MOBILITY OF PRODUCTION FACTORS

 

 

Mobility of production factors occur in three ways: immigration/emigration, capital transfers through international borrowing and lending, and foreign direct investment. Production factor movements also raise political and social issues not present in trade in goods and services. Nations frequently restrict immigration, capital flows, and foreign direct investment.

Trade in goods and services can to some extent be considered a substitute for factor movements. In the absence of trade barriers, even when factors are not mobile, there is a tendency toward factor price equalization. In the absence of barriers to factor mobility, commodity prices will move toward equalization, even if commodities may not freely move. However, complete substitution between factors of production and commodities is only theoretical, and will only be fully realized under the economic model called the Heckscher-Ohlin model, or the 2x2x2 model, wherein there are two-countries, two-commodities, and two factors of production. While the assumptions of that model are unlikely to hold true in reality, the model is still informative as to how prices of factors and commodities react as trade barriers are erected or removed.

International labor migration is a key feature of our international economy. For example, many industries in the United States are heavily dependent on legal and illegal labor from Mexico and the Caribbean. Middle Eastern economic development has been fueled by laborers from South Asian countries, and several European countries have had formal guest-worker programs in place for years. The United Nations estimated that more than 175 million people, roughly 3 percent of the world’s population, live in a country other than where they were born.

International labor mobility is a politically contentious subject, particularly when considering the illegal movements of people across international borders to seek work. For example, a number of European countries saw the rise in the 1990s of a number of anti-immigrant political. The subject is equally contentious among academics who have espoused numerous theories for the effects of immigration, both illegal and legal, on foreign and domestic economies. Traditional international economic theory maintains that reducing barriers to labor mobility results in the equalization of wages across countries.

Some have argued that guest workers, including perhaps illegal workers in some instances, help insulate domestic populations from economic fluctuations. In times of economic prosperity more guest workers may be needed. While during economic downturns guest workers may be required to return to their country of origin. However, it is often simultaneously argued that cheaper foreign labor may be necessary for the preservation of import-competing industries. Looking at those two arguments together presents a contradiction between these two alleged benefits.[3] When migrant workers are sent home during economic downturns and native workers take their place, the assumption is that the two types of labor are substitutes, but if cheap labor is necessary to make domestic industries competitive, this requires migrant labor to be complementary.[3] Different types of labor (e.g., skilled and unskilled) may be complements and substitutes at the same time. For example, skilled laborers may need unskilled laborers to work in the factories skilled laborers design, but at the same time an influx of unskilled labor may make capital intensive production less economically attractive than labor-intensive production, reducing the competitiveness of skilled laborers that design high-tech goods. However, the same type of labor, cannot be both a complement and substitute. For example, foreign unskilled workers will either be a substitute or complement to domestic unskilled workers; they cannot be both. The economic well being of domestic workers will tend to rise if complementary foreign labor enters the market, but their economic well being, a function of their wage, will fall if substitute foreign labor enters the market.

A number of scholars who study the effects of international labor mobility have argued that complementary immigration, which deviates from the outcome predicted by the above model, is a common phenomenon. Illegal immigration in the United States provides one useful example of this critique. The above model would predict that illegal immigration in the United States would cause the wages of domestic unskilled workers to fall. Illegal immigrants would move to the United States seeking higher wages than in their home countries. The influx of foreign laborers willing to work for wages below the pre-immigration market price in the United States would cause wages for U.S. domestic unskilled workers to fall and cause U.S. domestic unskilled workers to lose their jobs to the new foreign workers.

However, there is both theoretical and empirical evidence that this may not always be the case. The idea behind this critique is that immigrant unskilled labor differs in certain fundamental qualities from the domestic unskilled labor force. The central difference may be immigrants’ willingness to work in particular occupations that are shunned by domestic unskilled workers. The occupations that foreign unskilled workers fall into may in some cases actually be complements to the occupations of domestic unskilled workers, and, therefore, the work of the foreign unskilled workers could raise the marginal productivity of domestic laborers, rather than reduce their wages and employment rates as the traditional model predicts.

A great deal of empirical research has been done to assess the impact of certain groups of foreign workers. Most of these empirical studies attempt to measure the impact of immigration by looking at a cross-section of cities or regions in a country and using variations in immigrant or foreign worker density to determine how immigrants effect a particular variable of interest. Wages of domestic and foreign workers are obviously a common variable of interest. There are problems with this approach, however. In open economies with free trade, factor price equalization is likely to occur, so even if immigrants affect native national wages, the uneven distribution of immigrants across the nation may not result in long run cross-sectional wage differences. In the short run though, wage differences could indeed be present. Another issue is that immigrants may selectively move to cities that are experiencing high growth and an increase in wages. It has been suggested, however, that this issue can be resolved if wage data is examined over a period of time. In Friedburg and Hunt’s survey of empirical immigration studies in 1995, they found that while some cross-sectional studies showed a slight decrease in domestic worker wages as a result of immigration, the effect was only slight, and not particularly detrimental. Pischke and Velling came to similar conclusions in a cross-sectional German immigration study.

Studies have also been done using “natural experiments” and time series data, which had findings similar to the cross-sectional studies. However, George Borjas, of Harvard University, and several other economists have used time series studies and looked at wage inequality data and found that immigration does have a significant effect on domestic laborers. There are several factors, however, that might lead to the overestimation of the effects of immigration using the wage inequality methodology. The primary problem in past studies was the limitations on available data. The wage inequality studies may therefore represent an upper boundary for what the real effect of immigration is on domestic wages.

International borrowing and lending is another type of international factor movement; however, the “factor” being moved here is not physical, as it is with labor mobility. Instead, it is a financial transaction. It is also known as portfolio investment. International lending takes place through both private, commercial banks and through international, public banks, like multilateral development banks. It can be classified as a type of intertemporal trade, i.e., the exchange of resources over time. Intertemporal trade represents a tradeoff of goods today for goods tomorrow, and it can be contrasted with intratemporal trade, an exchange of goods taking place immediately. Intertemporal trade is measured by the current account of the balance of payments.

According to the time value of money, the present value of money is not equal to its future value (e.g., $1000 today is worth more than $1000 a year from now). Those wishing to borrow money from a lender must provide a measure of compensation above the value of the principal being borrowed. This compensation usually happens in the form of an interest rate payment. People do not all have the same demand for present and future consumption, so if borrowing and lending are allowed the “price of future consumption”, i.e., the interest rate, will emerge. For the purposes of international economics, countries can be thought of in the same way as people. If a country has a relatively high interest rate, that would mean it has a comparative advantage in future consumption—an intertemporal comparative advantage. Countries that borrow from the international market are, therefore, those that have highly productive current investment opportunities. Countries that lend are in the opposite situation.

Foreign Direct Investment (FDI) is the ownership of assets in a country by foreigners where the ownership is intended to provide control over those assets. The foreign owner is often a firm. FDI is one way in which factors of production, specifically capital, move internationally. It is distinct from international borrowing and lending of capital because the intent of FDI is not simply to transfer resources; FDI is also intended to establish control.

Two aspects of the above definition are often debated due to their inherent ambiguity. First, if a firm acquires an ownership interest in another firm, how do we determine the “nationality” of either the acquiring or acquired firms? Many companies operate in multiple countries, making it difficult to assign them a nationality. For example, Honda has factories in multiple countries, including the United States, but the firm began in Japan. How, therefore, should we assign a nationality to Honda? Should it be on the basis of where the company was founded, where it primarily produces, or some other metric? Assigning a nationality is particularly problematic for firms founded countries with very small domestic markets and for companies that specifically focus on selling goods on the international market.

The second problem with FDI’s definition is the meaning of “control.” The U.S. Department of Commerce has defined FDI as when a single foreign investor acquires an ownership interest of 10% or more in a U.S. firm.[10] The number 10%, however, is somewhat arbitrary, and it is easy to see how the Commerce Department’s definition might not capture all instances of actual foreign control. For example, a group of investors in a foreign country could buy 9% of a U.S. firm and still use that ownership to exercise some measure of control. Alternatively, a foreign investor that purchases 10% of a U.S. firm may have no intention of exercising control over the company.

One important question economists have preoccupied themselves with regarding FDI is why ownership of domestic resources could be more profitable for foreign firms than for domestic firms. This questions rests on the assumption that, all things being equal, domestic firms should have an advantage over foreign firms in production in their own country. There are many explanations for why foreign firms acquire control over businesses in other countries. The foreign firm may simply have greater knowledge and expertise regarding productions methods, which gives it an advantage over domestic firms. The acquisition of a foreign firm could be based on a global business strategy. Finally, foreign firms might use a different discount rate or return on investment, which are essentially “cost of capital” considerations, when evaluating investment opportunities. However, Krugman and Graham, through a survey of the relevant literature, concluded that industrial organization considerations are more likely than cost of capital concerns to be the driving force for FDI.

