If you want a good listening post for the big corporate boardrooms, the heavy political power centers, and the marketplaces serving the little people of the world, there's no better book than Thomas Friedman's The Lexus and the Olive Tree. However if you want to understand all these goings on, you're more likely to be seriously misled than edified. The book is chock full of glaring misanalyses, inconsistencies, false dichotomies, and even, dare I say, naiveties. And although Friedman's heart is-- more or less-- in the right place (he wants globalization to come with a social safety net) the defects of his book will probably do as much damage as his endorsement of the social safety net is capable of doing good. In other words, he's a good globalization gossip; but he's way off the mark when it comes to describing the structural ecology, needs, and prospects, of the global economic forest and not just a whole lot of trees.

Friedman's forced alternatives:

The failure of Friedman's take on globalization emerges from early in the book when one gets the sense-- an inaccurate sense as it turns out-- that the man is heartless. From the very first chapter he seems to be singing the praises of a globalization that puts efficiency above all else, and that requires a relentless process of creative destruction in the interests of shaving a tiny fraction off costs so as to be able to meet minimum goals of global competitiveness (9, 10). In anecdote after anecdote we learn of people who used all their wits, technology, and, we get the impression, every waking hour of the day, to be able to survive the most fiercely competitive environment ever to exist on planet earth, one in which as Friedman so insouciantly puts it, 'the winner takes all'.

But what sort of process is that to endorse? Who wants a world in which there isn't room for winners working on a small scale, alongside winners working on a large scale? No one. Then the only reason there would be to face the harsher consequences of increasingly unregulated globalization is that there's no alternative-- IF there's no alternative. At this point, Friedman really starts shooting himself in the theoretical foot. This is how he brashly puts it: "Once the three democratizations [of technology, finance, and capital] came together in the late 1980's and blew away all the walls, they also blew away all the major ideological alternatives to free-market capitalism. People can talk about alternatives to the free market and global integration, they can demand alternatives, they can insist on a "Third Way", but for now none is apparent."

He says this sort of thing again and again. Here's another example: "democratization of technology, finance, and information.... are what blew away all the old ideologies, other than free-market capitalism" (116, 117). Sometimes he mentions what those alternatives might be. What are the candidate alternatives? Monolithic communism! That's the main candidate alternative to unregulated capitalism. Friedman's ignoring of the actual historical processes is staggering (131). And one can't help but wonder why he constantly sidesteps the historical lessons that are the ABC's of economic history of the last two centuries. As far as Friedman is concerned, the main alternatives we're facing now are what he unhelpfully describes as 'free market democracies' versus 'free market kleptocracies' (131). This eliminates from discussion right at the outset the key and fundamental notion that all markets need to be regulated, and that if we are entering global markets, we need systems of regulation which extend the many systems of regulation which we've found to be required in regional and inside the state zones.

Looking at the alternatives Friedman left out:

There is, then, an important contrast between 'free market capitalism' and 'regulated capitalism'. Free market capitalism, also known as the 'laissez faire doctrine' and 'the invisible hand doctrine' is the thesis that the unregulated market produces optimum results. According to laissez-faire capitalism, there is a natural tendency within an unregulated market for an economic supply demand equilibrium to be reached, and this tendency to equilibrium more efficiently brings about optimum economic effects than would typically be brought about through central planning. The invisible hand tends to produce the best results for all. The author of laissez faire capitalism is Adam Smith, who wrote in the mid and late eighteenth century. Two points need to be noted immediately. First, the 'invisible hand' theory of Adam Smith was not the completely unrestricted invisible hand theory of the more radical contemporary libertarians. And secondly, the specific laissez-faire economics that Smith proposed was proven beyond all shadow of a doubt to be unworkable, a gross failure, by the excesses of the industrial revolution, and the need for a system of regulation of the free market.
Let's look at these two points. First, Adam Smith recognized that there would be situations in which the invisible hand would not produce the optimum outcome for society as a whole. The provision of education, for instance, would not, in his opinion, result from the operations of the invisible hand. It would require a kind of investment that wouldn't be forthcoming from strictly narrow or private interests. Theoretically, then Adam Smith was quite prepared to modify laissez-faire invisible hand economics in order to produce the optimum results that he was aiming for. This is so well known that it hardly needs citation.

In the second place, the cornerstone theory of laissez-faire, that by and large the invisible hand will produce optimal outcomes, has been conclusively disproven. Let's quote Smith himself on the theory: "The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining. The rich only select from the heap what is most precious and agreeable. They consume little more than the poor... They are led by an invisible hand to make nearly the same distribution of the necessities of life which would have been made had the earth been divided into equal portions among all its inhabitants; and thus, without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species" (from Theory of Moral Sentiments, quoted in K. Boulding "Economic Theory of Natural Liberty" Scribner's Dictionary of History of ideas).

