Power, Inequality and Democracy: the US and the global arena

R.C. Longworth, Chicago Tribune: ”Most of the world’s people “live in shanty towns on the outskirts of the global village.”… these include, in addition to those in undeveloped nations, European workers without jobs, the 28 percent of Americans whose jobs pay poverty level wages, … the Russians wondering what has happened to their lives.”

“The hidden hand of the market will never flourish without a hidden fist. McDonald’s cannot flourish without McDonnell Douglas, the designer of the F-14. And the hidden fist that keeps the world safe for Silicon Valley’s technologies is called the United States Army, Air Force, Navy and Marine Corps.”

Thomas Friedman, (approvingly) New York Times, 3/28/99, on eve of bombing of Serbia)

“Until we have a system that guarantees rule of law and basic democratic institutions, no amount of aid or investment will benefit our people. Profits from business enterprises will merely go towards enriching a small, already very privileged elite.”

--Aunt San Sue Kiwi, Nobel Peace Prize recipient and pro-democracy leader in Myanmar, Rangoon, (former Burma) Sept 1996

“there is a global pool of capital that floats around from country to country every day. It amounts to a …daily referendum on government policies. It will discipline even the biggest countries and force them in a conservative direction.” --Chief Economist of a leading global securities firm

INTRODUCTION

· U.S. policymakers and private interests such as Wall Street, transnational corporations have been the major players in creating the new world system that affects not only US citizens but the rest of the world’s peoples in a direct way

o Global System in place did not happen by some “invisible hand of the market” but was actually produced by the political power that financial and corporate interests have in governments across the world—resulted not from some unseen force, but by the political transformation that took place in the 1970s and 80s. Rise of governments committed to reducing the social obligations of financial interests to the people of the countries where they trade.

• succeeded by deflecting focus on wealthy to government itself—hostility to the idea that government ought to play a role in equalizing incomes.--neoliberalism
• --in reality, it is the public that is financing some of this, yet public is blocked from having role in these organizations.

Globalization propaganda: “free trade”, “growth” and “development”

· Proponents use the term “free trade” to expand economic growth, argue that more “free trade” will benefit the U.S. as well as the rest of the world. The more free trade, the fewer the barriers to trade, the greater will economic activity increase and therefore the more wealth ;

o --free trade theory places emphasis on choice and freedom— but brooks no opposition to itself—no choice—no alternative: Thomas Friedman: Neanderthals, backward people if don’t accept this. Special interests

--It is often suggested that trade is the solution to all our problems: economic growth raises all boats.

o Decline of old manufacturing-base U.S. economy has continually pushed a mandate for the expansion of trade—more trade as the solution for all our ills. Idea: if we open borders of countries to more investment , economic growth will produce prosperity

o Publicly-stated agenda: to expand jobs; very appealing as a solution to the national crisis of decline of middle class jobs that beset the country in 1980s.

o –free traders argue that their primary concern is to increase the size of the world’s economic pie and that once this has happened, there will be more to share around and some of it will trickle down to the poorest--

o Only those “living in the past” could oppose. New York Times columnist called anti-globalization protestors “flat-earthers”

· Viewed as “liberal”--in multicultural terms, overcoming racial and ethnic prejudices. Argue that attempt to “protect” home country industries (whether American textile workers, or European airplane industry from foreign competition (with tariffs, which impose a duty on goods entering the country, thus making them more expensive) -embargoes, which prohibit the import of particular commodities or goods of particular countries; quotas, which limit imports,

· --there should be no artificial protection or subsidies influencing the freedom to exchange. traders need to be free to do what they like—markets will sort out any problems to emerge, whether;

· Doctrine of comparative advantage in invoked—each nation will simply specialize in what it does most efficiently. (even when they argue for the declining relevance of nations and national regulations! [this doesn’t take into account the growing importance of socially created comparative advantages])

IN REALITY, FREE TRADE IS A EUPHEMISM FOR UNREGULATED INTERNATIONAL FINANCIAL AND CAPITAL MARKETS, and flows continuously from the domestic agenda that has allowed growing inequality of wealth

BACKGROUND: ORIGINS OF THE WORLD SYSTEM --

· This idea has a history, of course: WORLD SYSTEM NOW IN PLACE HAS POLITICAL AND HISTORICAL ROOTS IN THE POSTWAR PROMISE OF ECONOMIC GROWTH AS the solution to all ills

--premise articulated by US. Secy of Treasury Henry Morgenthau, representative at Bretton Woods, who advocated rapid material progress because of an “earth infinitely blessed with natural riches”—idea of accelerated growth as solution to wars and poverty—Morgenthau asked participants to embrace the “elementary economic axiom…that prospertity has no fixed limits.”