Multinational enterprises (MNEs) manage production or deliver services in more than one country. According to the United Nations Conference on Trade and Development’s World Investment Report from 2007, as of 2005 there were over 77,000 parent company MNEs and 770,000 foreign affiliates. From an international economics viewpoint, there are two central questions about why MNEs exist. The first question is why goods and services are produced in multiple countries, instead of a single country. The second central question regarding MNEs is why certain firms decide to produce multiple products—why they internalize other areas of production. The first question can be answered rather simply. Different countries have different resources that companies may need for production. Also, transport costs and barriers to trade often mean the MNEs are necessary to access a particular market. The short answer to the second question it that firms internalize because it is more profitable for them to do so, but the exact reasons behind why it is more profitable to internalize are a more difficult issue. One possible reason for internalization is to insulate MNEs from opportunistic business partners through vertical integration. Technology transfer (here defined as any kind of useful economic knowledge) is also posited as a reason for internalization.

QUESTIONS

  1. State three ways of mobility of production factors.
  2. What is the effect of foreign workers?

 

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TRADE PROBLEMS

CONTAINER SHIP

 

Since 1945, there have been eight major multilateral trade agreements. The multilateral tariff reductions since World War II have taken place under the General Agreement on Tariffs and Trade (GATT), established in 1947. GATT was both an agreement and an institution (replaced in 1995 by WTO) embodies a set of rules of conduct for international trade policy.

 

The main provisions of the GATT and the constraints it imposes on trade policy are:

  1. Export Subsidies:

Signatories to the GATT may not use export subsidies, except for agricultural products.

  1. Import Quotas:

Signatories to the GATT may not impose unilateral quotas on imports, except when imports threaten “market disruption” which is likely to put a domestic sector suddenly out of business).

  1. Tariffs:

Any new tariff or increase in a tariff must be offset by reductions in other tariffs to compensate the affected exporting countries.

 

In December 1993, the Uruguay Round of multilateral trade negotiations was completed, but many trade problems remain. At the outset, we first review the provisions of the Uruguay Round and then refers to the major trade problems facing the world today.

 

The Uruguay Round:

In December 1993, the Uruguay Round, the eighth and most ambitious round of multilateral trade negotiators in history in which 117 countries participated, was completed after seven years of repeated negotiations.

The aim of the Uruguay Round was to establish rules for checking growing protectionism and reverse its trend; bring services, agriculture and foreign investments into the negotiations; negotiate international rules for the pro­tection of intellectual property rights; and improve the dispute settlement mechanism by ensuring more timely decisions and compliance with GATT rulings. The agreement was signed by the United States and most other countries on April 15, 1994 and took effect on July 1, 1995.

 

The major provisions of the agreement are the following:

  1. Tariffs:

Tariffs on industrial products are to be reduced from an average of 4.7% to 3%, and the share of goods with zero tariffs is to increase from 20-22% to 40-45%; tariffs were removed altogether on pharmaceuticals, construction equipment, medical equipment, paper products and steel.

  1. Quotas:

Nations are to replace quotas on agricultural imports and imports of textiles and apparel (under the Multi-fiber Agreement) with less restrictive tariffs over a ten-year period; tariffs on agricultural products are to be reduced by 24% in developing nations and by 36% in industrial nations, and tariffs on textiles are to be cut by 25%.

  1. Antidumping:

The agreement provides for tougher and quicker action to resolve disputes resulting from the use of antidumping laws, but it does not ban their use.

  1. Subsidies:

The volume of subsidised agricultural exports are to be reduced by 21% over a six-year period; government subsidies for industrial research are limited to 50% of applied research costs.

  1. Intellectual Property:

The agreement provides for 20-year protection of patents, trademarks and copyrights, but it allows a 10-year phase-in period for patent protection in pharmaceuticals for developing countries.

  1. Services:

The United States failed to secure access to the markets of Japan, Korea and many developing nations for its banks and security firms and did not succeed in having France and the European Union lift restrictions on the showing of American films and TV programmes in Europe.

  1. Trade-Related Investment Measures:

The agreement phases out the re­quirement that foreign investors (such as automakers) buy supplies locally or export as much as they import.

  1. World Trade Organisation:

The agreement also called for the replacement of L General Agreement on Tariffs and Trade (GATT) secretariat with the WTO in Geneva with authority not only in trade in industrial products but also in agricultural products and services. Trade disputes are also to be settled by a vote of two-thirds or three-quarters of the nations rather than unanimously as under GATT (which meant that the guilty nation could block any action against it).

Although the completion of the Uruguay Round was a great achieve­ment many trade problems still remain. The implementation of the Uruguay Round is expected to increase world trade by some $170 billion per year by the year 2002 and increase standards of living throughout the world Ta result of the more efficient use of the labour, capital and other resources.

 

Outstanding Trade Problems:

No doubt some benefits have resulted from the successful completion of the Uruguay Round. Yet three major trade problems remain. Firstly, many sectors were not included in the agreement. For example, many services such as banking, insurance and movies and TV programs were excluded from the agreement; agricultural subsidies remain high; patent protection for pharmaceuticals is disappointing; and trade in computer chips is still subject to tariffs (even if cut by half).

Secondly, many of the trade problems of developing countries have either not been addressed or liberalization is long delayed. This is the case for trade in agricultural products and textiles — products which are of great importance to most developing countries.

Finally, the Uruguay Round has not dealt with labor and environmental standards. So these may create major trade problems in the future. Trade- related competition policies (such as subsidies and regulation) as well as trade-related investment measures (TRIMs) have also not been properly dealt with in the Uruguay Round.

QUESTIONS

  1. State some trade problems.
  2. What is the Uruguay Round?

TRADE ORGANIZATIONS

Cargo containers at the Port of Los Angeles.

 
Trade organizations are associations that countries establish to liberalize trade among member countries through voluntary participation. Treaties like the NAFTA aim to liberalize trade between member countries smoothly. Trade organizations are established for specific purposes. The aim is to help its members enjoy various economic benefits.

Major trade organizations are:

World Trade Organization (WTO)

International Organization for Standardization (ISO)

United Nations Conference on Trade and Development (UNCTAD)

International Trade Centre

World Customs Organization (WCO)

World Fair Trade Organization

Following the World War II, free trade movements were introduced. In 1947, the GATT (General Agreement on Tariffs and Trade) was formed, with a focus on tariff reduction related negotiations to reduce import competition. Member nations of the GATT took a more formal approach by establishing the World Trade Organization.

The North American Free Trade Agreement (NAFTA) is another well known treaty, comprising the US, Canada, and Mexico. In 1958, the Japan External Trade Organization (JETRO) was formed to promote trade between Japan and the rest of the world. Its aim was to help Japanese companies maximize their export potential at a global level.

Several factors have increased the importance of trade organizations. Increased outsourcing, globalization, industrialization, and growth of multinational corporations have ignited its growing role in today’s world of economic uncertainties. Efforts to remove trade barriers are an integral part of trade organizations. Trade organizations also started the trade justice movements to improve and develop social, labor and environmental standards.

The challenges of trade organizations are to:

Ensure that multilateral and regional trade reforms are complementary.

Enhance institutional reforms of the World Trade Organization.

Address issues, such as trade-related environments, illegal immigrants, competition policies, and investment and labor issues.

 

Trade organizations face the following future challenges:

A variety of costs that pertain to trade agreements. Such costs may hinder trade development.

Some regions or industries face higher risk of closure that results in increased layoffs and weak performance in the wake of global competition.

Wage pressures and rising inequalities in income.

QUESTIONS

  1. What is WTO?
  2. What is UNCTAD?
  3. What is NAFTA?

 

INTERNATIONAL MONETARY POLICIES

 
Optimal monetary policy in international economics is concerned with the question of how monetary policy should be conducted in interdependent open economies. The classical view holds that international macroeconomic interdependence is only relevant if it affects domestic output gaps and inflation, and monetary policy prescriptions can abstract from openness without harm. This view rests on two implicit assumptions: a high responsiveness of import prices to the exchange rate, i.e. producer currency pricing (PCP), and frictionless international financial markets supporting the efficiency of flexible price allocation.The violation or distortion of these assumptions found in empirical research is the subject of a substantial part of the international optimal monetary policy literature. The policy trade-offs specific to this international perspective are threefold:

First, research suggests only a weak reflection of exchange rate movements in import prices, lending credibility to the opposed theory of local currency pricing (LCP). The consequence is a departure from the classical view in the form of a trade-off between output gaps and misalignments in international relative prices, shifting monetary policy to CPI inflation control and real exchange rate stabilization.

Second, another specificity of international optimal monetary policy is the issue of strategic interactions and competitive devaluations, which is due to cross-border spillovers in quantities and prices. Therein, the national authorities of different countries face incentives to manipulate the terms of trade to increase national welfare in the absence of international policy coordination. Even though the gains of international policy coordination might be small, such gains may become very relevant if balanced against incentives for international noncooperation.

