Global Capitalism Needs Some Fine-Tuning

In ''Global Capitalism,'' (Special Report, Nov. 6), you assert that market liberalization and more open trade, while essential for sustainable growth and the elimination of poverty, can cause severe damage to poor nations. Our view is different. We believe open trade promotes economic growth when basic institutions such as the rule of law, democracy, and sound monetary and fiscal policies are in place. Open trade cannot work effectively in developing nations that lack these institutions. It is this shortcoming--not trade--on which we should all focus attention.

For example, one study of 150 developing countries finds that every one-percentage-point increase in the ratio of trade to gross domestic product raised income per person by as much as 2%. Another study estimates that workers employed by U.S. multinationals in low-income countries earn more than eight times the average per capita salary in those nations. The challenge is to find ways to develop the necessary economic, political, and social institutions so these nations can share in the benefits of the global trading system.

We agree that multinational corporations should act in a socially responsible manner wherever they have operations, and we believe that transparency and public accountability for corporate performance are essential in assessing economic, environmental, and social impacts. That's why GM's 1999/2000 Steps Toward Sustainability follows the Global Reporting Initiative (GRI) Sustainability Guidelines, a generally accepted, globally applied reporting framework on economic, environmental, and social issues. The GRI is voluntary--and provides a model of innovative governance for global capitalism.

Dennis R. Minano
Vice-President for
Environment & Energy
General Motors Corp.
Detroit

You raise the pertinent question: Why is it that free markets are producing such wildly different results in different countries? Indeed, the balance is far from reassuring, and a backlash due to an erosion of political support for reform cannot be ruled out. You correctly point out that, without good governance, sound economic management, and educated workers, openness to trade and foreign investment is bound to fail to translate into sustainable growth.

If reform programs are unable to deliver sustained productivity growth, erosion of popular support is inevitable. Yet, although first- and second-generation reform programs have brought along impressive strides in macroeconomic stability and better governance to a number of developing countries, many of them failed to attain sustainable growth, even in those cases where a good skill base was available--think of Argentina and Brazil. This has to do with missing links in the development agenda, examined at a recent Venice meeting convened by the U.N. Industrial Development Organization (UNIDO) and attended by high-ranking representatives of the International Monetary Fund, the World Bank, various governments, multinational corporations, and academic researchers.

In a nutshell, such missing links concern the interactions between the incentive and the public-goods supply systems that fuel the private-sector-led mobilization of skills, knowledge, information, and technology--a sine qua non for sustained productivity growth. Only once reform programs start addressing head-on these key dimensions of innovative and entrepreneurial development will the risks associated with a growing gap between developing and developed countries in export capacity and access to markets begin to be offset. Policymakers and international organizations would do well to heed this clear lesson taught by the history of successful catching-up.

Carlos A. Magarinos
Director-General, UNIDO
Vienna

The answer to the questions posed is that the establishment of the World Trade Organization, strongly endorsed by corporations that are engaged in international trading, took into account only the fundamental financial principle of capitalism. Neither in design nor in practice have social aspects been considered.

Certainly, America has enjoyed a ''cornucopia of affordable goods,'' but nowhere is there mention that this has been at a price: a trade deficit exceeding $2 trillion. Given that corporations that trade internationally have strong incentives to shift production to wherever in the world costs are lowest, the deficit will continue to increase.

Robert G. Laidlaw
Greenwich, Conn.

Voluntary Food Labeling Is Working for Consumers

The Grocery Manufacturers of America, on behalf of the entire food industry, has asked the Food & Drug Administration to implement mandatory consultation before biotech crops and ingredients can be used commercially (''After Taco Bell: Can biotech learn its lesson?'' News: Analysis & Commentary, Nov. 6). We have also asked the FDA for specific guidelines on biotech labeling that would set standards for what is meant by terms such as ''nonbiotech'' or ''biotech-free,'' so that we can continue the voluntary labeling system. The FDA's decision on that request is expected later this year.

Where mandatory labeling has been tried--in Britain, for example--the practice has implied there is something wrong with biotech ingredients, forcing the foods from shelves and effectively ending consumer choice.

In the U.S., consumers have a choice. That's because while many food companies use biotech ingredients, other manufacturers, organic growers, and retailers have decided to go nonbiotech, which they advertise on labels and store signs. It would be a terrible mistake to tear down our voluntary labeling system that has given the U.S. the safest, most abundant food supply in the world.


