Answers to World Economic Forum’s 6 Key Questions on “Globalization 4.0”

The World Economic Forum recently asked readers for their ideas on how to answer six questions they identified that they proclaim “we must address to make Globalization 4.0 work for all.” Suggestions can be sent in the form of short videos under a minute. Such shortness is not my strongest trait, but I wanted to give the questions a shot and offer my ideas in how they could be answered. Here are my answers: 

How do we save the planet without killing economic growth?

Protection of private property is key to saving the planet without killing economic growth. It solves the problem of what economists call the “tragedy of the commons” [for further explanation, see: MRU and John Stossel] where publicly available resources are depleted quickly in circumstances where someone else will take them if you don’t take them first. With enforced private property, one has the incentive to maintain and invest in one’s property in the long term, which in many cases is also beneficial for the environment because one is incentivized to treat it sustainably. One can come a long way just with this. John D. Rockefeller made chemists find ways to make use of the waste of crude and ended up with hundreds of new products; and Andrew Carnegie made his employees search through the garbage of his competitors for steel shavings, so he could renew it, so to speak. In the words of economic historian Chris Calton, “Capitalists Created a War on Waste”. There’s still much to say about this issue, however. As an alternative to a carbon tax, which would devastate poor people the most, one could give incentives to reallocate capital in the energy sector from fossil fuels to renewable energy by giving tax breaks to the latter. Of course, it would also help to stop subsidizing the fossil fuel industry, and in my opinion, one should stop subsidizing the energy sector entirely so that real competition can emerge and create a playing field towards lower prices and higher quality. Another solution to lowering carbon emissions is what economists call “tradable allowances”. What this does is that factories who “want” to emit must purchase one of these tradable allowances to be allowed to emit to a certain extent. This way the factories who are least dependent on emissions will cut it first, and those which are more dependent on it can gradually fade it out, making it possible for them to adapt rather than shut down immediately and cause sudden unemployment and a loss of choice for their customers.

Bill Gates said in a recent interview that those who believe climate change is an easy problem to solve are a bigger threat to solving it than those who deny it. From this we should infer that one needs to be careful with the suggested remedies, and I think one should resist the urge to be the economic planner who tries to fix everything by impeding voluntary exchange. The invisible hand is indeed invisible, but if one tries to sense it, one can recognize how powerful it is and the problems it can solve if it isn’t impaired by red tape and restrictions.

 

Can you be a patriot and a global citizen?

Naturally, it depends on what one means with those terms. Some will say yes and others no based on what they perceive the terms to mean. Most can agree on the Merriam-Webster definition of a patriot as “one who loves and supports his or her country”, but the latter term is a bit more difficult to assess. One is a citizen in the world as one is a citizen in a certain country in the sense of the location of which one is an inhabitant, but this term seems more to refer to a perception rather than an objective truth. I can answer yes to the question if I think like this: I want my own country to prosper, but I also want other countries to prosper. I don’t want any country to “win” at the expense of another. I support free trade, globalization and the division of labor, and think these policies make countries prosperous, not as a zero-sum game, but as a win-win game. Am I a global citizen if I think like this? Some will say yes, others no, based on their own understandings, but this is at least my assessment of how the answer could be yes.

What should work look like in the future?

The term “work” is currently a heterogeneous category and will likely remain so in the future, in the sense that there are different types of work, like work in different industries, different positions within industries with different demands and degrees of power and influence, and the choice between better working conditions and higher wages when it comes to what economists call “compensating differentials”, meaning that there is often a trade-off between the two. I cannot assess what work should be like in the future in terms of what work should be done or how it should be done, as the markets can change drastically like it did with the digital revolution, but something I think a lot of people would agree with in answering this question is that wages ought to increase and work conditions improve. How is this to be done? Forcing this to occur through legislation will only create unintended and unwanted side effects, but both can come naturally by encouraging market competition. In a competitive market, wages tend to equate to the value the employer deems the employee’s output to contribute to his business, and wages can rise even further if the employee becomes more productive, either by improving his skill set or by the entrepreneur innovating to make production cheaper and faster to increase the output of the employee.

How do we make sure technology makes life better not worse?

Technology can be both a vice and a virtue. The question is what it is on a net basis. The economist Joseph Schumpeter is most known for his term “creative destruction”, meaning that innovation can change the structure of production by destroying some jobs and creating others. For the people who lose their jobs, this will naturally be seen as a vice, while it’s a virtue for those getting the new jobs that the innovation allowed for. Is it a net virtue or a net vice, though? A lot of studies estimate that more jobs have been created than have been destroyed the last 140 years, that the new jobs have allowed for better salaries, and that the destroyed jobs are mostly “jobs we do not want anyway”, like manual labor. One study finds that the employment share in England and Wales of so-called “muscle power workers” decreased from 23.7% in 1871 to 8.3% in 2011, while “caring professions” increased from 1.1% to 12.2%. If the trend of technology continues as it has done the last 140 years, technology will on a net basis keep making life better overall, though some “sacrifices” are made.

How do we create a fairer economy?

When one discusses the issue of fairness, it’s important to establish an ethical standard to follow. It’s not simple to get people generally to agree on one such standard as opinions differ depending on political persuasion. Those who believe in more state intervention and regulation base their judgement to favor more equality in income and wealth among different classes and suggest this is to be done by setting high taxes on the “rich” or the “1%”. On the other side, the persuasion of which I follow, a fair economy is one in which people are free to voluntarily exchange without state involvement of taxes, regulations and other barriers to entry, and without impediments to the income and wealth that one has earned. A free economy is a fair economy, I say. When people are free to make their own decisions, some will earn less, and others will earn more, but they are generally able to improve their condition if they decide to do so. Again, such an economy based on voluntary exchange is the fairest one can get, as it’s for the most part win-win for the participants, and that you get what you work for. The alternative, which is mentioned above, turns this into a zero-sum game. In any government program, whether it be jobs and production in the public sector or direct subsidies and transfers, what is given to some must be taken by others. The public sector can only exist at the expense of the private sector. I don’t find that fair, but others beg to differ.

How do we get countries working together better?

I suppose this depends on what countries are working together on, but there are some general suggestions I would like to make on the issue. The last year we have seen increasing tension between countries like the United States and China as a result of President Trump raising tariffs and sanctions to decrease the trade deficit and to punish China for “illegal trade practices” like theft of intellectual property and violating U.S. sanctions. It has had the opposite effect, and the trade deficit has increased since he first raised the question of tariffs and trade wars in March. Trade is an important part of cooperation, and such impediments to trade are also impediments to cooperation. I think free trade therefore is an important aspect of encouraging cooperation, and that both tariffs and economic sanctions should be eliminated, as the latter almost never achieve their policy goals, damages the world economy, makes things worse for civilians in the target countries and makes their despotic leaders more powerful.

 

 

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