Understanding the
Global Economy

Comprensión de
la economía mundial

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Understanding the

Global Economy

Blue Marble

by Howard Richards

Foreword by Dr. Betty Reardon
Peace Studies Chair, Columbia University

 

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About the author, Howard Richards

  • Studied at Yale, Oxford, Harvard, University of California at Santa Barbara, University of Toronto and Stanford Law School • Holds three earned doctorates in Education, Philosophy and Law
  • Served as the first volunteer attorney for the late Cesar Chavez in Delano, California in the early 1960s and
  • Speaks Spanish, perhaps better than his primary English, speaks French well having lived in Quebec, Ontario; speaks German well enough to discuss political economy
  • Founded the Global Peace Studies Program at Earlham College where he now serves as the Research Professor of Peace and Global Studies at Earlham College
  • Presents his other published books online at this web site
  • Presents teach-ins worldwide about the historical and theoretical background, issues and solutions to the global economy
  • Formed an active model community of cultural economics in the US—the Soul Community—based on solidarity and cooperation in of the new model of economic sustainability.
  • Currently writes about Gandhi in relation to scholar activists such as Amartya Sen, Foucault, Vandana Shiva, Tariq Ali and Arundati Roy
  • Travels via mass transit, bicycle, carpool and walking in exclusion of a personal automobile since 1990—the first U.S. war in Iraq • Chooses to eat from low on the food chain (vegan)
  • Resides once again, since 2003, in Chile where he resided before during and shortly after the Chilean Military coup d'e´tat of the democratic socialism in 1973—with activist partner, Carolina Richards.

Understanding the world through participation in and engagement with it helps us see how to improve our world. This book is a comprehensive study that shows the emerging solution, as backed by decades of extensive research, proactive experience and understanding.

Title page

Understanding the Global Economy

Second Edition 2004

 

by Howard Richards

 

Foreword by Dr. Betty Reardon
University Chair of Peace Studies,
University of Columbia

 

 

 

 

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First published in January 2000

Second Edition January 2004 © 2004 by Howard Richards

All Rights Reserved. Reproduction in any form or by any means without the written permission of the publisher is a violation of international copyright laws and protections.

Typeset and published by Peace Education Books
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Richards, Howard
Understanding the Global Economy
Second Edition

1. International economic relations
2. Globalization
3. Comparative economic theories
4. Feminist economics 
5. Economic development

 

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ISBN: 0-9748961-0-1 LCCN# 2004100710

Foreword

by Dr. Betty Reardon, Global Peace Studies Chair emeritus at Columbia University, NYC  

A more apt title for the foreword of this book is—welcome; for me that is what the book evokes. As a troubled world citizen and a struggling peace educator, I welcome Richards' work as a ray of hope in a foreboding time. Now a deep divide splits our humanity due to the gross economic disparities and resulting ecological devastation that blight our planet.

It seems an auspicious time for this volume to arrive. Questions, challenges and crises are emerging in greater numbers and stridency from what Richards calls the "neoliberal juggernaut wreaking havoc worldwide." Now we turn from the century of great cultural significance, which formed the mentality that Richards chooses as well. And it is the beginning the International Year and Decade for a Culture of Peace and Nonviolence. This book offers profound insight and a likely cure to the underlying juggernaut with analysis and strategy toward resolving what is the major impasse of our time. In order to facilitate this, he examines the major relevant economic theories and provides a basis for the changes vital to alleviate the consequences and reverse the course of the collapse.

This time cries out for innovative approaches that go to the root of global problems and use the best reasoning to plan solutions. Richards' book does that, while it presents an antidote to the plodding pontifications of the mainstream economists and their critics. He shares his views of the metaphysics and the ethical flaws of what he argues to be the global market established by culture. He engages us in an approach that speaks—with us—rather than at or to us in the conventional academic style. He speaks with us about the most relevant and useful theories for understanding the present crisis. He communicates the nature and political power of culture in clear and complex terms that should easily instruct those who would propose theories and strategies to bring forth a culture of peace. That task, I would argue, calls us to understand a core assertion of this work: the global market economy is, in fact, culture. This unprecedented assertion provides more possibilities for change and cause for hope than most other analyses the economic woes of the world.

