Globalization and Local Cultures: an Economist’s Perspective.

In J. Davey (ed) Globalisation and Local Cultures: Emerging Issues for the 21st Century, the proceedings of a seminar is sponsored by the Federation of New Zealand Social Science Organisations, the Royal Society of New Zealand, and the New Zealand National Commission for UNESCO. 27 June, 1997. p.20-27.

Keywords: Globalisation & Trade; Literature and Culture;

Globalization might be justified by David Ricardo’s pregnant insight of 150 years ago, that it may be in the material interests of a region or country to withdraw from producing a product where it had an absolute advantage in production, in order to produce another commodity for which it had a comparative advantage. By trading the comparative advantage commodity to another region or country in exchange for the other commodity, both benefit. This suggests regions or nations will become increasingly specialized in the production of products which can be traded, presaging the globalization of the world economy which has been evolving since the nineteenth century, if not earlier.

However, elegant though the theory of gains from trade may be, the analysis requires many assumptions, not all of which are plausible. We might ask why the more protectionist theory of Georg Friedrich List did not dominate. Economists have put a lot more effort into developing Ricardo’s normative account of trade than they have List’s. Indeed we know more about the defects of Ricardo’s theory because of this effort, and most of what we understand about List’s theory is via our understandings of Ricardo’s.

So why did economists put so much effort into Ricardo’s theory, rather than List’s? One answer is that it involves a more intellectually elegant analysis, but that does not make it true. A second explanation is that there is an intrinsic truth in Ricardo which is not in List. But what independent evidence do we have to decide on such inherency? It is a circular argument to use globalization as a justification for the truth of Ricardo’s theory, since earlier we were using Ricardo’s theory to predict globalization.

We can avoid the circularity if we take a less normative approach, and focus on the behaviour of the market from a positive perspective – a concern about how the world works, rather than how it ought to work. In particular I want to argue that given appropriate production conditions market forces will integrate individual markets into larger regional, national, and international ones. Indeed the market process seeks out and generates those production technologies which favour global integration. This approach sets aside the preoccupation of economists and non-economists alike about whether market forces and the process of globalization are good or bad. Once the market is treated as an amoral phenomenon we can make judgements about its outcomes without taking on all the normative baggage that has been loaded onto market forces.

What are the supply-side changes which are driving globalization? There are two key ones. The first is the falling costs of transport. As far back as we have records new technological innovations, including infrastructural and social technology developments, have reduced the carriage costs between regions and now nations, not only the transport of physical items such as goods, but also information by the use of such carriers as cables, the electro-magnetic frequency spectrum, satellite, and now the Internet.

Second, is the increasing importance of the simplification of production processes, the standardization of products, and economies of scale where the average costs of production fall as output increases. Falling transport costs allows these possibilities. to be reaped. Consider an economies of scale example.

The typical Asian car assembly plant can make between 80,000 and 100,000 units (cars) a year. Their present plans are to increase the production scale by 50 percent to plant volumes of 120,000 to 150,000 units a year. Often this is in countries which cannot absorb that number of a particular make, so the plans depend on their exporting the surplus production, which is feasible because of the falling transport costs.

New Zealand’s total purchases of new cars is about 60,000 units a year, that is, smaller than the minimum single plant size. Thus the ability to maintain car assembly in New Zealand depends on the finding of export markets.

Protection of a domestically oriented New Zealand car assembly industry is not a viable option insofar as it burdens car purchasers with more expensive cars. Moreover New Zealanders like to have a choice of the cars, a choice that derives from affluence and from their knowledge (which has arrived cheaply from the rest of the world) that there is choice. New Zealanders’ car demands could not be provided by a single car assembly plant.

The Ricardian theory of the gains from trade do not quite apply here, because economies of scale undermine the analysis (as List would have pointed out). However ignoring that for a moment, the Ricardian theory does not say that the car assembly workers would be better if there was free trade. It says that car purchasers will be better off with cheaper cars. The theory also requires that the car assembly workers are instantaneously redeployed into some other production activity, and strictly it also requires that the workers be compensated by car purchasers for the lower wages and inferior working conditions of their new jobs. Nevertheless, given these assumptions – and a few others – we know that the car purchasers will still be better off even after the compensation, although in practice it rarely happens.

You will observe that globalization requires some support from the governments and pressure groups to moderate and reduce national protection. One could call upon the Ricardian theory to explain why governments might be anti-protectionist, although it is hard to believe that they are as sensitive to the needs of consumers as that claim requires. New Zealand knows more than most how the interests of food consumers are regularly ignored, by their governments, in favour of the interests of food producers. I want to suggest three major reasons why governments have tended to be anti-protectionist, and thus favour globalization.

