Adam Fularz, 2003
Seemingly globalisation is not a natural process. Globalisation may be only provoked by state interventionism. It seems to be the state that started and developed globalisation, with its policy of promoting macro-scale. According to my personal sense of economic history, globalisation had begun in the United States of America in the period 1930- 40, called the Streamlined Decade. It is there, where the macro-scale begun to dominate, boosted by state interventionism on a large scale, right after the world economic crisis ("Great Depression").
The state-subsidised love to macro-scale and giantomania lies at the bottom of globalisation. Globalisation, not in a sense of a "more freer trade between nations, that increases overall welfare", but globalisation in a sense of a profound change of structure in which we live. It seems that these two things have rather very little in common. Interestingly, they were labelled with the same noun....
My interest in globalisation begun when I started to examine the real causes of appearance of hypermarkets in my town. Of course, one could say that it is a normal cause of economic development, but I am usually quite suspicious when it goes about "normal" trends and developments, especially if it is against my common sense. Simply, I learned that if I dislike something, it usually has some specific causes, that are more often abnormal than normal. The same story was with these hypermarkets: municipal government of my town convinced that the existence of hypermarkets will reduce the average monthly spending of a family of about 20 PLN. The argument did not convinced me, because I know that also transport cost should be counted into calculus. And what would be such cost assuming that the family will go shopping weekly? Surely much more than 20 PLN, because nowadays a typical family from my town uses a car to travel to and fro. And I also know the fact that an average car with occupancy rate of 1,3 person covers only 24- 30 per cent of total costs generated. Why? Because such factors as noise, local air pollution, accidents not covered by insurance, congestion, urban space use are simply not counted into the calculus, although obviously they are reducing the welfare (i.e. what economists are trying to maximise). Even the costs of road construction, upgrading and maintenance are neglected. If the user would pay for the use of such road (let me use data for my home town: dual carriage way, maintenance cost yearly 3,4 million PLN, cost of upgrading to dual-carriage-way 12 million PLN (2,9 million PLN/km) [2]. What price would the user pay for the use of such road, if he had to pay only the monetary costs without internalising all other factors? If it would be only 1 PLN, surely many drivers would not choose to go shopping to the hypermarket at the end of the road. If we would internalise all other costs [3] (that are not internalised because of weaknesses of the state in attributing costs to its generators) how many shoppers would such hypermarket serve? By no doubt, very few, for it is simply more expensive model of distribution because of enormous transportation costs (fixed as well as variable), that are currently covered by taxpayers.
That is why hypermarkets appear, because of massive and hidden subsidies to urban road transport. The total costs of road construction in urbanised area are extremely high, for example the costs of a dual- carriage way linking Katowice and Gliwice in The Upper Silesia Coal Region amount to about 1 100 million PLN (and it is only a partial subsidy in the year 2000). What would happened if the users had to pay for using this piece of infrastructure? I do agree that the direct link between these two towns is very useful, but what if at the side of this dual- carriage way a hypermarket will be built and will profit from this taxpayers-subsidised infrastructure? And it happened so- a hypermarket opened there, and many little shops in the centres of both towns could not cope with so massively subsidised competitor and are disappearing. In my town, even on my street three shops were closed and their doors walled. If something in my town changed, then was it new road construction, because of increased traffic, which in turn is being generated by large malls around the town. My parents do not buy at the shop on the corner, because there is no one any longer, they drive to hypermarket instead. The prices are usually the same as in the former shop at the corner with the exception of "promotions" that attracts people and are advertised in newspapers, but it is only a small friction of wares traded.
For me it is clear, that in aggregate it is spent more: both on the infrastructure, and to cover the immense transportation costs. The rules of the game are determined by state- interventionism in the road- upgrading. And as we economists know, everything has to adjust to this macro-scale (that is produced artificially). If the economic conditions are set with such an distortion, economic agents has to adjust to hypermarkets as the final structure of retail. If the supply chain is determined by large retailers, no wonder that suppliers also has to adapt their size- for me quite a logic conclusion, reasoning from analogy (similar transaction costs, similar economies of scale (produced artificially, of course), similar transportation structure, similar management structure, similar production quantities). The sick structure of retail transpones to the chain of suppliers and we receive totally unnatural market structure, consisting of large companies, that consolidate following the same consolidations at the side of retailers (hypermarkets).
