Economic globalization is the phenomenon by which businesses may operate simultaneously in many countries, it is driven by the market economy and its manifestations are the circulation of commodities, capital, services, personnel and funds on a global scale. Its essential motivating forces are advancements of science and technology, emergence of the global market economy, adjustments to the industrial and economic systems and the desire for economic co-operation and trade. Economic globalization is based on and embodies a series of ethical rules and standards of which the most important are economic freedom and economic equality.

Economic Freedom: the Premise of Globalization

Reviewing the course of economic development since the 16th century, it is easy to find that the choice between promoting and limiting economic freedom is always the key problem of advancing and constraining the development of the market economy. At the early stage of the European market economy, the economic theory and policy of mercantilism were against free trade. It was argued that a nation's wealth relied on the accumulation of noble metals such as gold and silver and that the nation should sell more and buy less to build up its currency reserves from foreign trade. In 1776, Adam Smith, the founder of modern economics, criticized mercantilism and put forward the theory of "laissez-faire" market economy in his groundbreaking work An Inquiry into the Nature and Causes of the Wealth of Nations, which is the theoretical foundation of the development of Western market economy. Smith argued that:

"All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men".

Under the pressure of Smith's influence and after repeated debates among different political groups, England gradually dismantled its tariffs on imports and exports from 1845 and finally made free trade possible in 1860. From then on, the Industrial Revolution spread to France and Germany and later to other parts of Europe and the US, giving rise subsequently to the birth of industrial capitalism.

After World War One, Europe and America fell into a prolonged period of economic stagnation that eventually culminated in the Great Depression in 1929. By 1933, more than 14 million people were out ofjob and the economy was in the verge of paralysis. When Roosevelt came to power in America, he put into practice a deficit financial policy to stimulate economic recovery by increasing government spending on a large scale. In 1936, John Keynes published his The General Theory of Employment, Interest and Money, which demonstrates the economic significance of government interference through an expansionary financial policy. After World War Two, the adoption of Keynesian theory and policy by most of the developed countries saw the substantial interference of governments in production, exchange, distribution and consumption.

Keynes was not without opposition from Western economists. Friedrich A. von Hayek, a representative economist of contemporary neo-liberalistn thought, stated in The Road to Serfdom in 1944 that the projected welfare states then were not fighting for personal liberty in time of peace but advancing the dictatorial serfdom system. After 1970, the Keynesian policy received increasingly harsh criticisms from neo-liberalism because the "stagflation" problem that unemployment existed along with inflation became increasingly more severe in developed countries. Since 1970, several neo-liberalism economists had been awarded the Nobel Prize for Economics and neo-liberal theory had aroused serious attention in the West. In particular, with the end of the Cold War in 1989, neo-liberalism thoughts assumed a dominant position and, together with the "New Economy", became prominent throughout the world.

The course of development of Western market economy shows that it is economic freedom that has been promoting the mature growth of the market economy and its spread to many parts of the world. Despite the long existence of state control and interference, economic freedom has always been the main theme in the development of the market economy.

The greatest benefits of economic globalization and the integration of world economy are the release of productive forces on a global scale and the optimum allocation of world resources. As a result, the wealth of the world had increased. It was Adam Smith who first revealed the reason why the integration of the world economy could build up the national wealth of all countries. He believed that:

"If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage. The general industry of the country, being always in proportion to the capital which employs it, will not thereby be diminished ••• It is certainly not employed to the greatest advantage when it is thus directed towards an object which it can buy cheaper than it can make. The value of its annual produce is certainly more or less diminished when it is thus turned away from producing commodities evidently of more value than the commodity which it is directed to produce".

Adam Smith believed that free trade would lead every country to exert its advantages and to purchase the commodities it needs at the lowest price. In this way the allocation efficiency of resources would be optimized so that its capital and labour would be used in areas of production for maximum output. That is to say, free market, the invisible hand, will ensure the maximal yield of investments.