The first is well illustrated by Jacque Monet’s insight that if the economies of the West European nations could be sufficiently integrated, they would not be able to go to war again. This “make trade, not war” has been a central theme of international economic negotiations. Thus Clinton has recently favoured the MFN tariff for the People’s Republic of China in order to better integrate China into the world community. It is not a foolish strategy. The costs of the European Union’s Common Agriculture Policy are negligible in comparison to the costs of another major European conflict, even if did not go global or nuclear.

The second factor is the increasing dominance of multinational corporations in international trade. Their interests are the entirely amoral purpose of the pursuit of profits. In the low transport cost, high economies of scale industries which they operate, the corporations can better pursue profits with lower barriers to trade. In particular circumstances they may benefit from protection, but lower protection levels are better than higher levels across their entire operations. Thus they place a considerable pressure on nation states to lower the barriers. They do this directly by political actions, but the sheer pressures of international competition probably have a greater effect. If one country gives an advantage to the international corporations, all other countries are faced with either not responding and losing their industry or behaving as competitively.

The third fact follows. What are the options a government faces for its border strategy? One is to shift towards free trade – perhaps reluctantly, perhaps incrementally, as the political situation allows. The option of a constructing a system of rational border assistance is much more difficult. Even the Ricardian theory predicts there is an optimal non-zero level of border assistance, but little work has been done on how to achieve it practically, a consequence of the lack of investigation of List’s theory. The difficulties arise because giving assistance to one industry is likely to penalize others, so that each industry presses for assistance even though it may damage other sectors and the economy as a whole. Devising the optimal level tariff and subsidy regime is far from easy.

The free trade strategy has the further advantage for a small country that the growth of the export sector seems to be a major stimulus to overall economic growth of small economies (of which New Zealand is an example). This is an empirical regularity, with not a lot of theoretical underpinning. Such evidence we have suggests that the important factors which cause dynamic export sectors to uplift the rest of the economy are omitted from the standard Ricardian theory. A country committed to a dynamic export strategy is not able to assist its exports directly because the importing nation is likely to object (although as the Asian nations show, it is possible to rig the home market to assist the exporters indirectly). By pretending to be a free trader, even if one is not, the small country can join in the pressure to open other markets for their exporters.

Drawing these threads together we can see a set of reasons which together have caused most nations in the world economy to favour moving towards free trade for pragmatic reasons, rather than the ideological ones of the free trade rhetoric.

I have spent sometime arguing this, because I do not need the baggage about how free trade is an inherently good thing. Sometimes it is beneficial. Sometimes it is not. For almost 200 years pragmatic economists have sought to identify the circumstances for which free trade is beneficial, either within a national or regional market, or internationally. A basic assumption is that almost always the performance measure is some measure of production or consumption of goods and services. The underlying assumption is that the cultural context is not affected by the trading.

Indeed economists have a lot of difficulty dealing with culture, a phenomenon well illustrated by Tony Simpson’s cross-examination of a Treasury official at the 1986 Royal Commission on Broadcasting, and reported in chapter 3 of my The Commercialisation of New Zealand. The book goes on to show how vital is the economist’s assumption of stable preferences, and how once this is undermined the efficacy of commercialist policies towards broadcasting (and related activities) does not make sense. Treasury, and for that matter the Business Roundtable, come from a very narrow sect of the broad church of economists. Institutional economists and economic anthropologists have more useful things to say about culture. However economics analysis works best where personal preferences and culture are unchanging.

It is not accidental that this lecture has just reached the stage of discussing culture. Economists’ globalization literature does not use it much, taking it as given and unchanging. The impact of the Europeans on Polynesians demonstrates the nonsense of the assumption that culture can be treated as constant following a change in trading circumstances.

I do not know whether the that impact was ultimately good or bad for the indigenous culture. To be frank I am not even sure how to articulate the implicit research program. Economics is based upon quantifiable concepts, which despite various weaknesses, generally represent some sort of reality. (When economists ignore this principle – as with business confidence – they tend to go off the rails.) Despite attempts to estimate the size of the cultural sector – which I report on below – there are no satisfactory metrics for culture.

I have one empirically testable hypothesis: those who think free trade is almost always a good thing are likely to think the cultural impact was (and is) good; those who think trade is generally a bad thing are likely to think the cultural impact was bad (and is) too. Not belonging to either camp – believing there is no encompassing generalization about the benefit of international trade – leaves me unsure about the answer to the question whether the impact of Europeans on indigenous culture was generally good or bad.

There is an absolutely crucial issue. A healthy culture is not static but evolves, even if economists have little to say about that. The right of the indigenous to development, articulated in the Waitangi Tribunal’s Muriwhenua fishing decision, covers cultural development as well as economic development (if it makes any sense to distinguish them). Here are a couple of illustrations of this phenomenon.