Now I shall ask whether the distortions have to be especially strong, to change the economy in such a way. If such deviations at the end of supplier- chain may cause a domino-effect on the whole structure of economy? As far as I know the economic theory, where everything is working like clockwork, it has to, in a way as dominoes fall on each other. And, according to me, it changed. The whole economic structure simply adjusted to the distorted world of macro-scale.
Why the distortions in urban mass-motorization are the cause? Searching through literature, I found out that costs of road upgrading, construction and development take the first and the biggest position in the budget of almost every American city. Automobile is a part of American mentality, social system is constructed around automobile and supports the situation. (Gasoline prices are very low, drivers licence exams are incredibly simple and the regulations concerning the vehicle registration are liberal.) I also know that this is abnormal situation because of the defects of this mode of transportation, that are not reflected by the cost structure. I do not mean noise, or pollution, or even accidents, because these costs can be easily socialised on the society, but I mean the space use (90 sqmeters/hour, what makes the car in end-effect using 10 to 30 times more space than public transport [5]), and the cost of infrastructure construction.
If only the ancient classical Roman standard of 15 feet- wide road would persist (that is state- interventionism reduced to absolute minimum needed to sustain road transport), the congestion cost (time lost in a traffic jam) would prohibit many from driving to hypermarkets. If, in turn a private company would decide to invest its money in a road- construction to link the hypermarket with the town, it would need more than 20 million PLN. (And a horrible wave of social uproars against such investment would be risen, partially true because of external costs, that will be paid for these people (monetarised for example in the loss of the value of their properties.) As far as I know economic conditions around me, no one would dare to build such a motorway in my town using private money). Surely they would not invest in such a business, knowing that the price for the use of infrastructure an average user have to pay would be too high. So, a hypermarket definitely is an effect of state- interventionism in the field of road- construction and in the field of covering all the costs of urban car traffic. Not only. Today I learned that the foreign retail companies are free from paying taxes for 10 years after entering into Polish market. What a wonderful proof for state-produced economic distortion! And someone is writing in newspapers, that hypermarkets are normal cause of economic "development"!
Let us look more global. What happens if in a local economy appears such a retail monster as a hypermarket with its share in market? (According to Polish Ministry of Finance hypermarkets will overtake 80 % of total turnover of Polish trade by 2002 [4].) For exaple in France the amount of shops was reduced from 498 000 to 97000. 401 thousand went bankrupt. One workplace in a hypermarket erased 3-4 existing ones in normal trade. The Vatican Economic Commission (Report from January 1999) issued an examination of the influence of hypermarkets on condition of local trade and industry. It was estimated, that one workplace in a hypermarket causes a destruction of 7 to 8 existing ones [4]. In Great Britain the effects of domination of hypermarkets and supermarkets are increased total amount of journeys to shops increased by 28 % between 1975-76 and 1989-91. The quantity of kilometres driven by cars because of shopping nearly trippled, time spent on shopping increased from 41 minutes daily in 1960 to 70 minutes daily in 1980- ties [6].
Large distributor requires large suppliers. It is where the globalistic chain of "development" to macro- scale begins. It is not an outcome of natural economic processes, but more aparently of state interventionism in the macroinfrastructure, that enables the hypermarkets to expand.
