The great tradeoff confronting moral conflicts in the era of globalization

277 Pages·2016·3.315 MB·English

by  Weisman, Steven R

Peterson
Institute for
International
Economics
The Great
Tradeoff
Confronting
Moral Conflicts
in the Era of
Globalization
Steven R. Weisman
Peterson
Institute for
International
Economics
The Great
Tradeoff
Confronting
Moral Conflicts
in the Era of
Globalization
Steven R. Weisman
Washington, DC
January 2016

In memory of
Edward Tureen

Steven R. Weisman is vice president for publi- Copyright © 2016 by the Peterson Institute
cations and communications at the Peterson for International Economics. All rights reserved.
Institute for International Economics. He No part of this book may be reproduced or
previously served as a correspondent, editor, utilized in any form or by any means, elec-
and editorial board member at the New York tronic or mechanical, including photocopying,
Times, based in New York, Washington, New recording, or by information storage or retrieval
Delhi, and Tokyo. His book The Great Tax system, without permission from the Institute.
Wars: How the Income Tax Transformed the Nation
For reprints/permission to photocopy please
received the Sidney Hillman Award in 2003. He
contact the APS customer service depart-
is editor of Daniel Patrick Moynihan: A Portrait in
ment at Copyright Clearance Center, Inc.,
Letters of An American Visionary, a Washington Post
222 Rosewood Drive, Danvers, MA 01923;
bestseller listed by the Times as one of its best
or email requests to: [email protected]
books of 2010.
Printed in the United States of America
PETERSON INSTITUTE FOR
18 17 16 5 4 3 2 1
INTERNATIONAL ECONOMICS
1750 Massachusetts Avenue, NW Library of Congress Cataloging-in-
Washington, DC 20036-1903 Publication Data
[phone] FAX: [phone] Weisman, Steven R.
www.piie.com The great tradeoff: confronting moral
Adam S. Posen, President conflicts in the age of globalization / Steven R.
Steven R. Weisman, Vice President for Weisman.
Publications and Communications pages cm
Includes bibliographical references.
Cover Designed by Fletcher Design, Inc./ ISBN 978-0-88132-695-6
Washington, DC 1. Economics—Moral and ethical aspects.
Editorial Photos: © Adam Stoltman—Corbis, 2. Externalities (Economics) 3. Social choice.
pg. 17; Andrew Winning—Reuters/Corbis, pg. 67; 4. Equality. I. Title.
and Timothy Fadek—Corbis, pg. 123. HB72.W445 2015
Printing by Versa Press, Inc. 172—dc23
2014041814
This publication has been subjected to a prepublication peer review intended to ensure analytical quality.
The views expressed are those of the author. This publication is part of the overall program of the
Peterson Institute for International Economics, as endorsed by its Board of Directors, but it does not necessarily
reflect the views of individual members of the Board or of the Institute’s staff or management.
The Peterson Institute for International Economics is a private nonpartisan, nonprofit institution for rigorous, intel-
lectually open, and indepth study and discussion of international economic policy. Its purpose is to identify
and analyze important issues to make globalization beneficial and sustainable for the people of the United States and
the world, and then to develop and communicate practical new approaches for dealing with them.
Its work is funded by a highly diverse group of philanthropic foundations, private corporations, and interested
individuals, as well as income on its capital fund. About 35 percent of the Institute’s resources in its latest
fiscal year were provided by contributors from outside the United States. A list of all financial supporters
for the preceding four years is posted at http://piie.com/supporters.cfm.
Contents
Preface ix
1 What We Talk about When We Talk about 1
Globalization
What Is Globalization? 3
What Is the Great Tradeoff? 8
Moral Absolutes and Pragmatism 14
I The Conflicts of Liberty and Justice
2 Economic Liberty: From Freedom of the Seas to 19
Freedom of Capital
Origins of Economic Liberty 20
Free Markets and Liberty in the New World 24
Liberty in Crisis 28
3 The Wolves and the Lambs: “Justice, Justice Shalt 33
Thou Pursue”
A Short History of Economic Justice 35
The Powerful Appeal of Economic Justice 44
4 Justice for All: Defining and Measuring Inequality 47
Rawls Redux 48
Piketty’s Charge: Sorting Through Different Definitions of 49
Economic Justice
Measuring Inequality as a Symbol of Economic Injustice 56
The Bottom Line? 64
II The Conflicts over Instilling Virtue
5 The Hazards of Moral Hazard 69
The European Fallout of the Global Financial Crisis 70
Is Virtue Essential to Capitalism—or Antithetical to It? 73
6 Government and Just Deserts: A Brief US History 81
The Early Days 82
From Virtue to Charity: The Deserving and Undeserving Poor 86
7 Bubbles, Panics, Crashes, and Bailouts: Moral Hazard 95
in the Marketplace
“By Every Possible Means” versus “Purging the Rottenness Out of 96
the System”
Debt as a Morality Play: A Brief History 103
8 Who’s Afraid of Debt? Debt as a Public Policy Tool 109
The Keynesian Revolution 110
Debt Morality Tale: How the East Asian Crisis Raised Doubts 114
about Rescues
Must Virtue Be Its Own Reward? 120
III The Conflicts over Loyalty
9 The Moral Imperative of Loyalty 125
Three Categories of Loyalty 126
Who Is a Communitarian? The “Mystic Chords of Memory” 130
Who Is a Cosmopolitan? “I Am a Citizen of the World” 137
10 Grappling with the Communitarian-Cosmopolitan 143
Tradeoff
Offshoring and Reshoring 144
Trade and Globalization: Lifting All Boats or Only Yachts? 146
Case Study of Loyalty: Divided over NAFTA 150
The Continuing Trade Debate 154
11 Loyalties in Conflict: Jobs, Communities, and 159
Multinational Corporations
The Special Case of Immigration 162
The Special Case of Multinational Corporations 165
Role of US Consumers? 171
Search for Corporate Tax Havens 173
12 Who Governs? The Role of Liberal Internationalism 177
Mediating Moral Principles in the Era of Globalization 178
Enter the NGOs 182
13 Pulling Together the Threads 187
The “Comfortable Beds of Dogma”—Sorting Out Liberty, 190
Justice, Virtue, and Loyalty
Notes 193
Bibliography 227
Acknowledgments 247
Index 249
Figures
4.1 Economic growth brings millions out of poverty 58
4.2 Globally, the middle class and the superrich gained the most while 60
the upper middle class gained the least between 1988 and 2008
7.1 Financial crises create lasting pain: Increase in unemployment 97
rate following precrisis peak, selected countries
9.1 Trade’s share of the US economy is increasing 128
9.2 Global trade has reached new highs 128