I was involved in the Maori broadcasting claim, which went eventually to the Privy Council. Now neither the Maori who signed the Tiriti, nor Queen Victoria knew much about the electromagnetic spectrum (light excepted). Nevertheless it was made quite clear by the courts, and accepted by the Crown, that the Maori had rights to use the broadcasting spectrum as a part of the preservation and promotion of their Maoritanga. In the Maori broadcasting network we have a practical illustration of the development of their culture in terms that could not have been envisioned at the time of first contact.

My second example is that occasionally I go to low level hui run under Maori kawa. However, rather than sending the women out from the meeting an hour before to prepare lunch, someone goes across the road and gets a couple of KFC chicken hampers, which are placed on the table and, after a karakia, we eat. Later, after lashings of tea, we go back to a meeting which continues to proceed under the regular kawa. KFC is a multi-national, but I invite you to wonder whether – for this iwi anyway – it is also a part of its Maoritanga. It is not a question I raise lightly, but it points to the possibility that globalization need not be detrimental, but can be, and is, incorporated into a living indigenous culture in what appears to be a constructive way.

There was a second reason for choosing the KFC example. Statistics New Zealand has collected together data for the cultural sector. It covers such things as heritage, library services, literature, performing arts, visual arts, film and video, broadcasting, religious activities, secular community activities, festivals, and cultural education and training. The data are incomplete, but about 4 percent of the 1991 census labour force was employed in the sector. Its market production is also probably about 4 percent of GDP, and non-market activity may be even higher. However we do not know how much of the sectors’ inputs are imported, and so how important the global economy is in the supply of such cultural artifacts.

In any case, as the KFC example shows, there is a problem with this definition, because what food we eat and how we eat it is a part of culture. There are few goods and services we consume which are not. It is no accident that the McDonald’s restaurant chain is often used as a symbolism of globalization. The image of McDonald’s is the same food being served in every corner of the world – a homogenization of culture where both the beef and the sizzle are determined by a single international corporation. It is easy to be captured by this image. But is it true?

Economists have a theory of global convergence, which suggests, broadly, that in certain respects economies will tend to converge – to a similar growth rate, and perhaps similar forms of economic regulation and even economic structure. The theory applies to the rich countries of the OECD, and a number of rapidly developing third world countries which are expected to join them. Its implication is that countries of the rest of Central Europe and other third world countries will in turn have a similar experience. McDonald’s might be said to illustrate this phenomenon.

But even if the theory gives a representation of the future reality, it says nothing about a cultural convergence. Of course there will be some commonalities in consumption patterns, but that is not the same thing. There are counter examples. For instance, England has been settled for thousands of years, politically united for almost a thousand, with a high degree of transport integration for over a hundred, and with McDonald’s restaurants littered throughout a land area somewhat smaller than New Zealand. Yet there remain distinct regional differences. The point is further illustrated – perhaps less compellingly because there is not the same history of union – by the enormous regional differences in the United States of America and of the European continent. Moreover within regions there are often active sub-cultures – perhaps based on religion or ethnicity – as is in the case of the Maori in New Zealand.

Even so we observe strident chauvinism to protect these regional and other cultures. The Canadian resistance to Americanization is an example, while the European Union is actively concerned with the protection of local cultures. However the term “protection” alerts an economist that this may not just be cultural policy, but backdoor economic protection.

As a general rule policy promotion of culture involves some economic intervention, with characteristics of industrial assistance. For instance, the preservation and promotion of the Maori language has involved the public subsidisation of Maori broadcasting. Doing the same for the local music industry may avoid direct subsidies by local content quotas which an economist treats as a form of assistance in that they alter the allocation of resources.

Such assistance is not a trivial issue, but one which world trade policy has bumped against when some nations have insisted on the right to intervene to protect and promote their local culture. Inevitably that brings in possibilities of using cultural protection as a justification for economic protection. While no one is likely to argue that locally produced cars are an integral part of a local culture to justify the assembly industry being given privileged treatment, there have been other products for which such a claim has been made – German beer for instance. But how to deal with the claim that the existence of an assembly plant is vital to the region’s economic survival, without which the local culture will collapse?

How does this affect New Zealand, with its own distinctive culture? Government policy identifies one. Its “Fundamental Principles for the Coalition” in The Coalition Agreement of December 1996 includes

“To recognize the crucial role of our cultural heritage, our shared history and that differences and diversity have developed which represent both challenges and opportunity. This heritage has forged a special New Zealand identity, has been the source of our values and determines the direction we should be taking.”


“To undertake government in a manner that generates pride in New Zealand values and character, that emphasises the interest of New Zealanders and builds on the benefits of the New Zealand environment and our opportunities to enhance the quality of life for the people.”