In 1817, David Ricardo put forward the theory of "comparative advantage" in his On the Principles of Political Economy and Taxation, which further expanded on Adam Smith's thoughts. He argued that it was not only favourable for a country to specialize in producing those goods that it had absolute advantage over other nations, but also to specialize in the industry in which it had comparative advantage. Under the system of completely free business, every country was sure to make use of its capital and labour to maximum benefit. It could realize the most effective and economical distribution of labour; at the same time, the growth of gross production would benefit all the people of the civilized world and link them into a united society sharing common interests.

The theoretical premise of the theory of comparative advantage is economic freedom advocated by Adam Smith. What social values that economic freedom conveys are accepted by economists such as Adam Smith and David Ricardo?

Adam Smith explicitly explained his opinion in three aspects. Firstly, he argued that every person acts on his own material interests as an "economic person". The motive of the "economic person" for self-interests calls for economic freedom. Private profit, he believed, was the only motive to determine the use of capital. Every person will try to find the most profitable way to use his disposable capital. What matters to him is not the social welfare but his own interests. However, the actions to pursue private profit may lead to beneficial consequences on the whole community.

"…by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."

In other words, with the spontaneous adjustment of the law of prices in market economy, people will naturally invest their capital into the industries that are most beneficial for both themselves and social needs. Once the capital invested in certain products is too excessive, supply will exceed demand and profits will decline. Then, the "economic man" will spontaneously change his investment choice, making government interference unnecessary.

Secondly, the optimum allocation of social resources implies the need for economic freedom. In the light of domestic resource allocation, a particular manufacturing industry can sometimes be established more rapidly due to government control of the economy. However, neither the aggregate value of labour nor the revenue of the economy will hence be increased. This is because:

"The number of workmen that can be kept in employment by any particular person must bear a certain proportion to his capital, so the number of those that can be continually employed by all the members of a great society must bear a certain proportion to the whole capital of that society, and never can exceed that proportion."

Hence, no regulation of commerce "can increase the quantity of industry in any society beyond what its capital can maintain. It can only divert a part of it into a direction into which it might not otherwise have gone."

When too much capital and labour are transferred into protected industries, the profit and payment in these industries will certainly decline as a result. Meanwhile, those industries that are not protected but are essential to the economy will be overlooked due to the shortage of labour and capital. This is to say that artificial interference will distort the rational allocation of domestic resources. Adam Smith concluded that,

"It is thus that every system which endeavours, either by extraordinary encouragement to draw towards a particular species of industry a greater share of the capital of the society than what would naturally go to it, or, by extraordinary restraints, force from a particular species of industry some share of the capital which would otherwise be employed in it, is in reality subversive of the great purpose which it means to promote. It retards, instead of accelerating, the progress of the society towards real wealth and greatness; and diminishes, instead of increasing, the real value of the annual produce of its land and labour."

Thirdly, the international division of labour calls for economic freedom. If a country has a great natural advantage in the production of certain goods, other countries then purchase these goods from this country while concentrating their capital and labour in producing goods in which they enjoy a natural advantage. This is beneficial to both the trading parties. The prerequisite for such international labour division is completely free movement of capital, technology and labour across boundaries and the elimination of tariff and non-tariff barriers on trade. If countries restrain the import of goods that they can manufacture within their boundaries but at a disadvantage in terms of costs, there will be no possibility for international division of labour.


It is not difficult to conclude that the prerequisite for the comparative advantage theory to play a regulative role of the "invisible hand" in real sense is to reduce or even remove governmental interferences and restraints on the economy. In other words, the liberalization of domestic economies in all nations is a pre-condition for the liberalization of global trade. The liberalization and integration of the global economy cannot be realized without domestic economic liberalization. For this reason, WTO, like its predecessor GATT, advocates the market economy on the principle of full and free competition. In addition, agreements have been introduced to restrain member countries from interfering with the economy and to make efforts to maintain an economic environment for free competition. Therefore, the primary requirement for realizing economic globalization is to reduce government interference on the economy and to guarantee as much economic freedom as possible. Economic freedom is the basic economic morality that has universal ethical values and asks for the common adherence of all governments and economic organizations.