As a peace educator, I find Understanding the Global Economy to be, above all, an instructive model of modes of scholarship, argument and exposition that should be added to the curricula of peace studies. The author advocates and defines holism as an essential component of his proposed problem solving method. He practices holism in his expositions, which explore multiple theories from various disciplines. He integrates those elements into a unified and comprehensive view of the global economy and the thinking that conceived and developed it.

Richards proves that scientific analysis can indeed be consistent with normative evaluation. He reintegrates ethics and values into economic discourse, as he helps us to understand that we face problems that call for philosophical rather than technical resolutions. The work contrasts the instrumentalist thinking that is the standard view imposed upon students of the global economy.

The narrative in which he uses the works and theories of others to illuminate his own theories and prescriptions will also represent an alternative to the standard adversarial argument that characterizes so much of academic discourse. You will find no absolutist pronouncements nor shocking refutations, but rather sources that inform this work with a refreshing direct appreciation of what he finds to be the positive and helpful aspects. His style of discourse is one that peace educators seek to nurture in their classes. This book is useful as an exemplar of that style, apart from whether or not the syllabus includes the global economy.

His use of the concepts of transformation and ecology instruct precisely the rethinking that peace education seeks to cultivate. Similarly, Richards proposes an alternative means to analyze globalization and thus a fresh analysis of it. If we are to escape the tyranny of technology that enthralls us as other forms of magic did our ancestors, we need to learn, as Richards advocates, thinking in terms of living systems rather than mechanical constructs. Such thinking may help us to understand that while the power of culture to form our world views and control our beliefs is far greater than we recognize, culture itself is evolving into other forms. If we can transform our thinking, we can transform our culture. We can achieve the purpose that lives in the goals comprehended in a culture built upon peace; paramount among those goals is a just global economy.

As well argued in this book, when we understand the global economy we can transform, humanize and give strength to it. I welcome with vigor, the inspiration and the instruction offered by Understanding the Global Economy and welcome other readers to the confident learning it offers.

Betty Reardon, Columbia University, August, 1999

Preface

This book began as a way to help my friends with their homework. (I have been helping friends with homework since fourth grade.) Now, as a member of the middle-aged professional class in California—when I am not teaching Peace Studies at Earlham College, Indiana—I have friends who see themselves, with reason, as victims of the global economy. They are engineers who have lost high-paying jobs as corporations have downsized or moved operations offshore. Other friends suffer in other ways, while still others are not suffering, yet. All of them—it is my destined honor to have socially conscious friends—are active within organizations that protest the global economy and seek to reform it. We all sense that the global economy has power over us and does not love us.

I wrote this book because I believed that my friends had not done their homework; they did not have time; they had no training in philosophy. I had the preconception that economics could not be understood, much less transformed, without philosophy. I think I always knew in the back of my mind that I had a thesis to prove. My initial plan was to review all of the scientific efforts undertaken to understand the global economy, without declaring any conclusions in advance. Thus, I wanted:

  • outlines of the new and enhanced understandings of the global economy—outlines that would include and go beyond the knowledge and insight of all the extant theories
  • my conclusions to state and prove themselves by the weight of the evidence alone and
  • the reader to see, guided by my survey that there is a better way to understand the economic dilemma, which humankind now faces, thus to see the way to solve it.
  • My initial plan was vague; therefore, this preface to states what I will try to prove and how I propose to prove it. Ultimately, even if the conclusions do not affirm themselves, I will have supplied a vocabulary for formulating them. I will be able to write my thesis in my terms and those borrowed from authors (such as Ludwig Wittgenstein). I merely surmise about what concepts and terms are familiar to most readers; although I do define some of the knotty ones, context often will suffice.

    I state my thesis using the common terms of culture, cause and effect and needs. My thesis is that the solutions to global economic problems are, in the end, cultural rather than economic. Otherwise stated, the lines of reasoning by which economists explain international trade are, in the end, descriptions of how certain basic cultural norms work out in practice on a global scale.

    Hence, social changes intended to alter the present disastrous course of events must—if they are going to solve humanity's fundamental problems—change culture. By contrast, traditional societies not fully incorporated into the basic normative structures that govern the global economy, in most cases, will find better solutions to their problems if, as a rule, their cultures do not change.

