RDVP Guest Speaker Basaji Prasad and Thoughts on Globalization

Renee Chin had met with Syed Shariq (see earlier blog entry) and they had a visitor, Basaji Prasad, who had set up an NGO in India to help with rural development. He had previously taught finance at the college level. He described the program that he had set up, with students visiting villages for 2-way information exchange. They had also worked on issues related to:

• Watershed development
  
• Empowerment of women (through thrift/credit groups)
  
• Improving quality of Education
  
• Enhancing Leadership in Villages: Locally elected governing groups now have recognized constitutional status
  
• Community Based Organizations: e.g., Mother's committees, education committee, water committee
  

Prasad also focused on the challenge of developing local leaders, getting them to commit to meeting social development goals rather than attaining political power. The rewards can be even more intoxicating than money, a point that he made repeatedly.

He talked about the means by which changes occur. Coming in as an outsider with a point of view that you intend to inculcate yields skepticism and resistance. If you state facts and let people make up their own minds, it can work, but to do it well requires time, empathy, emotional concern, and being with the people. They need to feel it is their own program.

Prasad talked about the ill effects of globalization ("media intrustion") saying that even the poorest people who make 40 rupees per day (about 50 cents) might spend half of that on alcohol, soft drinks, cosmetics, and tobacco. He argued that development has "destroyed community, leaving only a crowd". Responding to a subsequent question about how to build community, he suggested that games, a focus on schools, retreats (where people get away from their village for a few days) and a shared sense of success are effective ways.

At this point, the talk took a controversial turn. I think he was deliberately trying to be provactive, but he asserted that though the west was no longer practicing direct physical exploitation (slavery) or direct political domination (colonialism), since it was determining consumption patterns of people in the vilage, the west had set up a kind of "neo-colonialism." He followed this up with "The day money was created was the darkest day in history" (arguing that without money, it's impossible to store significant surplus, therefore the vast inequity between rich and poor is not possible). He was even willing to sling arrows at Stanford and other institutions of higher learning, saying "if [they] closed, it is good for the villages." In his view, the universities bring nothing to the villages, except training people that might exploit the villages. He'd heard that our discussion topic was the "Fortune at the bottom of the pyramid" and he said that it scared him. If we had that attitude, it would be dangerous. He did conclude with a bit of a concession, saying that technology was needed to improve the quality of life and remove drudgery for the villagers.

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What follows is a rough draft. I'm not happy with it yet, but in an effort to get ideas out quickly and revise, I'm putting it out now. Comments welcome.

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I tried to resist my initial reaction to simply write off Mr. Prasad, and instead focus on some of the points that he'd raised. His talk reinforced some of my thoughts on globalization and got me to think a bit more deeply about others, so I'll use his talk as the foil for the first articulation of my own view.

Globalization will happen. People who stand to benefit from it have the power to implement it, therefore, it will happen (though there could be holdouts, see below.)

Globalization generates more economic activity and creates a larger global surplus. Trade is the exchange between two (or more) parties that both benefit from the exchange. Globalization provides more options (opportunities to trade) and therefore more opportunities to find exchanges that create a surplus, or to choose those exchanges that create the largest surplus. Options have a non-negative value, so more options are a good thing.

Some groups will be hurt by globalization. Local markets generated inefficiencies that some people benefitted from. For example, call center workers in the US Midwest or software developers in Silicon Valley. Both groups were able to maintain higher salary levels because people that were capable of doing the job and willing to do it for lower pay were excluded because they weren't physically nearby. Globalization mitigates that restriction, so these people need to compete with a global talent pool against workers that offer a better value for the paycheck.

It's possible (though unlikely) that certain communities could opt-out of globalization. If a region that is a priori rich decides to maintain its borders and exclusivity, it potentially could, and it could happen that each member of that society is better off as a result. Globally, however, the total surplus would be smaller.

Globalization and automation enable (but do not mandate) concentration of wealth. Automation in particular acts as a multiplier of labor/talent. That in general allows one person to extract a larger portion of the surplus. See, for example, Frank's Winner Take All Society. Globalization opens it up so the market is larger.

Globalization's desireability is a function of how the surplus is distributed. If you ask someone whether they are in favor of globalization, they'll probably consider whether they will personally be better off, or perhaps will have some pat political position that globalization is a good thing or a bad thing. Assuming you buy the argument above that globalization increases the pie, it becomes a question of how that surplus is distributed. There's a whole literature of different standards of fairness in the economics literature of social goods. I think that most people would agree that creating a fair division scheme is exceptionally hard. Given an existing distribution and one that has more resources to distribute because of globalization, you could create a scheme that makes everyone "better off"; but it might see preverse and unfair. (For simplicity, imagine that a widget maker has the choice of producing his widget in the US for $6 or overseas for $2 and he can sell it for $10. The wages are the value on which In the US production case, the "capitalist" makes $4, the US worker $6 (having put in 1 hour of labor) and the overseas worker $0. In the offshore production case, after the capitalist pays the $2 in wages, there is still $8 to split. The capitalist's share should be a minimum of $4 (at least as well off as before), the $4 surplus can be split among the 3 parties.

Enlightened self-interest can be enough to change the distribution to greater equality. There's Henry Ford's example of making sure that he paid his workers enough to afford the products that they were making. The whole philanthropic movement can be viewed in this light as well. People who recognize that abject poverty is a destabilizing force at the global level are also helping to combat it.

Some degree of wealth concentration is a good thing. Some projects require a lot of capital--without that capital in the hands of one (or a few), it's impossible to achieve the coordination to fund large projects. The Gates Foundation is doing good things.

Globalization's real impact is improving the productive capability of billions of people.In my opinion, the fortune at the bottom of the pyramid is not the trillion or so dollars of buying power that the 4B BoP consumers currently have. The real fortune is when these people become empowered economic agents, contributing to the production of goods and services that are marketed in the global economy and use the proceeds of these sales to obtain goods and services from the global economy. Moving the bottom 1B people from $1/day to the equivalent of minimum wage workers in the US ($5.15/hr, or about $10,700/year vs. $365/year) results in an increase of $10 Trillion.