Economic Equality: the Essential Requirement of Globalization

In the course of globalization, economic equality is even more difficult to attain than economic freedom. In the historical context, globalization started with the great navigation discoveries of the Portuguese and Spaniards in the 15th century, and subsequently driven by the establishment and expansion of market economy in Europe in the 1 7th and 18th centuries. In the late 19th century, the global commodity markets of European imperial powers further advanced the level of "globalization", though each colonial empire pursued its own neo-mercantilist policies and divided the world into rival trade zones. The process saw the oppression and exploitation of the industrial powers on underdeveloped territories.

In the modern era, respect for social equality has become the legal foundation of Western capitalism. As the Declaration of Human Rights of (•'ranee pronounced, "equality means everyone can enjoy the same right". However, the awareness of equality was reflected only in dealings with domestic political and legal relationships of a country. Countries that took the lead in developing capitalism had never sought for social and economic equality on a global scale but acted for their own interests in their promotion of free trade, expansion of overseas markets and grabbing of colonial territories. In the mid-17th century (1652-1674), Britain replaced the Netherlands to become the master of the high seas by delivering several deathblows to Dutch merchant ships. Since the early 20th century when Germany overtook Britain and France in economic power, it attempted to do so by force, and eventually leading to the outbreak of the World War One. The cause of the Second World War was the result of similar attempts by emerging Germany, Italy and Japan to challenge the leading position of such long-established capitalistic countries as Britain, France and America. It can be seen that free trade and globalization were accompanied by hegemonic dominance. In other words, the powerful capitalist countries were concerned with how to enhance their own social and economic superiority and to acquire the power to control and exploit other countries especially the underdeveloped ones, through unequal economic relations.

After World War Two when more and more colonial territories gained independence, the ethical principles of economic equality were put forward. The 51 member nations at the founding of the UN in 1945 had increased to 156 in 1980, among which 105 were Third World countries that gained independence in the post-war period. Practically all these former colonial territories were faced with the problem of economic development and industrialization. They had been the exclusive markets and suppliers of raw materials of their respective imperial powers in the early stage of capitalism.

With the emergence of many independent nations and their growing importance in world political affairs, the long-standing international order of hegemonies and power politics came under challenge. In 1964, the Second Summit of Non-Aligned Countries put forward a proposal to re-establish the world economic system. The sixth Special Joint Assembly at the UN in 1974 passed the Declaration on Establishing the New Order of International Economy and the Program of Action put forward by the Group 77. The declaration denied the conventional thoughts on hegemony and was determined to establish a new order of international economy on the basis of justice, sovereign equality, interdependence and co-operation of all countries regardless of their economic and social systems. It believed that the new order is to remedy existing inequalities and injustices and gradually narrow the wide gap between developed and developing countries.

Since the 1990s, significant changes in international situations have allowed substantial progress to be made in the establishment of the new order both in theory and practice. Politically, the break-up of the former Soviet Union and East European countries ushered in the end of the Cold War in which two super powers had dominated the world. Although the US as the sole superpower has since gained overall global domination, the EU and Japan are unwilling to let America be the only beneficiary of the Cold War. They have been seeking a greater say in the new global economic order. Similarly, rapidly emerging China and Asia-Pacific countries do not welcome domination b a single or a fe countries. The gradual recovery of Russia's political and economic status has revived its desire to play an important role in the construction of the new international order and to extend its influence in world affairs.

Developing countries are keen to take advantage of the disintegration of the bipolar system of the Cold War period to dismantle the old unequal international order. In an economic sense, China and Southeast Asian countries are growing much too rapidly to allow developed nations to command the world economy on their own terms. The newly industrializing countries have won themselves a greater voice in international economic affairs. Advanced information technology has enabled these countries, which had been lagging behind in the process of industrialization, to leapfrog the traditional industrial period to speed up their development.