Third, open economies face policy trade-offs if asset market distortions prevent global efficient allocation. Even though the real exchange rate absorbs shocks in current and expected fundamentals, its adjustment does not necessarily result in a desirable allocation and may even exacerbate the misallocation of consumption and employment at both the domestic and global level. This is because, relative to the case of complete markets, both the Phillips curve and the loss function include a welfare-relevant measure of cross-country imbalances. Consequently, this results in domestic goals, e.g. output gaps or inflation, being traded-off against the stabilization of external variables such as the terms of trade or the demand gap. Hence, the optimal monetary policy in this case consists of redressing demand imbalances and/or correcting international relative prices at the cost of some inflation.

Optimal monetary policy thus should target a combination of inward-looking variables such as output gap and inflation, with currency misalignment and cross-country demand misallocation, by leaning against the wind of misaligned exchange rates and international imbalances.

Developing countries may have problems establishing an effective operating monetary policy. The primary difficulty is that few developing countries have deep markets in government debt. The matter is further complicated by the difficulties in forecasting money demand and fiscal pressure to levy the inflation tax by expanding the base rapidly. In general, the central banks in many developing countries have poor records in managing monetary policy. This is often because the monetary authority in developing countries are mostly not independent of the government, so good monetary policy takes a backseat to the political desires of the government or are used to pursue other non-monetary goals. For this and other reasons, developing countries that want to establish credible monetary policy may institute a currency board or adopt dollarization. This can avoid interference from the government and may lead to the adoption of monetary policy as carried out in the anchor nation. Recent attempts at liberalizing and reform of financial markets (particularly the recapitalization of banks and other financial institutions in Nigeria and elsewhere) are gradually providing the latitude required to implement monetary policy frameworks by the relevant central banks.

Prior to 1933, the name “dollar” was used to refer to a unit of gold that had a weight of 23.22 grains. Since there are 480 grains in one ounce, this means that the name dollar also stood for 0.048 ounce of gold. This in turn, means that one ounce of gold referred to $20.67. $20.67 is not the price of one ounce of gold in terms of dollars as popular thinking has it, for there is no such entity as a dollar. Dollar is just a name for 0.048 ounce of gold. No one prints dollars on the purely free market because there are, in fact, no dollars; there are only commodities, such as wheat, cars, and gold.

Likewise, the names of other currencies stood for a fixed amount of gold. The habit of regarding these names as a separate entity from gold emerged with the enforcement of the paper standard. Over time, as paper money assumed a life of its own, it became acceptable to set the price of gold in terms of dollars, francs, pounds, etc. (The absurdity of all this reached new heights with the introduction of the floating currency system).

In a free market, currencies do not float against each other. They are exchanged in accordance with a fixed definition. If the British pound stands for 0.25 of an ounce of gold and the dollar stands for 0.05 ounce of gold, then one British pound will be exchanged for five dollars. This exchange stems from the fact that 0.25 of an ounce is five times larger than 0.05 of an ounce, and this is what the exchange of 5-to-1 means. In other words, the exchange rate between the two is fixed at their proportionate gold weight, i.e., one British pound = five US dollars.

The absurdity of a floating currency system is no different from the idea of having a fluctuating market price for dollars in terms of cents. How many cents equal one dollar is not something that is subject to fluctuations. It is fixed forever by definition.

The present floating exchange rate system is a byproduct of the previously discredited Bretton Woods system of fixed currency rates of exchange, which was in operation between 1944 to 1971. Within the Bretton Woods system the US$ served as the international reserve currency upon which all other currencies could pyramid their money and credit. The dollar in turn was linked to gold at $35 per ounce. Despite this supposed link to gold, only foreign governments and central banks could redeem their dollars for gold.

A major catalyst behind the collapse of the Bretton Woods system was the loose monetary policies of the US central bank, which pushed the price of gold in the gold market above the official $35 per ounce. The price, which stood at $35/oz in January 1970 jumped to $43/oz by August 1971 – an increase of almost 23%.

The growing margin between the market price of gold and the official $35 per ounce created enormous profit opportunity, which some European central banks decided to exercise by demanding the US central bank to redeem dollars for gold. Since Americans didn’t have enough gold to back up all the printed dollars they had to announce effective bankruptcy and cut off any link between dollar and gold as of August 1971.

In order to save the bankrupt system policy makers have adopted the prescription of Milton Friedman to allow a freely floating standard. While in the framework of the Bretton Woods system, the dollar had some link to the gold and all the other currencies were based on the dollar, all that has now gone. In the floating framework, there are no more limitations on money printing.

One virtue of fixed rates, especially under gold, but even to some extent under paper, is that they keep a check on national inflation by central banks. The virtue of fluctuating rates–that they prevent sudden monetary crises due to arbitrarily valued currencies–is a mixed blessing, because at least those crises provided a much-needed restraint on domestic inflation.

Through policies of coordination central banks maintain synchronized monetary pumping so as to keep the fluctuations in the rate of exchanges as stable as possible. Obviously, in the process such policies set in motion a persistent process of impoverishment through consumption that is not backed up by the production of real wealth.

Furthermore, within this framework if a country tries to take advantage and depreciate its currency by means of a relatively looser monetary stance this runs the risk that other countries will do the same. Consequently, the emergence of competitive devaluations is a surest way of destroying the market economy and plunging the world into a period of crisis.

A general acceptance of the principles of the flexible standard must therefore result in a race between the nations to outbid one another. At the end of this competition is the complete destruction of all nations’ monetary systems.

When economic journalists speculate about looming inflation risks in the U.S. or any other country, they implicitly assume that each country’s inflation depends on that country’s fiscal or monetary policies, and perhaps the unemployment rate. Yet there was an approximately 1–2 percent inflation in the consumer prices index (CPI) for virtually all major economies in the previous five years.

Inflation rates were surprisingly similar regardless of whether countries had budget deficits larger than ours (Japan and China) or big surpluses (Norway and Hong Kong), regardless of whether central banks experimented with “quantitative easing” or not, and regardless of whether a country’s unemployment rate was 16.9 percent (Spain) or 1.3 percent (Thailand).

The latest year-to-year rise in the CPI was below 1 percent in Japan and Switzerland, 1.5 percent in Hong Kong and the Euro area, 1.6 percent in Canada and China, 1.8 percent in Sweden, 1.9 percent in Norway and Australia, 2 percent in South Koreas and 2.1 percent in the U.S.  Among major countries, U.K. was on high side with inflation of 2.7 percent.  Three economies with super-fast economic growth above 6 percent (India, Malaysia and the Philippines) do have slightly higher inflation—above 3 percent—but the CPI is up just 1.6 percent in one of them, namely China.

The remarkable similarity of CPI inflation rates is surprising since countries measure inflation differently and consume different mixes of goods and services. The fact that inflation rates are nonetheless so similar, and move up and down together, suggests that inflation is largely a global phenomenon.  The U.S. may well have a disproportionate influence on global inflation, since it accounts for about 24 percent of global GDP and key commodities are priced in U.S. dollars.  Yet U.S. inflation nonetheless goes up and down in synch with other major economies.

Average world inflation is higher than inflation among major economies, however, because there are always some countries in chaos with untrustworthy currencies and extreme inflation—currently that includes Venezuela (741 percent), South Sudan (118 percent), North Korea (55 percent), Congo (52 percent) and Syria (43 percent).

The similarity of inflation, aside from a few extremes, is due to arbitrage among traded goods (though less so for local services). If exchange rates were fixed, the law of one price would prevent the same goods from selling at different prices in different places (aside from transportation costs, tariffs and sales taxes). Arbitrage—traders buying low and selling high—would ensure that prices varied only temporarily from one country to another.  

Differences in inflation, including the extreme cases, is largely explained by exchange rates.  Countries with a strong currency reputation (Switzerland) invariably have less inflation than countries that mistakenly pursue chronic currency depreciation as a boost to trade (Turkey).  Anticipated devaluation is preemptively negated by rising wages and prices, which doesn’t help competitiveness.

On the other hand, when currencies rise against the U.S. dollar that makes oil and other commodities cheaper in terms of such rising currencies, which tends to boost world demand for industrial materials and grains and thus put upward pressure on commodity prices in dollars. Trying to forecast inflation in one country alone is a futile exercise without taking into account global price trends and national exchange rates.

Blockchain is our only hope to bypass government, creating a pure anarchy without gods, masters, and kleptocrats.  Fiat money and governments will eventually disappear.

Government is too self-interested to be trusted to maintain a currency that sustains its value. The blockchain experiment may not be the answer. But the renegade entrepreneurs keep trying. For on the face of it, any currency that costs nothing to multiply, when its manufacturer actively benefits from running the presses, will inexorably fritter to confetti. Citizens in any income stratum should have a right to expect that a euro in their pocket today will buy a euro’s worth of goods or services tomorrow. But apparently that’s pie-in-the-sky.

Imagine a secure international cryptocurrency whose steady value was not subjected to deliberate, systematic decay, whose supply was strictly limited, whose coin was universally accepted, and whose production was beyond the control of the state. 