But two of these assumptions have been proven to be deeply flawed

1) that growth and enhanced world trade based on the capitalist system will benefit everyone

2) that growth based on the capitalist system will not be constrained by the

inherent limits of a finite planet—ecological destruction has proven to be a premise of the capitalist system, and one that cannot be overcome with market-driven solutions

· there are no finite limits to the planets capacity to supply unlimited resources for economic growth has been revealed by the crisis of global warming, and the devastation to the earth’s water and other resources currently under way

--increased trade under market policies of NAFTA have tripled the pollution from border plants in the past 3 years –increased numbers of birth defects in this growing area

International Monetary Fund, World Trade Organization owe origins to the system that was created during WWII,

o These institutions were designed to create capitalist expansion across the globe:

o publicly stated purpose: to open up all countries to investment and development, to increase flows of goods and services across borders

o Organizations were designed to operate outside public scrutiny, but have been backed by loans or public money of US and other government’s treasuries

§ s—IN IMF and World Bank, big national powers have both veto power over certain decisions and voting shares in proportion to their shares of capital invested—ensuring their ability to set and control the agenda—

o —in essence, as recommended articles make clear, this is the public backing up the risk that is supposed to be born by capitalists under “market theory”—in reality, private speculators take little risk in their games of international finance

World Bank:--in its structure, countries have voting power pegged to contribution to the Bank, and size of their economies. US and other rich nations dominate.

· During the Cold war, the US used the World Bank as an arm of US foreign policy to aid allies and punish enemies.

• most of WB lending goes to fund “development” projects such as dams, power plant, agricultural “modernization.” (getting the country involved in the world market production of food [such as coffee in Costa Rica], not subsistence production of food) .
• Principle goal is “to promote foreign private investments” in “undeveloped” countries;
• US treasury department argues for US government funding of the World Bank as a way to boost U.S. firms.
• In 1995 a top Treasury Department official bragged that for every dollar the U.S. contributes to the World Bank, US corporations receive $1.30 in contracts in the targeted country. Agribusiness firms have benefited the most. Promotes chemical-intensive agriculture.

• Has systematically rejected development projects that were aimed at allowing target country to produce products for their own national markets. Instead negotiate with elites, often originally placed in power by US military backing, and aid development that was aimed at producing products for export. World Bank sought to get these countries to purchase the goods and services of the northern industrial countries.
• --these projects have displaced the poor from subsistence farming and other activities, polluted their waters, cut down their forests, destroyed their fisheries

Example:

• Brazil: conversion of agricultural country of smallholders producing food for domestic consumption to capital-intensive production for export displaced 28.4 million people form 1960-1980
• India—large scale development projects displaced 20 million over 40 years
• In Thailand, 10 million rural people evicted from the land they lived on to make way for commercial tree farms
• Ground water was depleted and destroyed by export-oriented shrimp farms

Globalization and the cycle of DEBT

• Idea was that loans would be repaid out of returns from the economic growth they stimulated.
• But in reality most borrowing countries have been able to service existing international debts only by increasing their international borrowing.
• The more they borrow, the more they become dependent on international borrowing and the more their attention is focused not on their own development but on obtaining more loans. Therefore, the more the countries feel that they must obey the rules of the game: development projects selected by foreign “experts” such as U.S. economists

Crisis developed by late 1970s because of this indebtedness

o —banks escalated the amount of money available for loans to third world elites:

Recall the oil crisis of the 1970s. When OPEC countries raised the price of oil, their elites placed their revenues (petrodollars) in US, British banks (close ties between US, England and Kuwait, Saudi Arabia—who deposit their petrodollars in northern banks)

· flush with new revenues, these banks tried to make money by lending in U.S., but because of U.S. economic downturn, there wasn’t a great demand.

