Peter J Hills Responds to Bob Goudzwaard’s Financial Confusion

Peter J. Hill’s review of Globalization and the Kingdom of God from the Acton Institute’s Religion and Liberty, Vol. 11 No. 6:

[ . . . ] Goudzwaard offers a partial defense of globalization but also criticizes several aspects of it. His argument for globalization consists of three parts. First, God clearly wants to create a global community through the Gospel message and to include all of humanity in that community. Therefore, according to Goudzwaard, “The question, then, is not whether Christians should be for or against globalization. Instead, the question is, ‘What kind of globalization should we be supporting?’” [ . . . ]

However, Goudzwaard is also critical of how globalization can feed the desire for personal autonomy and self-aggrandizement. In other words, the extension of markets and market relations to more and more of the world can encourage the replacement of a God-centered perspective on our humanity with a very different virtual reality, one in which satisfying the self becomes the ruling dogma.

Goudzwaard’s criticism of modern secular thinking and its extension through global markets highlights an important issue. In many societies, people are moving from a God-centered understanding of who they are to a human-centered worldview. Goudzwaard also expresses an appropriate concern for whether the benefits of globalization will reach the poor of the world and, in particular, whether the world of international finance will move capital to developing economies.

However, the lecture suffers from both sins of omission and sins of commission. The greatest omission is any significant discussion of the gains from trade and the benefits to poor people from extending opportunities for exchange and production into their lives. Goudzwaard never answers the important question, Is there something inherent in uncoerced, voluntary trades that should cause Christians to oppose such exchanges? Increased opportunities for voluntary trades are fundamentally what globalization is all about. It is driven by the lowering of transaction costs so that there is more specialization in production and more exchange between people and across boundaries. And there is considerable evidence that the extension of opportunities for producing and trading is an important contributor to the alleviation of poverty around the world.

Therefore, it would have been helpful if Goudzwaard had dealt more directly with certain basic issues. For instance, if it makes sense for people in Wisconsin to trade with people in Arkansas, why does it not make sense for people in West Virginia to trade with people in India? Although he recognizes that economic activity can represent part of the goodness of creation, he spends little time discussing how voluntary trades create wealth and can be a part of that goodness. It is true that using markets and prices as mechanisms for economic coordination can lead to greater materialism and personal autonomy. But every institutional order has its temptations, and Goudzwaard does not deal completely enough with the issue of alternative institutional orders and their temptations. The crucial question is whether globalization is a better or worse institutional order than the alternatives. Of course, one can argue that, in order to be effective in reducing poverty, globalization must occur under a regime of well-defined rights and the rule of law. But Goudzwaard never tells us whether the lack of those institutions is at the root of his distrust of globalization.

Goudzwaard also seems to have a misunderstanding of how world financial markets operate. He argues that international capital liquidity means that developing economies face severe constraints on their economic activity because of the problem of capital flight. He also decries the fact that 95 percent of international money transfers are pure financial transactions. He calls this an unequal balance between the “real sphere” and the “financial sphere” in the international economy. However, it is not the case that capital is simply moving around the world in cyberspace with no connection to real economic variables. Capital movements facilitate production and exchange, and they are ultimately rooted in economic reality. Also, the fact that capital can flee a country reflects on the extent to which governments are performing their functions. This serves to make nation states more accountable for their actions and should be viewed as a benefit rather than a perversion of the financial system. [ . . . ]

Goudzwaard makes similar assumptions about the ability of world governments to come together to “chain or tame the wild animal of global finance before it breaks out of its cage entirely.” Regulation that reduces fraud and enhances contract enforcement can be a useful complement to effective global finance. But Goudzwaard wants to move considerably beyond that, to limit financial movements in order to enhance public well-being. Again, that is a terribly optimistic reading of the workings of national governments and international politics.

Frankly, I have read a great number of Goudzwaard’s articles, and whether he’s dealing with economics or politics, he either presents the issue from a politician’s perspective or a philosopher’s perspective – never someone trained in economic theory or the history of economic thought.


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