The cryptocurrency community is divided on whether bitcoin is a side show or the show. However, the fundamental breakthrough is not necessarily bitcoin but the blockchain technology, which is the distributed ledger that tracks these transactions. Entries cannot be changed and are transparent to all parties involved. Typically, there is no central authority like a government or a bank controlling it.

Serious players are investing in blockchain technology, It’s hard to point to a serious financial services company or consulting company or technology company that is not already investing quite a bit into this. Some are doing it through bank consortiums.

One such consortium is R3. It works with more than 100 banks, financial institutions, regulators and other stakeholders worldwide to develop its own distributed ledger called Corda. R3 and other groups are all experimenting with different protocols that are independent of bitcoin.

The blockchain’s biggest impact on financial services is to make back office functions more efficient. It’s pretty clear that this kind of almost 19th century way that back office tasks are being handled is just way too slow and way too expensive.

Profit-maximizing entrepreneurs will frustrate the government’s attempt to implement a positive real return on money through deflation when the public is willing to hold private currencies. There are, fortunately, alternative policies that can promote stability and efficiency simultaneously. For example, the government may peg the real value of its money. Under this rule, the government can implement an efficient allocation (i.e., supply the amount of money that maximizes social welfare) as the unique equilibrium outcome, although it requires driving private money out of the economy.

Ihe threat of competition from private monies imposes some market discipline on any government involved in issuing currency. If a central bank, for example, does not provide a sufficiently “good” money, then it will have difficulties in the implementation of allocations. This may be the best feature of cryptocurrencies: in a world where we can switch to Bitcoin or Etherium, central banks need to provide, paraphrasing Adam Smith, a tolerable administration of money. Currency competition may have, after all, a large upside for human welfare.

QUESTIONS

  1. What is an international monetary policy?
  2. What should be the targets of an optimal monetary policy?
  3. How could private money influence government money?
  4. How globalization influences monetary policies?

GLOBALIZATION










 

 

Globalization is the process of international integration arising from the interchange of world views, products, ideas and mutual sharing, and other aspects of culture. Advances in transportation, such as the steam locomotive, steamship, jet engine, container ships, and in telecommunications infrastructure, including the rise of the telegraph and its modern offspring, the Internet, and mobile phones, have been major factors in globalization, generating further interdependence of economic and cultural activities.

Though scholars place the origins of globalization in modern times, others trace its history long before the European Age of Discovery and voyages to the New World. Some even trace the origins to the third millennium BCE. Large-scale globalization began in the 19th century. In the late 19th century and early 20th century, the connectivity of the world’s economies and cultures grew very quickly.

The concept of globalization is a very recent term, only establishing its current meaning in the 1970s, which ’emerged from the intersection of four interrelated sets of “communities of practice”: academics, journalists, publishers/editors, and librarians. In 2000, the International Monetary Fund (IMF) identified four basic aspects of globalization: trade and transactions, capital and investment movements, migration and movement of people, and the dissemination of knowledge. Further, environmental challenges such as global warming, cross-boundary water and air pollution, and over-fishing of the ocean are linked with globalization. Globalizing processes affect and are affected by business and work organization, economics, socio-cultural resources, and the natural environment.

The world is becoming ungovernable. Kleptocrats have found themselves unemployed, because the economy has become global while governments remain national. Transnational companies reduce racism, because you cannot be global and racist, and encourage anarchy, because national governments become powerless.

 

The current resurgence of populist nationalism in the United States and Europe reflects the pushback against these long-held dogmas of transnationalism, and resistance to the denigration of national identities. Populist nationalism has deep and wide support. Resistance is very widespread and vigorous. Facing global threats from rivals and enemies passionate about their own national identities, the interests and security of Occident will be better protected if its citizens are allowed to express without recriminations their autonomy.

Globalization has fallen into disrepute. More and more people are rejecting it outright as unfair and as a source of all sorts of evil — including economic crises and migration.

This kind of blanket condemnation of globalization however is a huge problem. The reason for this becomes apparent if one considers the fact that globalization has two dimensions, an economic and a political one.

Economic globalization is synonymous with the cross-border division of labor. Today, no country produces solely to satisfy its own needs, but instead also for producers and consumers in other countries. And each country makes what it knows best, relatively speaking.

Economic globalization, with free trade being a natural component, increases productivity. Without it, the poverty on this planet would not have been reduced to the extent it has been over the past decades.

From the very outset, political globalization has nothing to do with economic globalization. It aims to direct and determine all relations between people on the various continents by way of authoritarian rule. The decision about what is being produced and consumed as well as where and at what time isn’t to be found by the free market, the division of labor and free trade, but instead by an ideological-political creative force.

The core argument of political globalization is that coping with ever more complex problems of this world — ranging from economic crises to the protection of the environment — requires a central decision-making process. The nation state — as a sovereign representative of people — has become obsolete and needs to be replaced by a globally active political power.

Of course, the thinking behind this opinion is purely socialist-collectivist.

It is also the basis of the European Union (EU). Ultimately, it aims to create a European super state, in which nation states will dissolve like sugar cubes in a hot cup of tea.

For the foreseeable future, this dream has come to an end. The desire to realize uniformity has foundered amid hard political and economic realities. The EU is undergoing radical change — at the very last following the British decision to leave the EU — and may even be about to break up.

With Donald J. Trump taking over as president of the US there is no longer any intellectual support by the US for the European unification project. The change of power and direction in Washington has ousted the political globalizers — which gives hope that the future US foreign policy will be less aggressive in military terms. President Trump — unlike his predecessors — doesn’t strive to enforce a new world order. But at the same time, it is the economic globalizers who are concerned.

And that’s understandable. The Trump administration fancies the use of protectionist measures — be it in the shape of import duties or tax discrimination — to boost production and employment in the US, to the detriment of other countries if need be.

Such an interference with economic globalization and the turning back of the clock wouldn’t just infringe on prosperity. It would probably also rekindle old and new political conflicts. But, it doesn’t have to be that way.

With the gigantic easing of the tax burden — to the tune of $9.5 trillion — President Trump may be able to generate such a positive economic dynamic that all the backward-looking protectionist electoral promises will disappear in a drawer. And that would be most desirable: Globalization — the voluntary division of labor and free trade — promotes a productive and, what’s more, peaceful cooperation across borders. And that’s why it is important to preserve economic globalization.

We see four major geopolitical shifts underway.

First, protectionism is growing. The US, Russia, and India have each introduced more than 500 discriminatory trade measures since 2009. Global Trade Alert reports that in 2016 alone more than 500 discriminatory measures and only 300 liberalizing measures were introduced worldwide.

Second, the ability of multilateral institutions to establish and enforce shared rules seems to be weakening. Bilateral agreements based on national interests are taking precedence over multilateralism.

Third, the dominant role of Western countries in the multilateral financial institutions that have provided global capital appears to be receding as new financial institutions emerge, such as the China- backed Asian Infrastructure Investment Bank and the New Development Bank.

Fourth, state capitalism is on the rise: examples include the growing economic role of state-owned enterprises and sovereign wealth funds and the increased direct government support of domestic industries. Sovereign wealth funds now manage portfolios valued at $7.3 trillion, compared with the $4.2 trillion in assets under management by closed-end private funds, according to the financial market research firm Preqin.

Equally profound are the structural shifts in the world economy that have been set in motion by digitalization. We see three forces at work:

  • Industry 4.0. In addition to boosting productivity by as much as 30% and reducing labor costs, advanced digital manufacturing systems let businesses alter their global production and delivery footprints by making it feasible to operate smaller, more flexible facilities closer to customers around the world instead of concentrating production in large plants in countries with low labor costs.
  • Digital Platforms. Both traditional companies such as General Electric, with its Predix platform, and relative newcomers such as Uber, Airbnb, and India’s Flipkart are gaining access to borderless global markets through their information technology platforms and ecosystems of local partners. In the period from 2012 to 2015, some platform-based companies grew at a rate in excess of 100%, compared with single-digit growth at established multinational companies.
  • Digital Services. Advances in digital technologies and platforms are enabling the rapid growth of cross-border digital services such as online travel booking, entertainment sites, and asset performance improvement services. New value-added services are becoming a key generator of value and revenue growth for traditional businesses.

Together, these geopolitical and digital shifts are redefining the economic, business, and political models of the old globalization framework, giving rise to a very different paradigm.

  • The New Economic Model. The global economy is becoming fragmented and multipolar, with more countries driving global growth. In emerging markets, economic growth rates, development models, and the chief sources of growth—such as manufacturing, services, and consumption—are diverging. Flatter growth in merchandise trade will continue to translate into lower growth in global GDP, at least in the short to medium term.
  • The New Business Model. Because growth in trade, especially merchandise trade, and in cross-border investment is slowing as a result of rising protectionism, shifts in global manufacturing costs, and the economics of Industry 4.0 technologies, companies must find new drivers of global growth. These forces are also decentralizing global supply chains, while growth in digital services and platforms is integrating many parts of businesses and the ecosystems in which they operate.
  • The New Political Model. As the influence of the world’s biggest economic powers wanes, nationalism and political interests are taking precedence over globally shared economic goals. Sudden changes in policy and regulation are becoming the new normal. There is still potential, however, for countries to collaborate to address cross-border issues such as cybersecurity, international terrorism, and tax havens.

