Global Economy, Global Justice Global Economy, Global Justice explores the vital question: “What makes for a good economic outcome?” It rejects the normative commitment of neoclassical economic theory to welfarism, and its resulting claim that the global, market- based economy emerging at present represents the highest possible stage of economic development. In place of global neoliberalism the book calls for policies that promote global equality. The author demonstrates that neoclassical economics embraces a range of objectionable assumptions about human nature, society, and science, the exposure of which destroys the ethical foundations of global neoliberalism. Global Economy, Global Justice explores ethically viable alternatives to welfarism. Drawing on the work of Amartya Sen, it proposes the egalitarian principle of the “global harmonization of capabilities” to guide economics. This principle provides a basis for resisting oppression while respecting cultural diversity. It is put to work to adjudicate contemporary debates about global policy regimes, and the book ends with a set of deeply egalitarian global policies for the year 2025. George DeMartino is an Associate Professor at the Graduate School of International Studies, University of Denver. Contemporary political economy series Edited by Jonathan Michie Birkbeck College, University of London, UK This series presents a fresh, broad perspective on the key issues in the modern world economy, drawing in perspectives from management and business, politics and sociology, economic history and law. Written in a lively and accessible style, it will present focused and comprehensive introductions to key topics, demonstrating the relevance of political economy to the major debates in economics and to an understanding of the contemporary world. Global Instability The political economy of world economic governance edited by Jonathan Michie and John Grieve Smith Reconstructing Political Economy The great divide in economic thought William K.Tabb The Political Economy of Competitiveness Employment, public policy and corporate performance Michael Kitson and Jonathan Michie Global Economy, Global Justice Theoretical objections and policy alternatives to neoliberalism George DeMartino London and New York First published 2000 by Routledge 11 New Fetter Lane, London EC4P 4EE Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 Routledge is an imprint of the Taylor & Francis Group This edition published in the Taylor & Francis e-Library, 2003. © 2000 George F.DeMartino All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data CIP data have been applied for ISBN 0-203-01316-6 Master e-book ISBN ISBN 0-203-20860-9 (Adobe eReader Format) ISBN 0-415-12427-1 (hbk) ISBN 0-415-22401-2 (pbk) For Ilene Contents List of tables viii List of figures viii Preface ix Acknowledgements xiii Introduction 1 PART 1 Normative matters 27 1 Neoclassical theory and welfarism 35 2 Welfarism and the market 53 3 Distributive justice and economic heterodoxy 91 PART 2 Global neoliberalism 125 4 Whose values, whose rules? 128 5 Contesting competitiveness 152 6 The trade debate 190 PART 3 Rethinking global policy regimes 217 7 Global economic policies for the year 2025 218 Notes 245 Bibliography 259 Index 271 vii Tables 1 Summary of policy prescriptions 25 5.1 Attributes of industrial policy 160 5.2 Industrial versus competitive policy 169 6.1 Sources of comparative advantage 199 6.2 Origins of differences in standards 203 7.1 SITS performance and tariff bands 224 Figures 2.1 Market demand and supply 58 2.2 MSB and MSC 61 2.3 Price ceiling and price floor 63 2.4 The marginal revenue product of labor and the demand curve for labor 65 2.5 The labor market: before and after the introduction of a minimum wage 87 viii Preface Before reading this book I ask the reader to indulge me in a simple exercise. In your mind or even on a piece of paper, please conclude the following statement: “A good economic policy measure or outcome is one that…”. In providing your conclusion, I ask that you consider the criterion (or set of criteria) that you think ought to be brought to bear when assessing economic policies and the economic outcomes they generate. What purposes should economic policy serve, and/or what outcomes should it promote? Do not be deterred if you have not formally studied economics or have not thought about this question before. I am sure that you already have at least tentative views about this matter. What are they? Now please conclude a second statement: “When economists claim that an economic policy or outcome is good, they mean that it…”. You may know that most economists support free trade. You may also know that these same economists also support the market economy over government planning regimes. But what I’m asking you to write down is the criterion or set of criteria they use in reaching these conclusions. Why do these economists support free trade and the market economy over alternative arrangements? What kinds of outcomes do they hope these policies and institutions will generate? One final statement: “A good theory is one that…”. In concluding this statement, consider what a good theory is to do, what features it should have, and/or what form it should take. All our lives each of us has had to make choices between contending theories. I’m asking you to reflect for a moment on the criterion of theory choice that you bring to bear (or think should be brought to bear) when confronting alternative theories. This book is intended in part to speak to the questions raised here. My suspicion is that most people know far more about which policies and outcomes economists support than just why they hold these views. I further suspect that most people (especially students of economics) know far more about the basic principles of the theory that these economists employ—called “neoclassical theory”—than they do about just why this theory is taken to be more appropriate than the many alternative economic theories. And there are good reasons for this unevenness in economic literacy. While economists spend a good bit of time adjudicating among policy options, they rarely discuss openly ix