    We should ask the question, "How can we construct a culture of peace, justice and ecological balance?" That question should precede and set the framework for more specific questions about what sets of economic policies to pursue. The process of making cultural change without which economics is powerless to solve the problems it addresses has two apt names: cultural action conceived by Paulo Freire.1 and moral and intellectual reform by Antonio Gramsci.2

    The thesis that culture is the primary reality and that economic institutions and theories are forms of culture is explained by cause and effect. If we ask how and why the global economy became the way it is, then we are asking what mechanisms produced it and what mechanisms it uses to produce its effects. The short answer is—the market. I will argue that the market is best understood as a form of culture and that the cause is market culture of which the global economy is an effect.

    As I review each major theory that claims to accurately explain the global economy, I then discuss, case by case, 1) the normative basis of each theory, which is its answer to the question—What should we do? and 2) the epistemological basis of each theory, which is its answer to the question—How do we know? The resulting theoretical matrix, which combines knowledge about the global economy with explicit or implicit norms to guide action, I then name as metaphysics.

    The norm to guide our action, which has support from many precedents (which I endorse) is to invent and employ cultural forms that meet the needs of humans and regard the human family as a part of the Earth's living systems. In effect, it is the ethic of care combined with the ethic of the Earth. Therefore, I join the common term needs with the terms culture and cause and effect to articulate my thesis. In bringing to the fore the cultural basis of economic phenomena, I do not deny the validity of the explanations economists give. What economists predict often happens, in part, because their cultural assumptions mirror a culture that exists. Similarly, I approve of most all the critiques that progressive economists have made of the neoliberal juggernaut, which is wreaking havoc worldwide.

    In Part VIII, I comment on the twenty-six guidelines for political action formulated by Professor Jane Kelsey, a progressive economist from New Zealand. Although I agree with most of her guidelines, I also propose to modify and extend her action program. In Part VIII, I outline a philosophy of culture, which views economics as a part of culture and adds important new contributions to implementing transformation, while it supports the conclusions reached by intelligent economists committed to the cause of social justice.

    Readers may wonder why I do not refer to or cite popular books on the globalization of the economy. In short, I have limited my topic to scientific explanations of it. I discuss only books that claim to explain step-by-step why economic events occur. Scientific books have, or at least claim to have, a practical advantage that popular books lack: the principle of causal explanation, which is subjected to the rigors of empirical testing by confrontation with historical facts gathered and analyzed systematically. The array of historical facts under one or more explanatory principles enables the scientist to advocate future policy on the basis that the same causes will produce the same effects.

    A classic example is Inquiry into the Nature and Causes of the Wealth of Nations, by Adam Smith.3 Taking the tendency of human nature to engage in barter, which is the exchange of one thing for another as an explanatory principle, Smith deploys an extensive array of historical facts to argue that the relative prosperity of Britain and The Netherlands in the 18th century is due to giving that tendency free reign in free markets. Smith's normative recommendation, which is a prudent and moderate policy of laisser faire, drew strength from the premise that the same causal factors that had operated in the past would continue to operate in the future.

    The popular genre of books about global economy, such as the excellent work by Jerry Mander, The Case against the Global Economy and for the Return to the Local 4 appear to have a logical disadvantage. Lacking a systematic explanation of why the world is the way it is, the popular books, therefore, lack a principle to justify the inference that the measures advocated will produce the preferred results.

    Nevertheless, popular books are helpful and important; in some instances, popular books that do not test scientific theories, nonetheless do have facts that will mobilize public opinion and change history. Certain popular books may even have better explanations than scientific books. Scientific theories propose generally applicable models to explain human conduct and institutions. In contrast, the events of history are often due to particular human actions unexplainable (or hard to explain) by general theories. For example, violence, lies, coincidences, surprise, passion, pride, illusions, and stupidity are powerful in the real world, yet hard to explain by general theories. Popular books—long on facts and short on theory—are likely to provide better explanations of current events and better insights into the particular human motives that produce particular actions. Attempts to achieve a scientific comprehension are most relevant to the steady persistent factors, which ultimately shape the structures within which human action takes place.