I take the definition of culture to be something like the ‘dominion of signs’, an immaterial phenomenon which nevertheless requires material vehicles (artifacts) to carry them. Among those vehicles are books, so it follows that for New Zealand culture to be preserved and promoted it needs books to preserve old and create new signs for the culture.

As it happens book production involves substantial economies of scale (arising from significant setup costs) in the range in which New Zealand consumers typically purchase. The purchasers appear willing to pay a premium – it is thought about 15 percent of the sale price for a New Zealand novel over a foreign one. (1) But this is often not sufficient to compensate for the higher unit costs of production. Such conditions are a standard one for some industry assistance, probably by a subsidy to native producers, rather than a tariff or other restriction on imports. The very notion of a distinctive New Zealand culture means that it is only rarely that there would be a significant export market.(2)

This prima facie argument for assistance is already recognized in television production. The costs of local production are so high for some kinds of program which substitute for overseas productions that New Zealand would have none of that kind produced without a subsidy from New Zealand on Air. Just as Maoritanga needs support to survive against the dominant European based culture, New Zealand’s entire culture needs support to survive against the rest of the world, a pressure in this case compounded by its main language, English is the global lingua franca. Thus there is no natural protection from a distinctive language, as occurs for the Danes.

There is an even more astonishing legal recognition of the need for assistance of local culture from an overbearing larger culture than that in the Broadcasting Act. At no point in the litigation over the access of Maori to broadcasting did anybody – not even Treasury or the Business Roundtable – argue that Maori language and culture was not entitled to assistance, nor that it could survive in the English language, Pakeha-dominated New Zealand culture without such assistance. The argument was about how, given there was an obligation – enshrined in law, in the Tiriti, in the rights of the tangata whenua, and in the rights of a significant minority culture – to ensure the survival of Maoritanga. The litigation was only over the adequacy of the government’s proposals to achieve that. Exactly the same general argument applies to the existence of other significant minority cultures in New Zealand, and to the existence of New Zealand culture (majority and minority) in a globalized world.

This conclusion leads to two, perhaps three, policy issues. The first is, which minority cultures in New Zealand are considered significant (in addition to the Maori)? Perhaps an economist has not got much to say about this. I am not even sure what other discipline has much to contribute to the identifying those cultures either, although many would claim an advocacy role.

The second question is having precisely identified what cultures, or components of cultures, are to be preserved and promoted, what is the best form of assistance? Although there are no general policies, economists can contribute to the design of assistance packages. There are also some specific guidelines. In particular no culture can be offered unlimited assistance. Pragmatically we cannot afford it, especially as excessive assisting of one will inevitably lead to demands for assisting others.

But there is a more principled reason. It is clear, even if we look at only the narrowly defined cultural sector, that the total amount of government assistance is small relative to that funded by the private sector. That is the way it should be. It is an anathema to a liberal democracy for its culture to be greatly influenced by the government. The role of government is to assist cultural evolution, not direct it. Any limited assistance has to be carefully designed to give the maximum role to private activity. Yet it may also want to influence the balance of private activity. There might be a danger in Auckland being too dominant on the New Zealand cultural scene, or of the corporate sector being too dominate, and so on.

(I must confess that while I said that in principle economists knew how to help develop assistance schemes that should be reasonably effective and efficient, I would have some reservations at letting the entire profession loose on culture policy. Some are so ideologically anti-intervention and would have little to contribute to pragmatic design, while others make philistines appear connoisseurs. But these reservations may also apply to those in other professions.)

My third question is perhaps a subset of the second, but deserves separate consideration in the context of this seminar. What modifications to an international trading regime based on free trade are necessary to protect local cultures? Again I am not going to offer answers, for I am sure they are not simple.

It is at this point that the distinction I explored at the beginning of the paper becomes important. Those who favour free trade for ideological reasons will attempt to minimize measures to protect and promote local cultures. Those who see the pragmatic case for free trade (outlined above), who think that sometimes (or even generally) free trade gives beneficial outcomes but that there are exceptions, will recognize that cultural preservation may be one such exception. That does not mean the pragmatist accepts unlimited assistance: hence my earlier remarks on the need to design measures to ensure they were efficient and effective. Those who uncritically support assistance are as ideologically driven as the uncritical free traders.

If this paper has not tackled the hard questions of the details of what is to be done about the impact of globalization on local culture, it is because it has tried to set up a general framework grounded in economic theory, but which reaches out from the static assumptions which economists tend to make about culture to its more dynamic reality.

1. Many foreign publishers sell into New Zealand at a discount, a possibility arising from the low marginal cost of additional stock, especially if they have overestimate demand and have a backlog of unsold stock.
2. New Zealand authors do publish overseas, but many successful authors have to establish themselves here in the first instance. In any case, the overseas publishers are likely to be looking for different material. (Maori literature sells well here, but poorly overseas.)