Now the sick structure of local trade with hypermarkets transpones to the structure of suppliers. It is for me clear, that large malls and hypermarkets are buying mostly at large suppliers. With their policy of promoting large suppliers (lower transaction costs, economies of scale at the side of the supplier, oligopolistic position of hypermarkets, that are mostly trying to put pressure on suppliers to compell them to lower their prices and qualities of products, demand of high fees for "entrance to the supplier chain", producers paying for advertisements of hypermarkets, etc. As far as I know, a little producer cannot be addicted to one customer, in order to be independent he has to diversify his clients, what in oligopolistic world of large retailers, mostly consolidated into a few companies, is, assuming the small size of the supplier, logically unpossible). As an example for such quantitative change of small business around towns with hypermarkets I will call France, where the whole middle and small business in a region around the town vanished after emergence of hypermarkets [4]. Mostly the small- and medium-scale agricultural business bankrupted because local small- and medium-sized shops were normal channels of distribution for them. Can you imagine a local producer going to hypermarket to sell his carrots? I cannot. I like little shops, because I do like the vendors, I usually chat with them. (Today I bought 3 tomatoes paying only 0,30 PLN (about 0,10 Euro), because the vendor likes me and charged only such a price....) Probably that is why I am against globalisation, because of reduction of interpersonal relationships, that increase my welfare (nonmontetary, naturally).
Maybe it is here where globalisation is being born. Or maybe not, because we have many more distortions and we need mythic Augias to clean this mess.Let me further go into the subject of road infrastructure, because it seems to be a source for most of the problems. The "development" (according to the technological trends) of whole regions with public money was supported by planners already in early 20ties. Finally the Great Depression made it true. Within the framework of public works programme "New Deal", aimed to reduce the unemployment, the technical infrastructure like airports, highways, streets and bridges was built [9]. It seems to be the starting point of globalisation.
The great idea of massive public intervention in infrastructure, what was massively supported by the benefiting companies, was presented in all its splendour at the New York World's Fair in 1939. There we could have seen an unique exhibition called "Building the World of Tomorrow". Fairs were divided into several main sections, of which one was devoted to transportation, telecommunication and production. The most successful was the "Futurama" exhibition prepared by the General Motors Co. (designer Norman Bel Geddes). The model presented the world in 1960 as the company wanted it to be. It was an utopian vision of artificial landscape linked with numerous highways, multilevel junctions and bridges, filled with thousands of ideal cars. The highways connected the land with a huge metropolis of future. Dominant in the Metropolis were streamlined skyscrapers. The process of "development" shall not be finished, but continued. The youth in the year 1960 should study, according to the commentaries to exhibition, in a World of continuously expanding "development" and ever-expanding production.
Natural barrier of development for such companies as GM was lack of highways and wide roads. The commercial advertisements and campaigns from the époque were presenting overcrowded roads and angry drivers stuck in a jam and hooting angrily. "What should do a citizen?" asked the narrator: " Do not press the horn, but speak. Demand for better roads and parking lots. It is your country. Turn on a green light for you!" [17]. These endeavours have brought effects: road infrastructure, including the system of Federal Highway Administration was constructed from public funds. States also financed separate programs of massive road construction. In the years 1916 to 1948 for the construction of highways nearly 6 billion dollars were spent. The overall government spending for road construction in period 1921-1940 is estimated to 41, 332 billion dollars [18]. In the years 1940- 1980 the National Highway Users Conference was the strongest lobbying organisation in the USA. The long-time director of this super-influential organisation was Alfred P. Sloan, former president of General Motors. Another president of General Motors, Charles Wilson became the Secretary of Defence in 1953, he was strongly supported by newly named Federal Highway Administrator Francis DuPont (whose family was biggest shareholder of General Motors). At the first interrogatory Wilson ascertained, that "what is good for General Motors, is also good for America", so there is no contradiction between his loyalty to General Motors and his responsibility to American nation. He realised this statement by forcing the projects of transnational highways, basing it on the assumption of its key role in the military safety of the nation. Charles Wilson confirmed federal funds for the construction of 66 000 km of Interstate Highway System. This was described as the largest public works programme in the world.
Interestingly I see no connection between highway construction and military defence. Maybe I am wrong, because Hitler in 3rd Reich also used the same argument for his projects of 14 000 km of "autobahns", of which only 3860 was constructed at the expense of 5,655 billion RM [19]. American Congress approved the Federal- Aid Highway Act (1956), the biggest public works programme in the history of the world, that lasted for 40 years [10]. DuPont also convinced Eisenhower to call into being the Federal Highway Trust Fund, which institution built also highways. General Motors profited from it enormously, today it is the largest company in the world.