Sharpen the focus on customers. As companies offer more and more services and solutions to more and more digitally connected buyers, relationships with customers will need to be more than transactional. As the chief strategy officer of a global industrial goods company noted, to make the transition from selling transportation equipment to providing mobility solutions, “our entire sales organization will need to become more customer centric and understand customers’ needs—not just for equipment and upgrades but also for real-time maintenance and platform solutions.” As many global firms set up services and solutions businesses that cut across products, responsibility for profit and loss could shift from product business units to those that own customer relationships.

Decentralize operations and decision rights. The traditional matrix model of overarching tiers of global and regional management control over function areas and product groups is being replaced by more flexible and decentralized structures that empower management teams in individual markets. The need to serve local customers, respond to growing regulation and economic nationalism, and take advantage of local capital will require companies to strengthen their local operations. Decision rights will likely have to decentralize as well. In this environment, global organizations will increasingly achieve scale by using digital technology to exchange information and maintain global standards. “Technology is now enabling real-time data collection at the local level, removing the need for layers of regional and matrix oversight,” explained the chief operating officer of a global consumer goods company.

Centralize select global functions. Greater connectivity and advances in computing and digital technologies are also enabling companies to centralize some critical functions in one location run by a single global team. These teams could be located at headquarters or wherever the company has the greatest capabilities. An example is clinical diagnostics. The global analytics team of a leading medical provider we spoke with uses its access to vast amounts of data to provide diagnoses of tomography scans that are more accurate than those of most physicians in the field. Product design and marketing are other functions that could become more centralized as data is collected locally and then sent via a digital platform for analysis at one location by a team that then uses the insights to develop solutions.

 

Globalization renders global employees into expats while living and working in their own country. This is an important point because when you’re dealing with globalization, people have to detach from their native languages and cultures in order to move into this third space, so to speak. The expat perspective is the experience that says, “You cannot hold on to your identity. You need to migrate to a global identity, whether you’re an expat in your own country linguistically, culturally, or both.” Detachment and adaptation is why the expat perspective is crucial for global organizations. In a sense, what this book shows us is that for a company to be truly global, it has to become an expat corporation with employees who are able to walk into their native country sites and operate as if they’re expats in their own country.

A language strategy is a full-in, full-on undertaking that should be regarded as a radical change. Overlooking the change management work that is required—like encouraging buy-in and sustaining employees’ belief in their capacity to acquire the new language, culture, or both—is crucial. Tactics that help people feel more confident and motivated include continual messaging, internal marketing, and branding the organization as global. Finally, this type of globalization work is a multi-year journey. A one-language culture is increasingly a must for some or all parts of globalizing firms.

Developing language or cross-cultural fluency in the course of globalization is difficult. Employees have to climb steep learning curves. They will also be exposed to differences at work, an inevitable outgrowth that comes with globalization.

The most successful global employees in climbing the learning and culture curve exhibited Global Work Orientation, which consists of five attitudes and behaviors:

  • Positive indifference is the ability to overlook cultural differences as being not especially important or worthy of attention, while remaining optimistic about the process of engaging the culture seen as foreign.
  • Seeking commonality between cultures enables employees to draw closer to a foreign culture and become receptive to its differences.
  • Identifying with the global organization’s values and goals, rather than those of a local office.
  • Initiating cross-border interactions as much as possible develops trust and shared vision among international coworkers. Interactions are also vital for sharing knowledge across sites.
  • Aspiring for a global career is also important, because people who envision a globally expansive professional advancement make decisions that reinforce their competencies.

Economic cluster theory has been used to describe the growth of many industries, including the automotive business around Detroit, high tech in Silicon Valley, and digital media in Seoul. These regions benefit by a concentration of complementary resources that might include leading research universities, low cost or highly trained labor, and geographic bounty. Understanding how clusters work can help governments develop effective policies for creating them, as well as direct entrepreneurs to the best locations to build their businesses.

Economic clusters have had a much wider impact on world economics than generally recognized. Clusters are the building blocks of the global economy. Clusters have been around long before they had a name, showing up in the development of colonial-era industries and earlier. We are proposing a longer broader view of clusters and the role they play in developing economies and globalization at large.

The cluster concept is often used to consider local factor, but there’s a growing awareness that many clusters are also driven by external forces, such as foreign direct investment and multinational corporations, which results in a connection that occurs through knowledge exchange on the local level or across wider cluster networks. In that sense, clusters become platforms for development, which has present-day implications for corporations, governments, and individual actors, especially in emerging economies.

As an exploitative plantation industry, the rubber and palm oil industries in Indonesia and Malaysia couldn’t be considered a civilizing force, at least initially. Yet, after rubber clusters based on foreign-invested estates had developed in the region, entrepreneurial smallholder farmers capitalized on existing infrastructure to farm rubber around the edges of established groves, creating a rubber supply parallel to that produced by the foreign direct-invested estates. This increase in supply drove down prices on the international markets, eventually leading multinationals to move into palm oil—a much more capital intensive crop to process, with higher barriers to entry for small farmers.

Geopolitical forces also played a part in the palm oil industry’s development. After World War II, Indonesia’s Communist-backed government cracked down on colonial business interests, while Malaysia’s government took a softer approach, allowing companies to continue operations in exchange for training and development programs that helped smallholder farmers switch from rubber—which, with the introduction of synthetics, was no longer as profitable and secure an investment as it once was—to palm oil. Unilever, the largest private holder and buyer of palm oil (an ingredient used in its famous “Sunlight Soap” and other products), diversified its holdings from the crop’s native West Africa to the Malaysian cluster.

In the 1950s and 1960s,the two locations shared knowledge of palm oil production even as they competed for market share—a contest that Malaysia eventually won thanks to its more stable political climate and higher quality of institutions. Because the Malaysian government was good at creating policies that fostered the transition from the rubber to the palm oil industry, the local population was able to take advantage of a situation that initially wasn’t so positive.

It can be argued that the palm oil industry today is a major source of deforestation in Southeast Asia, and not always at the forefront of sustainability practices. It can take a while to improve these processes, and he industry is moving in that direction. But, during the 1960s and 70s, the palm oil cluster was a huge engine of growth and infrastructure for rural areas. There are ways to change an industry that starts as extractive to producing externalities that foster development.

Educational institutions gathered and disseminated knowledge about the country’s biodiversity, an effort that, with government support, led to the creation of national reserves and parks.

As with Malaysia, Costa Rica’s relative political stability, compared to neighboring Guatemala and Nicaragua, created competitive business conditions. Foreign tourists from Europe and North America, drawn by the promise of a pristine environment, relocated to Costa Rica and launched startups offering lodging and guided tours in protected areas, an effort that was so successful it created a detrimental snowball effect.

This movement built a reputation for Costa Rica as a natural paradise and conservation hub. At the same time, local actors took advantage of this brand identity to build mainstream tourist facilities that weren’t in line with conservation and sustainability efforts. Some of those businesses diluted the concept of sustainability that created the cluster in the first place.

The historical perspective is important, because you rarely have a linear story. It’s never a one stakeholder story. Taking this longer view, makes it easier to see beyond clusters as self-contained and localized to their more nuanced role as interactive spaces that foster communication and collaboration between foreign and local organizations and individuals and enable the integration of developing countries into the global economy. It’s an understanding that can be useful in the here and now, too.

This could be a good way for multinational corporations and business practitioners to consider the relative merits of competing cluster locations. If I’m an organic wine producer with available resources and people, where is the best place to set up production? Where will the political risk be lowest in terms of regulations for that specific enterprise and industry? Which locations will allow more possibilities to introduce innovative practices or foster sustainability?

Most of the world’s lithium—now in high demand because it’s used in so many electronic products and electric car batteries—is mined in Bolivia and Chile. That’s a concentration not available anywhere else. And those particular conditions—of government, industry, corporations, and the local populations—will no doubt yield new perspectives on the very old reality of clusters. Clusters have been there forever. This is just a way of thinking glocally about a concept that’s everywhere.

Europe continues to descend into lawlessness and dhimmitude. Migrants who travel through a number of countries in order to find the most generous hosts are not refugees, but invaders.

Migration is more than just another issue. It touches upon fundamental aspects of citizenship, community, and identity of our countries. Especially the issue of citizenship is crucial. Citizenship reflects that one belongs to a particular political community. I strongly disagreed with a well-known and often quoted President Obama´s statement when he famously (or perhaps rather infamously) announced that he is a citizen of the world. He was not alone in accepting and promoting this fallacy. European political elites similarly keep saying that they are citizens of Europe. Yet, it is impossible to be a citizen of Europe. Europe is not a political community. One can only be an inhabitant of Europe.