History has shown the laissez-faire theory to be incorrect:

Of course the slums and execrable working conditions produced by rapid industrialization in Smith's home country a mere generation or two after his writing those words, put this theory to the test, and to the breaking point. And one of the chief rescues from the degradations of the early and mid nineteenth century was a system of controls, a system of laws forbidding exploitation in a variety of ways, and permitting, eventually, collective bargaining, the passing of minimum wage laws, the prohibition of child labour, and the passing of worker safety regulations. All of these were designed to cope with social welfare problems created by industrialization and urbanization, the breakdown of the extended family, and so on. What was left inside the industrialized countries by mid and late twentieth century cannot be called free market capitalism.

To repeat: what we've learned from the last two centuries is that without collective action to restrain the operations of the invisible hand, there would have been no raising the levels of the working classes. Another way to put it is to say that it was inevitable that such regulations would be imposed. The system itself, you might say, gains a political visible hand which imposes regulations on the economic invisible hand. Homeostasis requires these sorts of social and political regulations, and they inevitably evolve, and the process always becomes a visible restriction on the invisible hand operation.

The wide continuum from centralized regulated markets to wholly unregulated capitalism:

And so it should go without saying that during the Twentieth Century period there has been a continuum of socio-economic models. Some developing countries were kleptocratic autocracies; others highly libertarian in social process and ideology but falling slightly short of kleptocracy; some were highly capitalistic with a degree of social safety net but almost no commercial enterprise operated by government, government being reserved for legislative, administrative, executive, judicial, and educational roles ; some were mixed economies with state enterprise mixed in with the mostly capitalist system, and government subsidies of cultural activities, health insurance, etc; and then there was a whole continuum of models of socialist economies, while still being multi party in the political arena; and then finally, the single party communist systems.

This means that once communism has fallen, what is left is the huge variety along the continuum of mixed economies, alongside the libertarian social model. So to say that there is no ideology other than free market capitalism is virtually an insult to the intelligence. Since the late nineteenth century we know that free markets must always be regulated for worker safety, labour standards, wage standards, age of worker standards, hours of work standards, and so on. We are only now learning that for optimum results for the human community we need an equivalent set of laws for environmental protection. And we are only beginning to learn about laws for cultural preservation, and social fabric preservation.

In many mixed economy countries there is increasing privatization of crown enterprises, but there are enormous limits-- so far-- on the degree of privatization which has taken place. To say that there is no alternative to free market capitalism is to say (though Friedman may not mean this) that even British and Canadian universal and public health care should be privatized, because there is, after all, no alternative ideology to free market capitalism. Yet there is certainly, an ideology which rivals that of free market capitalism, namely the ideology that says a mixed economy, and a regulated market system, with labour, environmental, social and cultural protections against the free market, is preferable to unregulated capitalism. Does Friedman mean to include mixed systems in with 'free market capitalism'? If so, the terminology is so wonky as to be ludicrous, and for this very reason, that the chief choice we are facing is whether to intervene, deliberately, exclusively to increase trade liberalization-- and to face the consequent deregulation that accompanies it if things are left to their own devices, or, to work as hard to put a variety of controls and new sorts of regulations in place simultaneous with the taking down of whatever trade barriers are coming down. Anyway, Friedman is explicit on the point. Free market capitalism he defines as the view that 'the more you let market forces rule and the more you open your economy to free trade and competition, the more efficient and flourishing your economy will be" and globalization of free market capitalism has "its own set of economic rules-- rules that revolve around opening, deregulating, and privatizing your economy" (8).

Should we be repeating the extreme misfortunes that accompanied industrialization?

And so when Friedman says, there is no alternative to free market capitalism, it seems he must mean that we have no alternative to increased trade liberalization and the deregulation pressures which follow. Moreover he says as much. "...there's no one at the controls" he says (279), and frequently implies that that's the new world system, out of our control. Also, as we'll see, his only recommendations for improvements are activities within the unregulated system, and are not activities which include the study of and implementation of new regulations appropriate to the newly globalized conditions.