In USA in the last 75 years the road infrastructure developed intensively, till 1994 more than 281 000 kilometres of highways were constructed. (The total cost, if assuming only a very low construction cost of 3 million dollars per km would be 844 billion dollars.) Different state institutions were engaged in construction of further 156 000 ways of a "main road" standard [7]. Only in one year 1994 on roads were spent 55 billion dollars from federal and state funds [7].
Not only roads, also other infrastructure is financed from public money. Every from nearly 400 American main airports received large subsidies from federal and state funds. Even today they are free from paying local (federal) taxes (in my country too). The hidden subsidies in form of spending on research and development is estimated to 1 billion dollars annually, the yearly budged of federal institutions, which task is the supervision of aviation, amounts to 8 billion dollars [20]. The best example of such "investments" is the construction of an airport in Arkansas. The total costs amount to 145 million dollars, of which 90 millions will be subsidised by federal government. Only huge chicken-farms around the future airports will benefit from this "investment". And it is only one small project from many financed by Airport Improvement Programme with an annual budget of over 1,3 billion dollars. Only in New York the public institutions intend to devote 4,8 billion dollars to "improve" airports in New York [15]. List of branches "boosted" by federal subsidies of various forms is very long and includes telecommunication,), Internet, airwaves, energetic (in literature is to be found 50- 300 billion dollars [15]) including nuclear energetic (since 1974 only subsidies on research and development in OECD countries- 274 billion dollars [21]), research and development, that seem to use public grants only to benefit of multinationals. What a huge distortion! It had to change the economic conditions somehow! And it did!
Wal-Mart Stores, the biggest employer and retailer on the world (1 192 000 employees [8], 166 billion dollars income, i.e. the second largest world company) is a wonderful example of such a company. The story of success of this company is often repeated and it is attributed to the personal charisma of its founder, Sam Walton. Rarely, if at all, it is analysed, how public money influenced the success of the company. If it would be done so, it would be clear, that the lower prices are an effect of hidden subsidies.
In a week Wal- Mart serves more than 70 million customers, that mostly use private car to get into this shop, often 50 and more miles. Wal- Mart prefers to be localised at the highways of taxpayers-financed Interstate Highway System or at junctions of other highways. Only by the fact that nearly all customers use highways, the Wal-Mart Stores profit from the government spending on infrastructure. The company also utilises many inventories, like infra-red beams, satellite links, Global Positioning System (GPS), railroad infrastructure (that was built with high public subsidies in times of industrial revolution), cargo terminals that are not only built by state agencies, but even operated by such state institutions. All these technical improvements have one in common: the were effects of taxpayers money. Taxpayers subsidised military spending devoted to development of satellites, military spending on positioning systems. The best statement is to be found in the leaflet of Tesco: "If you have something on your table, it surely was delivered by a truck" [15]. Even the idea of such a retailer as Wall- Mart would be impossible without such an infrastructure. The same story can be applied to McDonalds, the company is simply addicted to such infrastructure, and assuming the lack of such conditions, it would only exist in pedestrian zones of large cities. The list of such companies, "ivied" around public infrastructure, is very long. Interestingly, the top names from this list are those that are hated by enemies of globalisation.
The most visible effect of development of large firms at the sacrifice of smaller ones is in agriculture. Small farms are extincting, the average size of a farm tripled between 1935 and 1987. Large farms need less labour: less than 3 % of working force is employed directly at farms. The small farms are vanishing with the speed of 30 000 yearly.
Good bye, little family-firms. We will look now to see the miserable rests of small business. Because of the "enlargement" of the economy the definition of a small firm also was enlarged. In 1953 the term of small firm ment a company employing less than 100 people, with total turnover from mass sale < 200 000 dollars and from other forms of sale < 50 000 annually. Only 10 % of American firms did not match the criteria. Today a "small firm" is much bigger. For production the maximal quantity of employees is five times the old one, that is 500. In some branches the company can give jobs to 1500 employees and still be regarded as "little" [11]. The annual turnover has risen to about 5 million dollars (for most of the categories). Even supermarkets with turnover of 20 million dollars still fulfil the criteria. In the category of "small business" nowadays we have 99 % of American companies. The other 1 % of giants employs 40 % of all private sector workers [12].