    Having limited my scope to theories that propose scientific explanations, I do not attempt to review all of them. Instead, I attempt to review all of the types of explanation they employ. First, I discuss what I find to be the logic relating causes to effects in a type of explanation of international trade, such as comparative advantage theory or Marxist theory. I then desist from discussing all of the theories of that type because if my thesis is true of a general type of explanation, then it is must be true of any instance of that general type. In some instances, however, I may have failed to regard one or more of the extant scientific explanations of the global economy because either I was not aware of it, or erred by regarding it as a species of a genus previously considered. Therefore, readers please feel free to alert me of any scientific explanations of the global economy that contrast with those described and analyzed in this book so that I can discuss it in a later edition.*

    The Commission on Global Political Economy had discussed the earlier edition of Understanding the Global Economy at the meetings of the International Peace Research Association in Durban, South Africa, in June of 1998.

    Acknowledgment

    For helpful comments on earlier drafts, or parts of them, thank you: Professors Jonathan Diskin and Gilbert Klose, Department of Economics at Earlham College Professor Osvaldo Croci, Department of Political Science, Laurentian University, Canada • Dr. Catherine Hoppers, Social Sciences Research Council, Republic of South Africa • Professor John Newman, Departments of Philosophy and Religion, Earlham College • Richard Spahn first proofread • Roger Hand researched the footnotes. In this second edition, I thank the editors of Peace Education Books, David Faubion and Jeanene Clark.

    Added to this 2nd edition is a Part X: "A Vision of a World Free of Poverty and Economic Insecurity"; it unifies my previous research and analysis with insights and awareness from M. L. King, Gandhi and five current social critics.5

    Part XI: "A Logical Plan for Peace" is new in the 2nd edition. Part XI consolidates my view as a Professor of Peace Studies that working for peace is working for economic justice, which means communities of peace security for all. It develops the conclusion of my book that the path to economic justice and security for all needs reevaluation by asking—What is economic security? How will we attain the universal economic security needed for peace? How is economic security maintained?

    Review questions, Part I through XI are new in this edition. Please address issues you have with the review questions to the editors at this web site. They have an expanded version of the review guide in a electronic format with updates the evolving topics of the global economy, which includes reader's input. For answers to the questions, please post to the list serve of the Global Political Economy Commission of the International Peace Research Association of which I am a member. My web web site has my other books and writing for on-line review.

    Resources

    1. Paulo Freire, "The Adult Literacy Process as Cultural Action for Freedom", in the Harvard Educational Review, 40, 2. May, 1970

    2. Tomas Valdivia, Gramsci y la Cultura, Mensaje (Santiago, Chile: 1979)

    3. Adam Smith, The Wealth of Nations. (Modern Library Edition, New York: Random House, 1937) p. 13

    4. Jerry Mander, The Case against the Global Economy and for the Return to the Local (San Francisco: Sierra Club Books, 1996)

    5. Part X of this book—translated to Spanish—Un Llamado a Eliminar la Pobreza y la Inseguridad Económica through Enrique Martinez of Argentina's National Institute of Technology. Enrique heads Abastecimiento Basico Comunitario—site translated to English—a program that assures food security, housing and medical care for every Argentine in every barrio of the country.

    Table of contents

    Front cover

    About the author

    Title page 

    Publication page

    Foreword

    Preface Resources

    Acknowledgment

    Introduction Resources

    List of illustrations

    Part I: Comparative advantage

    1a. Comparative advantage as explanation
    1b. Comparative advantage as prescription
    The natural is good
    Utilitarianism and its successors
    Deontic Ethics
    1c. Comparative advantage as metaphysics
    Resources       
    Review

    Part II: Globalization of production

    2a. Globalization of production as explanation
    International division of labor as explanation
    2b. Globalization of production as prescription
    2c. Globalization of production as metaphysics
    Resources       
    Review

    Part II: Theories about technology

    Fig. 1: Quasi-mechanical market forces
    3a.
    Technology as explanation
    3b
    . Technology as prescription
    Fig. 2: Tech choices
    3c.
    Technology as metaphysics
    Resources        
    Review

    Part IV: Kaldor's theory

    4a. Kaldor's explanations
    4b. Kaldor's prescriptions
    4c. Kaldor's metaphysics
    Resources
    Review
    Fig. 3: Circular and cumulative causation

    Part V: Theories of historical discontinuity

    5a. Historical discontinuity as explanation
    Fig. 4: Market growth into modernity
    5b. Historical discontinuity as Prescription
    5c. Historical discontinuity as Metaphysics       
    Resources
         
    Review

    Part VI: Marxist theories and feminist theory of Maria Mies

    6a. Marxist explanation
    6b. Mies' and Marx' Prescriptions
    6c. About metaphysics
    Resources        
    Review