C. Manly Molpus
President and CEO
Grocery Manufacturers of America
Washington

Competition Could Only Improve Public Schools

Suppose there was just one supermarket chain (''Tim Draper's voucher crusade,'' Social Issues, Nov. 6). No other place to buy groceries. After several years of that monopoly, what would it be like to shop there? The stores would be untidy, would have limited opening hours, the quality of goods would be lousy, there would be frequent shortages, prices would soar unchecked--all these for the lack of competition.

You can see the parallel with our public schools. Since even among the public schools some are better than others, let's have public schools compete with each other for their customers/dollars, let the parents choose to which school they send their children. Public schools with a better reputation would get more students (or vouchers) and would have more money to hire better teachers and to spend on extras. Better-paid teachers would be willing to handle larger classes with commensurate pay. Schools should be forced to compete, as every individual and enterprise must.

George Seress
Port Charlotte, Fla.

Weighing in on the Alaskan Wilderness Debate

I read ''Gore's reckless and offensive passion for the environment'' (Economic Viewpoint, Nov. 6) with amazement and horror. Thank heaven the economists aren't running the country. Contrary to Robert J. Barro's arguments, most ordinary people have a grasp of social costs as well as pure economics. Nowhere does the professor take these into account. He glibly dismisses them with his note of ''hypothetical damage to a vast wilderness that is not especially attractive.'' Drilling isn't hypothetical. It causes damage, which may or may not be repaired, and which may cause other side effects. Most ordinary folk understand that. Why doesn't he?

Whether the wilderness is attractive or not (a subjective opinion, and not usually a cost factor in an economist's equation), many of us realize that there isn't as much of it left as there used to be, and we keep finding unexpected effects the economists never included in their original analysis.

No one pretends that ''environmental damage costs an infinite amount.'' But history shows that environmental costs are never easy to calculate in the long term, and environmental damage has unforeseen social costs that may be incalculable. Surely, it is better to err on the cautious side? If we were all starving and that Alaskan oilfield was the only thing between us and our demise, then we would probably all agree to drill. But it's not, and we're not.

Barro says Gore's views are ''extreme relative to the opinions of ordinary Americans.'' It is head-in-the-sand conservatives like Barro who hold extreme views relative to the rest of us.

Peter Thornton
Annapolis, Md.

When economists try to make decisions about our country's wild lands, they wrongly assume that the benefit in dollar terms of leaving the wilderness untouched is zero, and that the only good wild land is that generating revenue for the human species.

Scientists, not economists, should decide the fate of our last remaining wild lands. There is scientific evidence that drilling for oil in the coastal plain of the Arctic National Wildlife Refuge in Alaska will cause irreparable damage to hundreds of wildlife species. To many, including Al Gore, the cost of destroying this last vast wilderness is too high. Regardless of how much oil (current estimates put the amount in the coastal plain at only enough to supply the U.S. for less than six months) is recoverable, there should be places that remain untouched from human destruction.

Amy Gulick
North Bend, Wash.

Barro suggests that if Alaska was opened for oil exploration, this would cause Saudi Arabia to sell more oil earlier to avoid lower prices in the future--as if the small amount of oil that would hypothetically be coming from Alaska would be able to drive oil prices down.

Secondly, I say hypothetically because this oil would probably never be pumped, given the costs of pumping it. Oil is so much cheaper to get out of the ground in Saudi Arabia that it doesn't make business sense to get oil from Alaska. It doesn't make sense, that is, without subsidies to the oil companies to offset their increased costs--something Barro conveniently forgets to mention because it would reveal the hypocrisy of his position. After all, he also argues against intervening in the markets. It's fascinating how quickly conservatives' free-market credentials fade when a chance for some tasty corporate welfare for their friends pops up.

Finally, Barro suggests that the benefits of drilling for oil in Alaska outweigh the environmental costs and cites $9 billion per year of oil company revenues as a benefit. But since taxpayer subsidies are the only way the oil companies could realize these revenues, it's hard to see how ''...the benefits extend ultimately to all users of energy.'' This wonderful scheme ultimately ends up being a transfer of millions or billions of dollars from taxpayers to oil company stockholders. Republicans who own oil stocks would undoubtedly call this a benefit to society, but I call it what it is: a corporate welfare boondoggle.

Robert Parker
Arlington, Va.

''A compromise from the crusader'' (Finance, Nov. 13, 2000)

''A compromise from the crusader'' (Finance, Nov. 13) incorrectly stated that Arthur Andersen is divesting itself of its information-technology consulting practice. The firm is not selling off that practice.