European political communities are the nation states. We are Czechs, Austrians, Germans, Greeks. We speak Czech, Polish, Italian, Hungarian, Greek, not a European Esperanto. We don’t want to erase our borders and to get rid of the distinction between citizen and foreigner. Due to it, we have a strong view about mass migration and refuse the cosmopolitan stances of European political elites and their fellow-travelers.

The misinterpretations of the European migration crisis are based on an aprioristic, progressivist, politically correct assumption of the European political and intellectual elites that migration is a positive social phenomenon, They try to convince us that it is normal to migrate. We strongly disagree, we are convinced that it is normal not to migrate. We find it normal to accept the country one was born in, to identify oneself with it and to take it as a highly respected homeland.

We don’t speak about individual migration, about the slow, non-disruptive, sufficiently humble and non-aggressive procedure known for centuries and millennia. We speak about the issue of mass migration, to the movements of hundreds of thousands or millions of people, to the unnatural processes that are artificially provoked and stimulated. What we see in Europe now is not a spontaneous activity of individuals, it is an organized process.

It has mostly negative consequences. Mass migration necessarily leads to substantial cultural, social and political conflicts, shocks and tensions. It undermines the – for centuries and millennia gradually developed – structure of society in individual countries, their culture, habits, customs, behavioral patterns, ways of life. All that is – by European political elites – highly underestimated. Perhaps not underestimated, they don´t want to see it. They have different aims and ambitions. We should make them explicit.

The current political conflict about migration shouldn’t be misinterpreted as a conflict between humanism and xenophobia, or between solidarity and egoism as they try to present it. It is about something else. It is a conflict between those who believe in freedom and in a nation state and those who don’t share such a belief. It is an ideological conflict.

Mass migration has been justified and defended by means of the failed doctrine of multiculturalism. To herald (if not to worship) this approach is wrong. For countries to function, they need a minimum (which is not low) degree of homogeneity and unity, not a maximum of heterogeneity and diversity, but the ideology of multiculturalism tries to deny this. History teaches us that fragmented and borderless societies can’t exist. Certainly not for a long time. Borders are important. The current migration wave to Europe has been made possible by the fact that the EU borders have been open and unprotected for a long time and remain open even after all that has been happening since 2015.

We challenge the often repeated errors and misunderstandings and especially the claim that we in Europe need mass migration because there are not enough people here to work. It is not true.

Any reasonably thinking person must admit that – in absolute terms – the available labor force in the EU is sufficient. The unemployment figures are high and they are high in spite of the fact that many Europeans voluntarily step out of the unemployment statistics… The spoiled, overeschooled labor force refuses to take up certain jobs. The current pseudohumanistic ideologies offer these people a tempting possibility to leave the labor force, claiming there is in fact no obligation to work. Instead, they are offered financial means from sources other than actual work. 

There are two dimensions to this issue – the would-be absolute shortage of people and the structural discrepancy caused by the fact that Europeans don’t want to do low-skilled, dirty, tough, dangerous, non-pleasant, physically demanding jobs, or they don’t want to be the people who work with their hands and on their feet.

The European political elites try to convince us that we need a steady supply of cheap unskilled labor because there are jobs no Europeans want to do. We disagree. This is a high-brow position of our political elites, which is insulting to millions of Czechs, Austrians, Germans, Greeks who do these jobs. This is the arrogance of our governing class, of our political, academic, cultural, journalist celebrities.

This is also an uneconomic or even anti-economic argumentation. Such attitude has no proper basis in economics. If particular jobs are left unfilled for any lengthy period, it is because the price on offer is too low. This most particularly applies to jobs requiring little knowledge or skill. Such jobs can be filled without too much difficulty if the price is right. If a municipality has difficulty in finding street sweepers, it is because the wage they are offering is too low. There is nothing more to it. Market economy itself is a very powerful mechanism, which provides a solution to shortages of whatever kind. We understood that price movements are able to fix such problems.

We have market economy now, heavily constrained and weakened, but we have in our countries strong and very powerful business lobby groups as well which try to suppress this irreplaceable mechanism. They don´t want the spontaneous adjustments and restructurings. They favor the import of cheap foreign labor instead. This is or may be good for them, not for us, not for unskilled or low-skilled workers in our countries, not for our already overburdened social welfare systems, not for our state budgets and financial systems, not for the efficiency of the economy, not for the health of the whole society. Those who understand it, should help to reject this very one-sided lobbying.

We are very much against the globalist and Europeist mind-set. Our countries are not only a part of the world, they are real entities with real borders and with real people. The citizens of our countries don’t feel they are citizens of the world. We are not morally obliged to treat everyone like us, especially if he doesn´t play by our rules. This should be our very strong point.

While we wish our fellow men in other countries well, it is only our fellow citizens to whom we have a duty and whose rights our government was created to protect. This is not a nationalism, not a xenophobia. This is just a rational thinking.

The West-European countries opened their doors to mass migration of unskilled and low-skilled workers, even though not all of them have come here to work. The political leaders of these countries are aware of this fact. It was a tragic mistake which should be corrected as soon as possible. It is long overdue.

QUESTIONS

  1. What is globalization?
  2. Why economic globalization is good?
  3. Why political globalization is bad?
  4. Why mass migration is bad?
  5. Is Islamization of Europe possible?

DIVERSITY AWARDS

 EY, Kaiser Permanente, Novartis, PwC and Sodexo have been inducted into DiversityInc’s Top 50 Hall of Fame. The companies inducted into the Hall of Fame have demonstrated exceptional human capital management accomplishments and superior corporate values and culture.

The criteria for the Hall of Fame is based on companies who have at one time ranked number one since the 2012 survey. The inductees reflect the longstanding and consistent commitment to diversity & inclusion and results.

In order to maintain one’s Hall of Fame status, companies are re-evaluated annually in the Top 50 competition. The Hall of Fame inductees will stand on top of the Top 50. Future number one companies will all be added to the Hall of Fame. 

Since 2001, the Top 50 list has recognized the nation’s top companies for diversity and inclusion management. These companies excel in such areas as hiring, retaining and promoting women, minorities, people with disabilities, LGBT and veterans. Companies with more than 1,000 U.S.-based employees are eligible and there is no cost to participate. Companies are judged in the following areas:

  • Talent Pipeline (including recruitment at all levels)
  • Talent Development
  • Leadership Accountability (responsible for results, communications, visibility)
  • Supplier Diversity (percent of tier-I and tier-II spend with minority, women-, LGBT-, disability- and veteran-owned businesses)

The DiversityInc Top 50 learning sessions and announcement dinner will take place on May 1st at Cipriani Wall Street in New York City. Nile Rodgers & CHIC will be our musical entertainment. Our keynote speaker is Paul Butler, author of “Chokehold: Policing Black Men.”

America is experiencing a diversity and inclusion conundrum—which, in historical terms, has not necessarily been a good thing. Communities are tearing themselves apart over the statues of long-dead Confederate generals. Controversy rages over which slogan—“Black Lives Matter” or “All Lives Matter”—is truly racist. Antifa street thugs clash with white supremacists in a major American city. Americans argue over whether the USC equine mascot “Traveler” is racist, given the resemblance of the horse’s name to Robert E. Lee’s mount “Traveller.” Amid all this turmoil, we forget that diversity was always considered a liability in the history of nations—not an asset.  

Ancient Greece’s numerous enemies eventually overran the 1,500 city-states because the Greeks were never able to sublimate their parochial, tribal, and ethnic differences to unify under a common Hellenism. The Balkans were always a lethal powder keg due to the region’s vastly different religions and ethnicities where East and West traditionally collided—from Roman and Byzantine times through the Ottoman imperial period to the bloody twentieth century. Such diversity often caused destructive conflicts of ethnic and religious hatred. Europe for centuries did not celebrate the religiously diverse mosaic of Catholic, Orthodox, and Protestant Christians, but instead tore itself apart in a half-millennium of killing and warring that continued into the late twentieth century in places like Northern Ireland.

In multiracial, multiethnic, and multi-religious societies—such as contemporary India or the Middle East—violence is the rule in the absence of unity. Even the common banner of a brutal communism could not force all the diverse religions and races of the Soviet Union to get along. Japan, meanwhile, does not admit many immigrants, while Germany has welcomed over a million, mostly young Muslim men from the war-torn Middle East. The result is that Japan is in many ways more stable than Germany, which is reeling over terrorist violence and the need for assimilation and integration of diverse newcomers with little desire to become fully German.

History offers only a few success stories when it comes to diversity. Rome, for one, managed to weld together millions of quite different Mediterranean, European, and African tribes and peoples through the shared ideas of Roman citizenship (civis Romanus sum) and equality under the law. That reality endured for some 500 years. The original Founders of the Roman Republic were a few hundred thousand Latin-speaking Italians; but the inheritors of their vision of Roman Republican law and constitutionalism were a diverse group of millions of people all over the Mediterranean.

