If one wants to understand what all the fuss is about as the World Trade Organization holds its ministerial conference, Ethan Kapstein’s Sharing the Wealth: Workers and the World Economy, is a good place to start. Unlike many books on globalization that focus on the wonders of electronic technology or the trillions of dollars of goods, services and investments that circle the planet, Sharing the Wealth is concerned with growing inequality. While leaders in government, business and finance cling to the reigning free-market orthodoxy, many workers around the world are on the losing end of economic change. Kapstein’s interest is with the “100 million citizens in the industrial countries who are classified as living below the poverty line…the 35 million in these same countries who are unemployed…[and the] 1.3 billion people in the developing world whose income level is under $1 per day.”
Kapstein argues that the inequality and poverty that characterize today’s global economy are politically dangerous, economically unproductive and morally bankrupt. Politically dangerous because these trends can provoke a harsh reactionary politics. Economically unproductive because rising levels of inequality result in lower rates of economic growth and threaten a global recession. Morally bankrupt because the global economic system will lose legitimacy if its gains go overwhelmingly to the richest.
It was not always this way. For what Kapstein calls “two golden decades” after World War II, the international system worked reasonably well. In his discussion of the postwar economic order–called the Bretton Woods order after the New Hampshire town where delegates from forty-four countries met in 1944 to establish the governance of the international economy–Kapstein highlights the role played by John Maynard Keynes, who believed that the key to a stable prosperity was to create markets for the unprecedented masses of goods that the new industrial system was able to produce.
The first element in the postwar plan was to channel dollars to Europe to stimulate purchasing power without creating burdensome repayment obligations. The Marshall Plan was one aspect of this policy, but there were others. The International Monetary Fund and the World Bank (its official name, the International Bank for Reconstruction and Development, reflects the World Bank’s original postwar mission) were funded to reduce the necessity of austerity in Europe.
The second element was composed of two factors that today we often forget were once considered complementary: full employment and free trade. With full employment in the major trading countries, the political pressure for protection would be low. At the same time, the competitive stimulus of free trade would offset inflationary tendencies of full-employment policies.
Infusions of dollars primed the pump of the international economy in the same way that stimulative policies helped national economies recover from the Depression. The competitive pressures and comparative advantage of international trade kept prices low, while the combination of high wages at full employment and international competition induced employers to improve productivity. The tight labor market enabled workers to press successfully for their due proportion of the benefits of enhanced productivity, creating new purchasing power and stimulating the circle of growth once again. Output, productivity, purchasing power and investment all rose.
And if the system didn’t work quite as smoothly as the preceding paragraph suggests, these policies, at least in the United States and Europe, led to an unprecedented era of high employment, rising living standards, economic growth and improved productivity–without excessive inflation. Since the world shifted away from the Keynesian perspective of Bretton Woods in the early seventies we have had less growth, more unemployment and more inflation.