover some serious social costs.

The United Nations Development Program (UNDP) in their Human Development Reports every year hare gradually extended the purely economic concept of GDP per capita for judging a nation’s progress. They have devised a Human Development Index which combines GDP per capita, some aspects of the distribution of income, longevity and literacy into a single index for ranking achievement among nations. Gradually, the must be encouraged and supported lo enlarge their scope of covering to include such things as child mortality, pollution (air, water), public health, criminal justice, and other aspects of life in addition to income or output per person.

Some Lasting Ideas from Nova Spes’ Goals
In various meetings, over the years, convened by Nova Spes (Cardinal Konig) some basic ideas were laid out.

1. Economics should serve as a basis for organizing human relationships. While competition serves well to make free markets work in a completely free society, a better moral base ought to shift interpersonal relationships more toward collaboration instead of competition.

2. A society in which those who are rich should enable the poor to be less poor. This is preferable to thinking in terms of taking away from the rich, for transfer to the poor. That introduces antagonistic social relationships, but to enable the people at the bottom of the income pyramid to rise, with respect to the top, is a better way of looking at the problems of poverty alleviation. In philosophical discussions in economics, the idea of improving social welfare by improving the lot of the poorest classes is a widely acceptable viewpoint (attributed to Rawls).

3. In order to achieve humanistic globalism we must pay more attention to qualitative issues.

An action area for economic development is in the provision of food. The more prosperous countries should do more than simply to provide food aid: they must patiently work with developing countries to improve their capabilities to produce food. In this respect, the “Green Revolution” was very helpful in raising food production levels, but its techniques have been successfully applied to the problem without having fully settled the lack of adequate food. It is essential now to move to a higher order of scientific achievement by drawing on the research methods of biotechnology, in the period ahead to raise agricultural and food output to higher sustained levels. Of course, the biotechnical approach must pay careful attention to side effects, and this takes time, but it is the way of the future, and potentially can be helped by globalization.

Enhanced food production strikes a positive chord, but the AIDS problem, especially in parts of Africa, and probably next in Asia, must be attacked from the sides of prevention and cure. It is important to note that more than two decades ago, the public health and medical communities gave early warning about the chance of the spreading of infection from this debilitating affliction. Inadequate attention was paid to the scientific warning. That said, it is urgent to do what is possible immediately.

After an open cry of public opinion against an uncaring attitude of pharmaceutical companies, who initially showed an unfortunate side of globalization, it is now encouraging to find that some limited steps have been taken to alleviate the AIDS illness through the use of modem drugs. This is a start, but far from enough to deal with the situation adequately. Some price reductions for the key drugs have been granted for some poor developing countries. This is an economic problem, not only in terms of cost to the consumer, but also because it strikes at productivity of the afflicted population groups, consisting of many able-bodied people (men and women) in what must be the most important age groups for worker productivity in harsh employment conditions - mines and fields.

In an interesting editorial (New York Times. April 21, 2001) entitled “The Search for an AIDS Vaccine”, it is noted that there is no wide constituency for vaccine research. Treatment medicine is more profitable to the pharmaceutical industry than is costly research that leads to production of vaccines. The Times declared, “This is a classic case where markets do not work and governments should step in”. Economic principles amidst globalization do not work by themselves, and one can readily sympathize with some protestors at globalization meetings. where the focus is trained on economic efficiency, without due attention being paid to moral and ethical values vs. market values.

In meetings of the American Philosophical Society, last month in Philadelphia: Dr. P. Roy Vagelos, the retired chairman of Merck, the international pharmaceutical company, defended the patent system, which jointly protects profitability to his company (and others) but leads to high prices for drugs over a long time period. Dr. Vagelos cited three important examples in which Merck research has helped poor suffering people in developing countries: treatment for river blindness in a restricted area of Africa, hepatitis B vaccine in China and other developing countries, and AZT for alleviation of the ravages of AIDS in many parts of the world.

In the first two examples, successful treatment has already been made available. For the provision of AZT in poor areas of Africa and Asia. Merck has allowed concessionary pricing of generic drugs, and other companies are joining the less expensive methods of supply. This is certainly beneficial and morally sound, but it does not deal in a more general way with the problem of treatment and also does not meet the main point of the editorial position of the New York Times. Dr. Vagelo’s concluded his presentation by citing need for keeping the patent system intact, even though it may lead to future dilemmas between profitability of the private pharmaceutical producers and the pleas for help from afflicted people who cannot afford the prices charged at levels deemed adequate to cover full cost of research, development, and production.