History’s other positive example is the United States, which has proven one of the only truly diverse societies in history to remain fairly stable and unified—at least so far. Although the Founders are now caricatured as oppressive European white men, they were not tribal brutes. The natural evolution of their unique belief that all men are created equal is today’s diverse society, where different people have managed, until recently, to live together in relatively harmony and equality under the law.

Unlike present-day Mexico, China, or Japan, America never developed a fixed idea, either culturally or formally in its written constitution, that race or religion de facto defined citizenship. Instead, an imperfect America was always being reinvented in dogged pursuit of the Founders’ promise of equality and the toleration of difference.

Despite a Civil War that took over 600,000 lives, years of oppression and segregation, dozens of major riots, and thousands of court cases and legislative fights, our American exceptionalism held that America alone could pull off the bizarre idea that diverse peoples could eventually live together as a single people in brotherhood. But the American experiment is not static, nor is it settled. The nation’s racial, ethnic, and religious diversity is by nature volatile, and prone to exploitation by demagogues and opportunists.

A diverse America requires constant reminders of e pluribus unum and the need for assimilation and integration. The idea of Americanism is an undeniably brutal bargain in which we all give up primary allegiance to our tribes in order to become fellow Americans redefined by shared ideas rather than mere appearance.

Unfortunately, there are increasing signs that our political, religious, ethnic, and racial diversity is overwhelming our shared but fragile notion of national unity. Growing geographical separation into blue coastal liberal states and red interior conservative counterparts is starting to mimic the North-South regional divide of the Civil War, a split in national geography that is fueling political differences. Not surprising, there is talk of a Calexit, or a Confederate-like secession of California from the United States—and during the Obama administration, there was news of a secessionist movement in Texas.  

There is currently little real free speech on American campuses. A new kind of racial segregation is occurring in college “theme” and “affinity” houses. Recent street violence in places like Charlottesville between extremists of the left and right resembled the brawling between totalitarian Stalinists and racist brown shirts of 1930s Germany. The successful melting pot is caricatured; the unproven salad bowl is canonized.

Almost everything in America today is politicized and thus polarized, from the fundamental to the trivial: sports events, music, art, Hollywood movies, mute statues, cable television, university curriculums, Silicon Valley corporations, and now even the names of horses. Fewer people are unified. The schools and the media do not remind Americans that their country can be quite good without having to be perfect—and is far better than the contemporary alternatives elsewhere. At the same time, these institutions have convinced Americans that the evils of human kind—racism, sexism, homophobia, slavery, serfdom, and class oppression—are the unique sins of democratic America. Few today appreciate that only in America has there been a culture of self-critique, introspection, and dissent—and thus remedies for the nation’s shortcomings, a self-correcting culture not known elsewhere.

The fashion today is to identify yourself by your ethnicity, race, or sexual preference—as something that transcends both being American and a unique individual. In contrast, there are vanishing incentives for people to simply call themselves Americans, allowing the content of their character to trump the color of their skin. In this regard, we can welcome the recent change in name of the preeminent Latino lobbying group from the racialist National Council of La Raza to Unidos US. (Raza is a Franco-era chauvinistic buzzword meaning “The Race.”)

If America is to survive this fourth century of its existence, it will soon have to recalibrate from “celebrating diversity” to “celebrating unity.” The bleak alternative is history’s long list of genocides, tribal feuding, ethnic warring, religious conflicts, and pogroms. In sum, the United States will at some point have to subordinate the fad of multiculturalism to the ideal of multiracialism: many different-looking Americans who are nonetheless one in their shared customs, citizenship, and culture, while holding diverse political and cultural views not predicated on identity politics.

“Difference” is a plus when it is a matter of enjoying diverse foods, music, fashion, art, and literature that enhance a central, shared, and unchanging set of values based on the Declaration of Independence, the Constitution, and the Bill of Rights.

We all enjoy Mexican or Chinese food, but not Mexican or Chinese ideas of democracy and human rights. We all are enriched by Caribbean music but not by Caribbean notions of law and justice. We all value political and ideological diversity—but only when they rely on collective tribal allegiances. And we are impressed by Middle Eastern hospitality and family solidarity, but not Middle Eastern treatment of women, minorities, gays, and diverse religions. What makes millions of immigrants strive to reach and stay in America at all costs is not our racial make-up or our many languages but the racially-blind promise of freedom, liberty, the rule of law, prosperity, and security which are the dividends of Americans abiding by the precepts of the U.S. Constitution.

If America’s set of values becomes a pick-and-choose potpourri, there is no unity. And then America will certainly become yet another one of history’s casualties of diversity.

Diversity and inclusion (D&I) is the new catchphrase of today’s elite businesses and universities. Those institutions assume D&I is both a means—to excellence—and an end in itself, making them more closely resemble the larger world of which they are a part. So understood, companies from Facebook to Apple to Goldman Sachs, and academic establishments from UC Berkeley to Harvard to Yale, have found their new holy grail. Their commitment to D&I is all too often treated as a self-evident truth that none should be allowed to question in public discourse. But this new consensus for D&I, if left unchallenged, has an unintended consequence: unthinking intellectual rigidity, a malaise that all successful institutions must guard against.

The first difficulty with D&I is that it says very little about whom to admit and whom to exclude. Scarcity of places is a major constraint, so any institution committed to D&I has to decide whom to exclude from its community. Ironically, these institutions depend for their success on the institution of private property, which gives them the breathing room on which their cooperative activities rest. Defenders of D&I constantly bewail the bogeyman of exclusion, but no one is suggesting that these D&I stalwarts should select their new students and employees at random, in order to spare every poor soul from the heavy burden of being turned down on the merits. Institutions pursuing D&I necessarily have to adopt policies that privilege some people at the expense of others.

Having chosen its members, D&I champions next embrace a message of “fairness and protection to all regardless of gender, race, religion, ethnicity or sexual orientation.” But rarely do they face up to the conceptual ambiguities and practical tradeoffs that this grandiose statement conceals. Does any organization welcome the individual who is bold enough to reject D&I? More concretely, does D&I make accommodations for employees or students who on bona fide religious grounds are opposed to same-sex marriage? More generally, does D&I embrace, or even tolerate, true intellectual and political diversity? If so, why are there, from top to bottom, so few Republicans or libertarians within their diverse and inclusive ranks? Or does D&I unwisely overvalue skin-deep diversity at the expense of the necessary technical skills needed for particular jobs, like computer programming? D&I supporters pretend that these inescapable trade-offs do not exist: indeed, they all too often take pride in demonizing and excluding those who disagree with them.

In addition, the defenders of D&I too often insist that what works for them must work for everyone else. To be sure, most organizations function best when their members share common goals. Accordingly, large commercial firms often justify the importance of diversity in order to better serve their global clientele. In some contexts, they have made exactly the right judgment. Firm members and employees have to be comfortable dealing with all sorts of coworkers, customers, and contractors from the four corners of the globe.

By the same token, however, too much difference and variation in the workplace can come at a cost as well, undermining the shared sense of mission necessary for organizational success. Unfortunately, the D&I movement downplays the only two ways to deal with these internal conflicts, both of which involve exclusion. The first way is for a firm to acknowledge that certain disagreements cannot be papered over and, therefore, to make accommodations so that members of different religious groups, for example, can pray in separate places. Alternatively, if these differences prove too acute, the whole enterprise can completely split into different firms with more homogenous memberships. These newly divided groups can then interact with each other, if they so choose, by trading goods and services through discrete transactions that do not require the common vision needed within a single firm.

The need for business segmentation thus undercuts claims that the D&I template works universally. Thus smaller firms with specific religious or political ends have to reject the D&I formula. Regrettably, D&I defenders have become ugly in their willingness to resort to government force to compel adherence by others to their cherished norm. They are all too happy with enforcing a so-called “human rights” law that tells religious individuals to close up shop if they refuse to supply flowers, pictures, or wedding cakes to same-sex marriages. That totalitarian excess rests on the bizarre notion that a competitive market cannot function unless every firm agrees to serve every customer. Not so. Competition is dynamic, so if any one firm exits a segment of the market, others will move in to the void. No one thinks that gay activists must be obliged to help organize the weddings of evangelicals. Why not the converse? In the absence of any monopoly power, cooperation through trade yields more economic gain and civic peace than the majority’s efforts to make all dissenters bend to their will. Live-and-let-live is essential for social peace.

This same intolerant frame of mind can exist in both public and private universities. The unfortunate 2010 decision of the United States Supreme Court in Christian Legal Society v. Martinez held that the Hastings Law School could deny to the small and outnumbered Christian Legal Society certain key services because of its religious opposition to same-sex marriage and its refusal to allow gays and lesbians into its membership, effectively gutting the organization. At one time, the Supreme Court was sensitive to the plight of “discrete and insular minorities,” but in the new age of D&I conformity, both courts and former civil libertarians refuse to accommodate outnumbered and outgunned religious minorities, so that they may practice their faith in peace.