    List of Illustrations

    Quasi-mechanical market forces
    Tech choices
    Circular and cumulative causation
    Market growth to modernity
    Positive alternatives
    Security community
    Growth imperative
    Treadmill of growth
    Global trends through history

    Part VII: Post-Marxist and post-structuralist theories

    7a. The disintegration of social science
    7b. Escobar's ethics
    7c. Gibson-Graham's metaphysics
    Resources        
    Review

    Part VIII: How to work for justice in the global economy

    1. Be skeptical about fiscal and other so-called crises
    2. Do not cling to a party that becomes neoliberal
    3. Take economics seriously
    4. Expose the weaknesses of their theory
    5. Challenge hypocrisy
    6. Expose the masterminds
    7. Maximize every obstacle
    8. Strive to maintain solidarity
    9. Do not compromise the labor movement
    10. Maintain the concept of an efficient public service
    11. Encourage local leaders to speak against injustice
    12. Avoid anti-intellectualism
    13. Establish a think-tank
    14. Invest in the future
    15. Support those who speak against injustice
    16. Promote ethical investment
    17. Think globally, act locally
    18. Think locally, act globally
    19. Develop alternative news media
    20. Raise the level of popular economic literacy
    21. Resist market-speak
    22. Be realistic
    23. Be proactive
    24. Challenge TINA (There is no alternative)
    25. Promote participatory democracy
    26. Hold the line
    Resources
    Review

    Part IX: Scientific conclusions         

    II    •  III    •  IV    • V    

    Fig. 5: Positive alternatives
    Resources 
    Review

    Part X: A vision of a world free of poverty and economic insecurity

    Paul Volcker   
    George Soros
    Jeff Faux and Larry Mishel  
    Vandana Shiva
    Resources  
    Review

    Part XI: A logical plan for peace

    Peace
    Fig. 6 Security community  
    Truth
    Structure 
    Capital flight
    Race to the bottom
    Growth imperative

    Holocaust
    Transforming rules, relationships, practices
    Summary   
    Resources   
    Review
    Fig. 7 Growth imperative

    appendix A 

    appendix B 

    appendix C: glossary

    Index

    Books by the author

    Back cover

    Introduction

    Citizens who seek to understand the global economy face a confusing array of scientific theories. The proponents of the theories claim to have the one that explains the global economy acurately.1 That confusion adds distress to realizing the grim results of the global economy, for example:

  • the decrease of union jobs with benefits in, e.g., New York due to competition with low-wage labor in countries such as Indonesia and Mexico
  • the loss of high-tech jobs in Massachusetts due to high-tech imports from Japan and
  • the stagnation of economies such as Haiti and the Dominican Republic with unemployment at 50%.
  • The effects on global politics are profound and include the rise of the power of China and Southeast Asia and the corresponding decline of the power of the West.2 The indirect effects, which global trading patterns contribute to as causal factors, are even more profound, such as

  • destruction of the rain forests worldwide
  • breakdown of the social order in Somalia, the West African coast, Latin America, Indonesia and other regions
  • instability of families and increased rates of violence, drug use and mental depression,3 and
  • the penetration of U.S. culture, which replaced traditional cultures, met with religious fundamentalism worldwide by people resisting the materialistic individualism.4
  • Today, a growing number of people throughout the world are aware of these economic realities:

  • their daily bread depends on something called the economy
  • they are vulnerable because the economy is vulnerable
  • their local economies are somehow inserted into the international trading patterns and
  • what happens to them personally in their daily lives is affected by the distant commerce.
  • In spite of the broad and growing awareness, the effect of the global market on society is often underestimated; this has a conceptual basis, which will be diagnosed and treated herein.