Preface
The dramatic opening and integration of the world economy over the last
quarter century have undeniably advanced the welfare and living standards
of billions of people around the world, especially its poorest citizens. But
globalization has put new competitive pressures on workers and businesses,
especially on the rich world’s lower-skilled citizens. This poses challenges to
policymakers seeking to address the grievances of those who are or feel left
behind. The rapid rise of global financial flows has also contributed to finan-
cial crises in Asia, Latin America, Europe, and the United States over the same
time frame, while fueling the investment required for growth. These capital
flows have decreased the stability of asset markets, with tough conditions for
small savers. Those challenges in turn have required some policy measures—
including unprecedentedly large monetary and fiscal interventions—that have
ignited fierce debates among the rescued and rescuers alike.
Over the years, in many of our books, papers, and projects, the Peterson
Institute for International Economics has tried to assess these trends, under-
stand their moral as well as economic weight, and convey the needed policy
responses to the engaged public. Now in The Great Tradeoff: Confronting Mor-
al Conflicts in the Era of Globalization, Steven R. Weisman undertakes a direct
discussion of some of the pressing moral dilemmas posed by the increasing
flows of goods, services, capital, technology, and even people across borders.
The world as a whole and the majority of human beings are richer because
of globalization, but the current state of distribution and the policies pur-
sued remain open to question. Weisman asks whether the economic system
has produced the right balance between preserving freedom in markets and
fostering economic justice. He also examines whether rescuing market partici-
pants—whether individuals, institutions, or governments—from their reckless
behavior to save the economic system as a whole is properly balanced with the
ix