The same intolerance is similarly all too prevalent in private institutions. Some time ago I wrote about the perverse decision of Harvard University to force its “final clubs” (essentially, fraternities and sororities) to become coed by preventing any man or woman who joined an all-male or all-female club from holding any leadership role “in recognized student organizations or athletic teams”—even though virtually all sports teams are single sex. Recently, Harvard went one step farther, decreeing that, effective for the entering class of 2018, it will not allow anymore students to join the final clubs, including those that recently went coed under massive administrative pressure. The reason Harvard adopted this radical policy was to counter what it deemed to be the corrosive and toxic influence that these clubs exerted on campus. Once again, the champions of D&I have found it unacceptable to allow any student to belong to any group that failed to conform to Harvard’s singular vision of the social good.

By why this exercise of raw power? At no point did the Harvard report setting out this new policy demonstrate how membership in these clubs created the terrible conditions that were attributed to them. Instead, the sanctimonious and slapdash report rests on a general observation that is easy to make but impossible to refute, namely, that the “pernicious” effects of these organizations “permeate the fabric of campus culture.” The 2017 report offered no evidence of any untoward incidents at the clubs, nor did it show that members behaved in a haughty or disrespectful manner toward others. Further, there was no effort to show that these clubs, which have gained membership in recent years, were somehow rejected en masse by the student body—who, in a recent referendum, rejected the earlier sanctions against the clubs by about a two-to-one vote.

The self-selected doubters have every moral right not to join these clubs, but no moral right to impose their puritanical views on others. By taking this draconian action against the clubs, Harvard has made itself a less diverse place, stifling intellectual and political disagreements. As the Supreme Court, has noted in one of its most lucid moments, the offense, however great, that one person takes towards another is never a warrant to drown their speech or ideas. The same attitude that applies to speech should apply to the offense that people take to all forms of peaceful conduct. Freedom of association requires both the power to exclude and to include.

As a private institution, Harvard can adopt whatever foolish policy it chooses. But it will pay a heavy price for its own dogmatic intolerance. Its pursuit of “diversity” in this form can result only in drab conformity, from which it excludes all those who don’t share its vision. As the racial and religious composition of the United States changes, a pursuit of excellence will quickly lead to a different composition of students at many universities and many firms. But different institutions may choose to follow different approaches, and the great virtue of a competitive market is that it allows natural experiments to determine which approaches work and which do not. Harvard is already lurching toward mediocrity in its relentless pursuit of ideological conformity. Its blunders should be a wake-up call to everyone else.

Click here to register for the event. For more information contact Anita Ricketts, VP, Audience Development, at 973-494-0501 or ARicketts@diversityinc.com.  

About DiversityInc: A web-based publication serving more than 450,000 unique monthly visitors. DiversityInc is a VA certified veteran-owned business and a USBLN certified business owned by a person with a disability. For more information, visit www.diversityinc.com and follow us on FacebookTwitter and LinkedIn @DiversityInc

Contact: 
Yartish Bullock | YBullock@diversityinc.com | 973-494-0535

THE WINE DOWN BY WINE DIALOGUES

Do your palms sweat at the sight of a lengthy wine list? Do you pick wine at random because you don’t know the difference between a Chardonnay or Cabernet? E. & J. Gallo Winery, one of the world’s largest wineries, announces the launch of a new podcast series called “The Wine Down by Wine Dialogues,” hosted by comedian and self-proclaimed wine novice, Ben Schwartz. The seven-episode season is a crash course in wine education that breaks down the world of wine for people who love it but don’t know the first thing about it.

“Wine is a wonderfully complex and diverse beverage, and that can be intimidating for a casual wine drinker,” said Suzanne Denevan-Brown, Publisher of Wine Dialogues by E. & J. Gallo Winery. “However, you don’t have to be a wine expert to enjoy wine or even talk about it. With ‘The Wine Down,’ we wanted to create something that would show people you can have as much fun talking about wine as drinking it.”

Each episode, Ben sits down with a wine expert and a guest comedian to talk, taste and break down all things wine. Each week, Ben and his guests pick the brains of different winemakers to discuss impressive topics like the effects of barrel-aging or the implications of terroir and climate. They also had a little fun along the way, including learning what wine pairs best with waffles and creating a harvest call. “The Wine Down by Wine Dialogues” explores all the questions you’ve had, didn’t even know you have, or may be afraid to ask.

“Taping this podcast was a blast. It was just me and my buddies sitting around, having wine and silly conversations, but also learning something along the way,” said Schwartz. “I’ve always loved wine, but now I can sound like I know a little something about it.”

The series premiere titled, “Can I Ask You a Question, Sweet Winemaker?” is available now with new episodes released each Wednesday. To listen to “The Wine Down by Wine Dialogues,” subscribe or download wherever you find your favorite podcasts.

“The Wine Down by Wine Dialogues” is the first original wine podcast created in association with William Hill Estate Winery, created and produced by IMG Original Content. Endeavor Global Marketing, the cultural marketing agency within the Endeavor network, represented Wine Dialogues on the project.

See below for the full list of episodes in Season 1:

March 28: “Can I Ask You A Question, Sweet Winemaker?”
Winemaker Mark Williams from William Hill Estate Winery and guest Scott Aukerman join the episode to chat about the best places to drink wine and the legacy of California and New Zealand wine regions. Featured wines include Whitehaven Sauvignon Blanc, William Hill Estate North Coast Sauvignon Blanc and William Hill Estate Napa Valley Sauvignon Blanc.

April 4: “Ratings, Experts and a Home-Schooled Chipmunk”
Winemaker Michael Eddy of Louis Martini Winery joins Ben and his guests Jake Hurwitz and Amir Blumenfeld to explain what wine ratings mean and what they say about your wine preferences. Featured wines include Frei Brothers Russian River Valley Chardonnay, J Vineyards & Winery Black Label Pinot Noir and Louis M. Martini Sonoma County Cabernet Sauvignon.

April 11: “Que Queche Bubbly”
E. & J. Gallo Winery’s Lauren “LC” Castelluzzo and guest Kate Berlant join the episode for elaborate toasts and to talk about the history of bubbles, why we love it for special occasions and how bubbles have changed. Featured wines include La Marca Prosecco and Barefoot Bubbly.

April 18: “The Grapes Talk Back”
Winemaker Dave Coventry of Talbott Vineyards joins guest Eugene Cordero this episode to talk about the best places to “raise grapes” and how it affects wine flavors. Featured wines include MacMurray Central Coast Pinot Noir, Talbott Sleepy Hollow Vineyard Chardonnay and Talbott Sleepy Hollow Vineyard Pinot Noir.

April 25: “Good Day Rosé”
Winemaker Beth Liston from Dark Horse Wines and guest Laura Moses join the episode to talk all things Rosé and how our obsession with the varietal started. Featured wines include Fleur de Mer Rosé, Apothic Rosé and Dark Horse Rosé.

May 2: “Straight from the Barrel in Napa
Winemaker Michael Eddy from Louis Martini Winery returns with guests Jake Hurwitz and Amir Blumenfeld to walk through the vines with Ben and talk about what makes Napa wines so special. The featured wine is Louis M. Martini Napa Valley Cabernet Sauvignon.

May 9: “Tasting Menus, Pairings and Best Friends”
E. & J. Gallo Winery’s Scott Kozel guides Ben and his guest Jake Hurwitz and Amir Blumenfeld through a wine and food pairing to highlight the best of California cuisine and wine. The featured wine is William Hill Estate Napa Valley Chardonnay.

ABOUT E. & J. GALLO WINERY
Founded by brothers Ernest and Julio Gallo in 1933 in Modesto, California, E. & J. Gallo Winery is the world’s largest family-owned winery and the acclaimed producer of award-winning wines and spirits featured in more than 90 countries around the globe. A pioneer in the art of grape growing, winemaking, sustainable practices, marketing and worldwide distribution, Gallo crafts and imports wines and spirits to suit a diverse range of tastes and occasions, from everyday offerings to boutique, luxury bottlings.

The Gallo portfolio is comprised of more than 90 unique brands, including Barefoot Cellars, Dark Horse, and Gallo Family Vineyards, as well as premium box wines The Naked Grape and Vin Vault. Premium offerings include Apothic, Chateau Souverain, Carnivor, Columbia Winery, Ecco Domani, Edna Valley Vineyard, J Vineyards & Winery, Louis M. Martini, MacMurray Estate Vineyards, Mirassou, Orin Swift, Talbott Vineyards, and William Hill Estate, along with highly acclaimed imports, such as Alamos, Brancaia, La Marca, Las Rocas, Martín Códax, Whitehaven, and LUX Wines, importers of Allegrini, Argiano, Jermann, Pieropan and Renato Ratti. Gallo Spirits offers New Amsterdam Vodka and Gin and E&J Brandy, in addition to imported Scotch whiskies from Whyte & Mackay, including The Dalmore, Jura Single Malt and John Barr Blended.

Contact:
Alice Hennessy
Endeavor Global Marketing
ahennessy@endeavorco.com

Colleen Dourney
E. & J. Gallo Winery
Colleen.Dourney@ejgallo.com