The lack of "infrastructure" is a barrier for large companies to expand. In order to attract multinationals, the industrial infrastructure is required. Most of "developmental" programs are devoted to create such an "infrastructure". At the last conference devoted the case of investment possibilities in the less developed Mediterranean countries it was stated, that: "Weak infrastructure is the barrier to investments in Northern Africa and Near East". Only construction of such energetic infrastructure in order to attract potential "investors" would cost 250 million pounds sterling, of which most would come from public money [13]. Rodney Slater, presenting to the American Congress 175-billion budget devoted to transport infrastructure, explained it by the well known argumentation of global markets and the need of drastic improvement of the access to global markets. In the literature [15] I found a list of infrastructure projects, comprising 290 millions for rapid railway linking Washington DC and Boston,17 billion for federal highways, 1.35 billion for airports, 1.4 billion for other transportation "investments" and many others...
In Europe the most influential lobbying is led by the European Roundtable of Industrials, an organisation of representatives of 45 largest European multinationals. ERT thinks, that too much attention is paid to local and regional issues [22]. The goal of ERT is the European market, far bigger than the Japan or American, that gives the domination to European corporation in the global competition. The way to achieve the global leadership is the "superinfrastructure", well-cut to the needs of the corporations. The lacking "infrastructure" is well described in the document "Missing Networks", where ERT demands new highways (60 billion), and rapid railways. The "Missing Networks" also apply to telecommunication and digital networks. If these demands will not be fulfilled, the corporations threaten to invest in other parts of the world. No wonder that their postulates were included by the European Commission in the Trans- European Network (as a part of the Maastricht Tractate). There are 14 priority projects and many others [15]. The total cost amounts between 465 and 580 billion dollars in the next 15 years. The cost of only priority projects is 100 billion dollars. It seems to be quite clear that they have to be financed from public money. (The financial fiasco of Eurotunnel under the La Manche and the M1 highway in Hungary financed by private capital were an admonition for all investors willing to finance infrastructure "investments".)
What is the reason for all these problems? Only the fact, that state intervening in the natural developmental process of the economy destroyed its natural internal balance and created in an artificial way infrastructure, that logically reasoning would never have an economic right to emerge, because the economic agents simply would not take the risk to construct it. The history is a proof, that interventionism leads to distortions, because of the continuous lobbying from potential benefitients. Market economy, if distorted, develops into dangerous degeneration.
Of course, public do-gooders wanted to do good, but it turned out to be completely different in a long term. All do-gooders want good, but let the economy to develop with its internal powers. Acceleration with public money simply is not possible and inevitably leads to distortions. Even the logic behind state interventionism lacks: we will take money from people and do good, better than the economy. But the people themselves with their money create the economy, which develops by its internal powers in a heavenly balanced and ecological way...
Where is the end of this strange economy of macro-infrastructure? Surely, there is one. I would calculate it so: normal needs of humans multiplied by a car. A human- scale economy multiplied by a car. A car? It is not measurable... Nevertheless it is the nature of this machinery, a quotient of its velocity and size, that makes everything larger, multiplying it by itself [16]. Already Lewis Mumford pointed out the phenomenon, that a car enlarges everything [14]. If it stands between the consumer and the rest of the economy, so let us simply multiply everything by a car. A peron multiplied by a car. The outcome is a world of not a human scale any longer.....[23].
Adam Fularz
[1] It is planned to spend yearly 95 million PLN yearly on construction and maintenance of roads in my town, it is 812 PLN per inhabitant.
[2] Jean Vivier, "Urban Transport Pricing" in: Public Transport International 5/99
[3] External costs of urban transport: Assesment in Euro per thousand pasengers* km:
Car: Noise: 10 to 25 Euro, Local air pollution 6 to 12 Euro, depending on the density, Accidents: 5 Euro, Congesion: 10 to 70 Euro, 50 Euro assuming value of time 8 Euro/hour, Urban space use (traffic and parking) 50 to 250 Euro, depending on the density. All the values are more than ten times higher than those for public transport.