    Statistics show that about 8% of goods consumed in the United States are imports. Statistics of this kind for the U.S. and other nations do not, however, show the full effect of living in an international market. A market is a place where goods are displayed and offered for sale. The buyers and sellers in a market decide what sales to transact and at what prices—by choosing among the alternatives that the market offers. Hence, the full effect of being in a large marketplace the whole world is not evident from physical facts such as goods crossing docks in cargo containers. The full effect includes the result of prices being influenced by the potential availability of alternatives not, (so far) in fact, chosen. Ferdinand de Saussure, the founder of modern linguistics, relied on that conceptual point when he explained synchronic meaning by analogy with the relative values of goods for sale in a market. The values of words, like the values of coins, depend on what they serve to exchange (trade) and compare (define).5 In light of the world's unrealized possibilities for trade, it is likely that a person can live in the global economy and never see a foreigner or foreign goods. For example, a worker earning low wages in a factory may never meet a foreign factory worker. In spite of that, one of the causal factors that determine the amount of one's take home pay is the millions of able workers elsewhere willing to do the same work for even lower wages.6

    Besides emphasizing the broad influence of the global marketplace in contemporary life, the concept of a language as a market implies a corollary—a market as a language. This suggests that the scientific explanation of economic phenomena, including international trade, might proceed by comprehending a market as a system of meanings. For now, let us defer that idea until Part IX and consider some of the scientific explanations of global economic phenomena, which students of international trade have offered. Seven theories of international trade, some of which overlap one or more of the other seven, will be examined:

    1. neoclassical trade theory, which is as much to say, the theory of comparative advantage
    2. the globalization of production and, within it, the new international division of labor
    3. theories regarding choices of what kind of technology to use as co-creators of the global economy
    4. Kaldor's account of circular and cumulative causation as an explanatory principle for the strategic trade practices of firms and nations, most notably Japan and his neo-Keynesian explanations and prescriptions
    5. theories of historical discontinuity as explanations of the genesis and nature of the global economy
    6. Marxist theories and the feminist theory of Maria Mies and
    7. Post-Marxist and post-structuralist theories.

    Roughly speaking, the scientific process of the theories is their efforts to test and demonstrate explanations of phenomena, which link causes to effects. When causes and effects are linked by a true explanation, the way is open to make policy proposals, which promise to achieve desired effects, through action that will cause them. I preface this paragraph with the caveat roughly speaking because the concept of what is scientific is a contested concept. Therefore, all the scientific concepts or concepts explained in scientific terms herein I contest as well.

    Resources

    1. See the discussion of alternative theoretical frameworks for understanding the world economy in Helzi Noponen, "Trading Industries, Trading Regions", in Julie Graham, Ann Markusen eds. of the journal International Trade American Industry and Regional Economic Development (New York: Guilford Press, 1993)

    2. Samuel P. Huntington, "The Fading of the West: Power, Culture and Indigenization", in The Clash of Civilizations and the Remaking of World Order (New York: Simon and Schuster, 1996)

    3. Daniel Goleman, Emotional Intelligence (New York: Bantam, 1995) p. 234, 240. Goleman wrote:

    This [instability of family life] is not just a phenomenon in the United States, but is a global one with worldwide competition to drive down labor costs creating economic forces that press on the family. These times produce debt besieged families in which both parents work long hours, so that children are left to their own devices or the TV as baby-sitter. These times have the highest rates ever of child poverty, higher rates of single-parent families and more infants and toddlers in substandard day care (virtual neglect). Thus, even parents who want the best for their kids see the rapid erosion of the nourishing exchanges with their child that build emotional competence. International data show what seems to be an epidemic of depression, which escalates juxtaposed with the adoption, throughout the world, of modern ways. Troup [a school] is in a decaying working-class neighborhood that, in the 1950s, had 20,000 people employed in nearby factories, from Olin Brass Mills to Winchester Arms. Today that job base has shrunk to under three thousand, shrinking with it are the economic horizons of families who live there. New Haven, like so many other New England manufacturing cities, has sunk into a pit of poverty, drugs and violence.

    4. Robert D. Kaplan, The Ends of the Earth: a Journey to the Dawn of the 21st Century (New York: Random House, 1996)

    5. Ferdinand de Saussure, Course in General Linguistics. (London: P. Owen, 1974,first edition in French, 1915) p. 115, cf. p. 79

    6. Evelyn Iritani,"Global Glut Bringing Asian Chaos to Stable Economies: How Crisis Spread", in the Los Angeles Times, October 25, 1998. Marcus Noland, senior fellow at the Washington-based Institute for International Economics explained:

    It's difficult to judge the disciplining pressure that world trade places on national economies. The logs don't have to leave Norway. If everyone knows that the logs sit there, they can affect prices here in the USA.

     

    Part I: Comparative advantageIndex top

    © 2013

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