But what follows from increased liberalization and unregulated globalization? Friedman, amazingly, doesn't even mention the dynamics of the 'race to the bottom'. The race to the bottom isn't the only thing happening, but it is a significant factor. If country A has no environmental protection laws, then production in a factory there, other things being equal, will outcompete a factory in country B where environmental standards have to be met. So country A in effect is subsidizing its economy by allowing for environmental degradation, a degradation the whole world will have to pay for. There is then inevitably, pressure on country B to lower its standards, or face its factory moving to country C which is prepared (being a developing country) to compete with country A in environmental carelessness. Friedman shows virtually no interest in nor sensitivity to such structural dynamics.

Let's put all this together: what we are witnessing is a repeat performance of rapid industrialization of the early and mid nineteenth century. There are, however, two differences. Last time around the rapid industrialization was largely internal to the economy of the states undergoing the processes and the relatively few trading partners involved. This time around, the whole world is involved, and the speed is amazing. The second difference is that we've been through the process once before, and so we should be able to take advantage of the wisdom of our hindsight. We know, or should know, that unregulated industrialization and the deliberate imposition of free market capitalism and free trade globalization on increasingly large segments of the world is not a stable process. And it is not a healthy process in the sense that it gives rise to many extremely indecent conditions. One need only read Greider's description of the Thai factory fire, and the other "dark satanic mills" conditions to be convinced of that (One World Ready Or Not, Ch. 15). It is true that globalization can be of tremendous benefit to enormously large numbers of people. But in other respects, economic efficiencies and improvement can also be environmentally, and socially destructive, as well as disastrous for large segments of the population who are dislocated and disempowered in the process. Transportation costs are energy costly. When we become increasingly dependent on foods transported from distant markets, we may get cheaper foods for a while, but the world resources may be irrevocably damaged. And this is only one of many examples of the ways in which global efficiencies now may be recipes for disaster later.

The liberalization of economic rules in China has produced a huge underclass of prostitutes and petty criminals, with devastating social effects in enormous chunks of population. The freedom and economic status of these people may be 'bottom line' up; but the social fabric of the society is seriously strained. And the eventual political effects of having a huge criminal underclass is difficult to gauge. One hopes that China can avoid the criminal domination that Russia has to cope with now. Therefore, tremendous caution must be exercised in implementing the globalization changes. One must look at the long range effects on the environment and on the preservation of the cultural and social fabrics of the world.

Friedman's recommendations are ineffective, half-hearted, or self-contradictory.

With a bankrupt theoretical framework, it is no wonder that Friedman draws a complete blank when it comes to global structural features. He has nothing to say about placing controls of the sort recommended by George Soros (e.g. in The Crisis in Global Capitalism) on capital flow; he has nothing to say about the debt structure of the international economy, and the way the IMF is working; nothing to say about the WTO, its structure and its rulings. In light of the recent events in Seattle, this shows how much he has been missing in terms of the grapevine. His treatment of the potential backlash is similarly restricted and limited. While he treats some extremist forms of backlash, and some 'turtles' who want to just keep the old world, he egregiously fails to mention the objections of people who want to place structural controls on the processes, and who are aware that global competitiveness is often a mask for the race to the bottom.

It is true that some of the North American labour movement's objection to free trade is self serving. But it is self serving in a way that just happens to coincide with the interests of workers elsewhere in the developing world. Although leaders of developing nations may complain that they want to go through the same unregulated industrialization that the west experienced in the nineteenth and early twentieth centuries, there are enormous segments of the populations that have direct interests in early, not late, legislation of safety standards, age minimums, collective bargaining rules, and so on. And it's everyone on the planet who has a direct interest in environmental protections. Furthermore, there will still be price differentials between products of developing world manufacturers and products produced in the developed world. So it's only because there is no global system to minimize price differences within the developing world by raising standards across the board that the individual countries are reluctant to impose such standards. The need for a global system is, thus, acute.

Lacking a coherent model of the economic, political, and social alternatives to unregulated global capitalism available to us, it is no surprise to find that his positive recommendations are vague in the extreme, sometimes naive, and that his political analysis substitutes a catchy jingle for any kind of substantive insight. He says he wants a social safety net, but doesn't state the obvious point: if you get a social safety net, you do it only at the expense of free market capitalism! Social safety net restrictions are precisely restrictions on the free labour market.

As for naivety, his recommendation for restricting environmental degradation is to encourage tourism, and to create green zones in areas that are trying to attract hi-tech corporate development. The hi-tech workers will want to be surrounded by a pleasant environment, so that environment won't be degraded. The failure of this as a substantive strategy should be obvious. Without legal controls, the developing country can have tourism in some green spots, and environmental degradation everywhere else. This is no workable solution at all. And the green zones around the hi-tech company development would be a merely local 'green for the rich' solution. The key point is that Friedman has a real penchant for ignoring the fact that everywhere the market is left free, really free, it creates problems that cannot be coped with other than through legal regulation of it. Is that so difficult a point to grasp?