[Source: Jean Vivier, "Urban Transport Pricing" in: Public Transport International 5/99]
[4] Prof. dr hab. Kazimierz Cywinski, "Marsz Hipermarketow",in: Aktywnosc Obywatelska nr 2, Lodz 2001
[5] Jean Vivier, "Comparison of the external costs of public transport and cars in urban areas: the case of the Greater Paris region" in: Public Transport International 5/99
[6] M. Harembski, M. Bolek, "Efekty supermarketyzacji w Wielkiej Brytanii", in: Aktywnosc Obywatelska nr 02, Lodz 2001
[7] Highway Profile, National Transport Statistics, 1996, pages 29-30.
[8] B. Lesniewski, "Panstwo do wynajecia", Wprost , 8 kwietnia 2001
[9] Pursell, Caroll W. "The Machine in America. Technology and a social change. John Hopkins Univ. Press., Baltimore 1995.
[10] In about the same period all public many that were spent on public transport ended.
[11] "SBA Profile: Who we are and what we do". Washington DC, 1996
[12] Jeremy Rifkin, "The end of work", New York, 1996.
[13] " Infrastructure an impediment", Financial Times, 18th march 1997.
[14] Lewis Mumford, "The City in History", 1961 Penguin Book Group, London; pages 572- 581
[15] Steven Goerlick, "Male jest piekne a DUZE... dotowane", Pracownia na rzecz Wszystkich Istot, Bielsko Biala 1999; Original title: "Small is beautiful, big is subsidised. How out taxes contribute to social and economical breakdown", ISEC, 1998.
[16] It also seems that globalisation is self- perpetuating, it sprawls as American towns used to sprawl. (Another analogy to mass- motorization in urban area, which is also self- perpetuating because of the internal feed-back between the enormous space consumption ( 90 sqmeters/hour) and the spatial rise of the city. The end effect is a city sprawled over hundreds of kilometres. The same may apply to economy.) The economic data for USA rather support these theories. The industrial production have increased for ca. 50 % since 1990, the labour time is 20 % longer since 1990, the working capacity have risen for ca. 25 %. (Source: Wprost, 20th May 2001, following USA Bureau of Labour Statistics). It seems to be logic, that a growth limit to this unnaturally boosted economy is the time that people can devote to work. This factor is very scarce, that is why for example all modern buildings are so simple, as to not to lose time for time- consuming architectonic details.... Human scale is gone, and with it also all the beauty of economy in equilibrium.
[17] "Taken for a Ride", Film, authors: Jim Klein and Marthy Olson, 1996. (presented on a Planete Channel)
[18] Dr Fritz Voigt, "Verkehr", Duncker & Humboldt, Berlin 1965.
[19] "Reichsautobahn, Pyramiden der III Reichs", Jonas Verlag, Marburg 1982, 3. Auflage 1995.
[20] "Highlights of the FY 1997 Transportation Budget", Departament of Transportation.
[21] "Small is beautiful, big is subsidized. How out taxes contribute to social and economical breakdown", ISEC, 1998; following Michael Renner, "R&D Spending Levels Off", Vital Signs 1997, page 113
[22] "Missing Networks", ERT 1991, page 9
[23] By this rather stupid statement I ment that the potatoes and tomatoes also have to adjust to the new equilibrium, to a new scale. Genetic Engineering makes it possible! For me it is quite logic that the distorted economy has to produce macrotomatoes and very big global potatoes!
Absolwent Universite de Metz i Viadrina University, ekonomista. Specjalizuje się w infrastrukturze. Zawodowo jednak zajmuje się branżą e-commerce, ostatnio tworząc np. portal poselska.pl czy ie.org.pl. Interesuje się historią i muzyką. Uprawia sporty: capoeirę, downhill i snowboard. Interesuje się też ochroną zabytków i środowiska naturalnego. Poglądy gospodarcze: ordoliberał, wyznanie: Rastafari/Baha'i. Email: phooli(małpa)gmail.com
Czasopismo Gazeta Poselska
Promote your Page too
Nowości od blogera
Inne tematy w dziale Polityka