The above factors will help to break down existing hegemonies to promote peaceful, equal, just and rational development under the new international economic order. As a result, WTO emphasizes a special concern for the least developed countries in addition to implementing the fundamental principles of GATT. At the Ministerial Conference held in Singapore in 1996, all member nations agreed on the plan to assist the poorest countries in the world to participate in multilateral trade and improve market access for their exports to the developed countries including the abolition of all tariff harriers. In 1997. WTO held a Ministerial Conference of the least developed countries in Geneva, which put forward measures to help these countries to utilize the trade system more efficiently and to commit developed nations to offer better access to their markets. The special concerns of WTO for developing countries indicate that reducing and eliminating economic inequality have become the common voice of the world today. Improving economic equality among nations has become a basic code of economic ethics that all countries should comply with in the course of economic globalization.

Globalization will only ensure developing countries equal rights in building new international political and economic orders on the basis of economic equality as a prerequisite requirement. Politics and economics are inseparable. Economic globalization is not merely a simple extension of markets, it has special political and cultural significance. On the one hand, economic globalization has been promoted by Western nations historically and for practical ends. Many developing countries were forced to open their markets by the warships and cannons of Western powers and remained in a passive and unequal position in international politics and economics. On the other hand, the fact that economic globalization has been mainly driven by a small number of advanced countries has not been widely recognized. Many regard globalization as the natural evolution of the market economy. On that belief, a few Western powers use their authority to insist on the acceptance of democracy to replace authoritative systems, human rights to undermine national power, and the supremacy of economic interests over national sovereignty.

In their desire to achieve their dream of dominating the world, advanced countries have been unselfish in their attempts to push forward economic globalization. Martin (2001) argues that for most countries, globalization is a compelled course and an unavoidable one. In the US. it is pushed forward and maintained by its economic and political elites. Globalization has undermined the sovereignty of most countries. The US is the only exception in being able to keep its sovereignty intact. It is the politicians and their consultants in Washington who made the rules of globalization in terms of economic, trade, social, financial and monetary policies despite their ignorance on these issues. It is obvious that the political ambition of building a single-pole world dominated by the US runs counter to the historical tendency of equality and diversity and the demand for interdependence and mutual benefits through economic globalization. In this sense, the hegemony of big powers and oppression are to be opposed. No nations have the right to invade and rudely interfere with the sovereignty and internal affairs of other nations by means of economic and military might. All nations, irrespective of size and strength, have the right to equal treatment and to participate in international political and economic affairs. Only in this way can the "law of the jungle" be changed and globalization to benefit all human beings, particularly those in developing countries.

Hayek (1997) once said that freedom had nothing to do with equality of any kind, and it was bound to create inequality in many ways. However, it did not deny the importance of people's ideal for equality. John Ravvls (1988), a well-known contemporary philosopher, believed that liberties have priority, or liberties can be restricted only for the sake of liberties. Such restricted liberties include equal but not extensive liberties because of some natural and historical factors and unequal liberties. ^; Rawls put forward his idea that it was probably rational to give up equality sometimes when the long-term interests were so great that an unfortunate community could be converted into one in which every person could enjoy full equality and liberty. He further pointed out in his Political Liberalism tiiat social arrangements should aim at maximizing the primary good that is fit for the people under unfavourable conditions in order that they are able to enjoy the basic liberty and equality as others do. which is one of the main purposes of political and social justice. Amartya K. Sen (2000). Nobel Prize winner for Economics in 1998, believes that the primary standard of value is freedom. He explains the concept of freedom not only in the legal sense, but also in the practical sense, which includes the basic abilities to be safe from afflictions, such as hunger, malnutrition, diseases, and the capacity of learning and freedom of participating in politics. Sen argues that the problem of disparity would become more serious when attention is shifted from the disparity of income distribution to that of practical action. Such factors as physical disability would also put a person at a disadvantage in living a quality life even if he had the same job and income as a normal person. He believes that economic freedom alone will not guarantee that people can equally enjoy freedom in a practical sense. Economic freedom should eliminate all kinds of economic inequality as its goal and guiding principle and pay attention to both efficiency and justice. Only in this way can the practical freedom of more people be effectively built up.