The Golden Arches Theory of Conflict Prevention Is a Cutesy Distraction from the real issues of arms control. And even in its own simplistic terms it was already proved wrong by the time the book was being read and reviewed. And then there's the double golden arches theory of war prevention. No two countries go to war if they both have the double golden arches restaurants. First Friedman made the observation-- which he says is an uncanny fact-- that "No two countries that both had McDonald's had fought a war against each other since each got its McDonald's". From this fact, he draws 'the golden arches theory of conflict prevention'. Here's his enunciation of the theory itself: "...when a country reaches the level of economic development where it has a middle class big enough to support a McDonald's network, it becomes a McDonald's country. And people in McDonald's countries don't like to fight wars anymore, they prefer to wait in line for burgers" (196). There are so many things wrong with this cutesy theory that it hardly seems necessary to subject it to serious analysis. But it is worth subjecting to serious analysis, because it's just this sort of cutesy theory that sticks in people's minds, and allows them to ignore, sidestep, bypass, and eventually, suffocate the serious and genuine concerns for human welfare that result from levelheaded and sober reflection.

So let's spend just a brief moment to look at the golden arches theory of conflict prevention. In order to take it seriously, you have to take its central claim seriously. "People in McDonald's countries don't like to fight wars anymore..." and so they will -- what? Put pressures on their governments to avoid warfare? Pressures sufficient to defuse conflicts? The absurdity of this is so manifest that Friedman himself can't help but make his claim so weak as to be useless. Look closely at the claim. It says nothing more than assert that countries which have McDonald's have populations that abhor war and will put pressures to avoid war more than countries which don't have McDonald's.

If that were true, then the 'uncanny observation' that started the theory off makes little sense. Why should it be the case that there are wars with one country a golden arches country, and the other country not a golden arches country? Could it be that the pressure of wealth does not discourage war that much?! Shocking. And what evidence is there that in any society that goes to war, the people are really keen to do so? Well, Jakarta has those arches, and Australia has them, and Australia had to march into East Timor to keep the peace. Washington has them. And Belgrade has them, and Washington made war on Belgrade. So there goes that theory. Friedman was actually bold enough to claim that the theory would only break down when everyone had golden arches, and there would still be war (196). "Eventually" he repeats twice, the theory would break down. But in fact by the time the book was off the press (or off the press for no more than a few months), the breakdown of his theory had already occurred!

The McDonald's theory of conflict prevention completely ignores the arms trade industry, a huge and globalized industry which must find clients for its products. And one of the main ways it can find clients is by making sure that the arms it sells are in need, and sometimes, at least, get to be used. So that it helps when there are conflicts between tribes, between nationalities, and so on, which can help create conditions in which war-making emerges. This is not a conspiracy theory; it's merely the dynamics of markets.

So the golden arches theory of conflict prevention ignores the globalized arms trade, misanalyzes the causes of war, confuses causation with correlation and doesn't even in any reviewable way establish a base correlation to begin with.
To approach the problems of globalization requires an understanding of the need for new transnational systems of regulation.

Finally, the most disappointing thing about the book is that it shows almost zero sensitivity to the system of international structures that must evolve if Friedman's desired global social safety net is put into place. Not once is there a mention of the fact that the US is deliberately and continually in arrears to the UN, waiting till the last minute to pay enough to keep its seat in the General Assembly. Nowhere is there any discussion of the role of international bodies in creating a climate where there can be a semblance of global justice. Until the American proponents of economic globalization work as creatively on constructing international systems to maintain the quality of life, the preservation of the environment, and international standards of decency as the transnationals work to achieve their bottom lines, both the recommendation of globalization and the recommendations of safety cushions ring hollow.

We have found over the last two hundred years that only regulated markets work. We are busily deregulating a host of markets in regions of the globe and throughout the globe. The global system is, at present, either unregulated, or regulated (by the WTO) to enforce deregulation. We cannot seriously believe that the invisible hand will magically work in the global marketplace in a way it has been proven to fail during periods of rapid industrialization in the past. So the time is ripe for us to creatively envision ways of reforming the IMF, the WTO, and similar bodies charged with overseeing the economic global integration processes so that they bring in social, environmental, and labour safety nets simultaneously with industrialization, and not a generation or two later.

The welfare of billions of people is at stake.

review by Leonard Angel Leonard_Angel@douglas.bc.ca