Globalization and scarcity
A physicist, a chemist and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore.
The physicist says, “Let’s smash the can open with a rock.”
The chemist says, “Let’s build a fire and heat the can first.”
The economist says, “Let’s assume that we have a can-opener…”
— Paul Samuelson
Perhaps it was not Paul Samuelson, 1970 Nobel Laureate in Economic Science, who started that joke on himself and all economists, for he lived to 94 (died in 2009), to the end still writing “prescriptions” on world economics, finance, and trade. He also wrote Economics, a textbook that was first published in 1948, which later ran up to 19 editions, sold over four million copies, and has shaped the economic thinking of generations of students.
The can-opener joke hinges on scarcity — nothing to eat, and then there’s this can of soup that becomes available to three hungry men.
And that scarcity described is the core concept of economics, as defined by British economist Lionel Robbins in his 1932 Essay on the Nature and Significance of Economic Science: “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”
With the joke on themselves that simplistically solves all problems by assumptions sometimes absurd like affirming a nonexistent can opener, know-it-all economists must be asked: Is there still such a thing as scarcity in a globalized world, and is it legitimate to assume, ceteris paribus, or “all things being equal” conditions which cannot ever happen in the fluidity of instant and near-complete information brought by technology and progress?
In the 1950s, Nobel Prize awardee for Economics (1987) and Massachusetts Institute of Technology (MIT) Professor Emeritus Robert Solow thought of an economic model that predicted an equalization of living standards across the globe whereby the diminishing returns of capital of rich countries vis-à-vis the access of poorer countries to technology and the experience of the former provide catch-up opportunities for the latter.
“Over time, all countries will be rich,” Solow said (The Economics Book, UK: 2012). Paul Samuelson, elder colleague of Solow at MIT, revised the sixth edition of Economics and added a new chapter on Solow’s “theory of growth,” acknowledging the changes effected by globalization on economics (History of Political Economy (2014): Business Source Complete. Web. 24 Mar. 2016 from Wikipedia).
Joseph Stiglitz, who had Solow as doctoral adviser for his Ph.D. dissertation (and also a Nobel Prize winner in Sciences laureate in his own right in 2001), believed in the paradigm shift wrought by globalization, but not quite in the spontaneity of Adam Smith’s “invisible hand.” He openly criticized the intervention of the World Bank and the International Monetary Fund (IMF) and other organizations that channeled and curtailed the development of the poorer countries by stringency on loans and assistance, this, despite the fact that he was Chief Economist of the World Bank from 1997 to 2000.
But despite Stiglitz’s and other economists’ seeming mistrust of institutions and governments in globalization, Adam Smith’s “invisible hand” seems to be visibly fusing the markets of the world together into one. The new technologies allow market integration where open trading borders and collapsed tariff barriers spread opportunity to where it would run, like water seeking the drier earth.
For a world GDP growth rate of 2.499% in 2016, poor countries like Bangladesh grew 7.1%; Bhutan 8%; Cambodia 7%; China 6.7%; Dominican Republic 6.6%; Ethiopia 7.6%; India 7.1%; Iran 13.4%; Iraq 11%; Philippines 6.9%; Uzbekistan 7.8%; and Vietnam 6.2%, as examples. Compare the growth of the rich countries: United States of America 1.5%; Japan 1.0%; France 1.2%; Germany 1.9%; United Kingdom 1.8% European Union 1.9%; and the OECD 1.7%, for examples (dataworldbank.org). Does this not look like Solow’s “catch-up” model in economic growth?
And so, is “scarcity” a dying word in economics?
The free flow of goods and services, specially the phenomenal overseas foreign workers (OFW) and business process outsourcing (BPO) have evened out supply and demand such that economists hardly have the opportunity (nor the confidence, perhaps) to play with “subject-to” constraints in analyzing scenarios of outcomes. The can-opener joke assuming the absurd possibility of a miracle as basis for decision on action is no longer funny in today’s free flow of information and technology.
The Philippines is the world’s 34th largest economy, the 13th in Asia, and the 3rd largest in ASEAN after Indonesia and Thailand. By GDP per capita values it is the 6th richest in the Southeast Asia region after Singapore, Brunei, Malaysia, Thailand and Indonesia (IMF World Economic Outlook Database).
As in most developing economies, the worry is still the trickle-down of the bonanza to the poor, who belong to 26.3% of population as of 2015 (psa.gov.ph).
The economy is on “auto-pilot,” a small group of economists half-laughingly concluded, at loose tête-à-tête at a common friend’s wake. Though they were of different and conflicting political leanings, all agreed that economics as a science is dramatically changing with the dizzying pace of technology and information, and with the ingraining of world globalization and its common markets. It was also admitted that the coziness of nations with each other in trade and economics can be trumped by the political leadership of the big nations who would want to play their cards to reverse globalization and turn inward, like US President Donald Trump’s radical “America first” policy.
In whatever case, there seems to have been a core-concept challenge to economics: does scarcity exist? Is a can-opener even needed to analyze this can of worms?
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.