With regard to the relations between economic freedom and economic equality, some politicians in developed countries hold that freedom takes precedence to equality. The Declaration of Development Right was adopted by the UN General Assembly in 1986, declaring the right of development as an inalienable human right of all the peoples of the world and their right to participate in, promote and enjoy social, cultural and political development to realize all their rights and fundamental freedom. The confirmation of the right of development connotes the equality of economic rights in the era of economic globalization. Only the US voted against the Declaration and one of its arguments was that freedom, one of the fundamental human rights, was superior to the rights of existence and development to eliminate hunger, diseases and illiteracy.

This argument cannot be justified. Western countries have regarded freedom and equality as the most fundamental human rights. The first clause of the Universal Declaration of Human Rights, passed by the UN General Assembly on December 10, 1948 holds that all are created with freedom and all are equal in respect and rights. It is indeed a great progress of historic significance to consider freedom a fundamental human right. It contributes to the liberation of the peasants and the oppressed in developing countries. But freedom in an absolute sense ignores people's survival and development problems, and also ignores the equal rights of developing countries to participate in the world economic system. It also deviates from the aims of the Universal Declaration of Human Rights. In the sense of the "practical freedom" of Amartya Sen. to deprive developing countries of equal rights to development is to deprive the people of their practical freedom.

It is true that every country undertakes different obligations for the development of the world economy. Every country is different in the level of economic development, natural resources and population pressure. If developing countries are subjected to the same obligations as developed countries in the development of the world economy and economic globalization, they will lose out in the chances of survival and development. In international forums in both the UN and the WTO. the hottest disputes and largest disagreement are whether developing countries should undertake the same obligations and duties to the world economy and social development as developed countries.

Historically, Western philosophers and economists hold two opposing views on whether the individuals at different developing levels should be treated differently. John Mill (1991) thought every adult man or woman was assumed to have the capacit> to freely use his or her physical strength and brain power and the factors of production - lands and tools. That is to say that every one stands at the same starting point in terms of the external conditions. Mill believed that compensation should be made to the people at unequal positions in family backgrounds and talents so that the society could offer equal opportunities to all. But Hayek (1997) held that differences exist among people; if they were treated equally, they would be unequal in their true status. So the only way to put them on an equal footing was to treat them differently. Although economic inequality is one of the social evils, it is never justified to resort to discriminating ai.d coercive measures as a solution to inequality. It is quite clear that Hayek is against offering any compensation to those people in a disadvantaged position in order to lessen economic inequality. Hayek's idea represents a common opinion of contemporary thoughts of neo-liberalism. It also provides an important theoretical excuse for developed countries, represented by the US, not to undertake more responsibilities in protecting the global ecological environment, reducing the debts of poor countries and giving more economic aids to them. Mill's viewpoint is undoubtedly more rational from the angle of morality, and hence received recognition of many contemporary thinkers, with Rawls as their representative. Rawls indicates that because the inequality in family backgrounds and talents is irrational, it should be compensated in some way. Thus the compensation principle asks for more attention on those with fewer talents and at unfavourable social positions in order to give them equal opportunities. In short, in the course of economic globalization, it is both the essential point of economic equality and the objective requirement of human morality and justice for developed countries to undertake more obligations and offer some rights and interests as compensations to developing countries, especially the least developed.

Conclusion

Economic globalization is a pervasive process that penetrates all parts of the world but one that favours the economically advantaged. In order that this process may benefit the rich and the poor, it must rely on economic freedom as the premise for more economic equality among nations. In this sense, globalization is only meaningful if the process of development takes place under the twin conditions of economic freedom and equality. The presence of one without the other will only exacerbate existing conflicts and contradictions caused by globalization in its current form.


Notes

1. This statement is found in the Chinese edition but not in the Knglish translation.

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