· So they lent the money at low interest rates to “third world” countries

· But in late 70s and early 80s, as interest rates skyrocketed, many poor countries faced default, unable to pay

IMF and WB: ANNULING DEMOCRACY

• This is where International Monetary Fund and the World Bank, acting as overseers of the financial system, stepped in, set up the terms of financial settlements: forced structural adjustment programs (SAPs) on countries
• SAPs call for policy reforms that are meant to funnel more of the “adjusted” countries resources and productive activity toward debt repayment and to further open national economies to the global economy
• SAPs force austerity programs, which plunge the majority of their people into further poverty;
• reduce government’s spending on education, medical care, basic social services;
• government’ s budget goes toward debt repayment.
• in an effort to ensure that loans from both Commercial and world banks are repaid, the SAPs seek to strengthen the countries exports and attract foreign investment
• country has to completely remove import barriers, -- governments then try to hold down wages, benefits, labor standards to make their country attractive to foreign corporations;
• in addition, country’s elite often seeks to sell off main resource, such as rare timber supplies, metals, etc, to developers in order to get money to repay the debts; IMF and WB then reward any country that carries this out with more loans, and the cycle of debt continues
• undermines democratic governance in the countries—WB and IMF dictate the public policies of the indebted countries—alter the country’s constitution, rewrite its trade policy, fiscal policies, labor laws, health care, environmental regulations, budgets
• from 1980-1992—international indebtedness of low-income countries increased form $134 billion to $473
• rather than increasing self-reliance, the world’s low-income countries continue to mortgage more of their futures to the international system dominated by U.S. and European countries

Costa Rica—before IMF and WB restructured its economic policies to ease foreign debt it was among the more egalitarian Latin American countries—small farmers, fewer number of large landholders; policies of the IMF and WB shifted country toward export, displacing thousands of small farmers. It’s income gap is now similar to rest of Latin America—accompanied by increase in crime; now it depends on imports to meet basic food requirements; foreign debt has doubled

WORLD INEQUALITY OF WEALTH

• WB, IMF and private investment by financial interests have accelerated inequality and to some extent, the redistribution of Wealth from “south” (poor nations, now defined as also former Soviet bloc countries) to the north (developed, industrialized nations) , and the increasing poverty of the “3^rd world”

· These nations are poorer, in part because bank loans have forced countries to covert their economies from diverse production for local self-sufficiency to export production for the global market.

· Despite the notion that Western economies come to the aid of third world countries, there is far greater net outflow of economic resources from the south to the north.

· (US commits only .21% of its wealth to foreign aid for humanitarian needs) , less than most other European countries per person

· 1982-1990 southern countries sent to North in interest payments over $418 billion more than all the countries of the north have sent in humanitarian aid. Debt is just tip of iceberg.

· Global polarization of wealth: Result of trade and development projects:

· OECD study:*1960-1994-disparity in per capita income between richest and poorest fifth of the world’s nations widened from 30-1 to 78 to 1

· Trade has brought wealth to those who benefit from it, but global inequality is growing

· Richest 20% of the world’s people consume 86% of all world’s resources and goods

· this accounts for most of the recent depletion of world’s forests and fish stocks, both of which are seriously endangered; as third world’s debt and structural adjustment programs continue, they continue to harvest their forests and other resources to US and Europe

· Richest 475 billionaires in the world (60 of whom are in US) have as much wealth as the poorest 47% of the entire world’s population (Forbes (5 July 1999) and Human Development Report of the United Nations, 1999

• The wealth of these 475 people could pay for minimum health and education for all of the world’s poor

Even mainstream economists conclude that trade accounts for 20% of the sharp rise in income inequality in recent decades.

· Growth of concentrated power.

· 300 corporations own 25% of world’s productive assets-growing concentration of wealth;

1/3 of trade is between subsidiaries or subcontractors of these global firms (maquiladoras)

· 70% of all global trade is controlled by 500 corporations;

· in Oil, personal computers, and media, top 5 firms control more than 40%, enough to dominate their industries--few core corporations are strengthening their collective monopoly market power

GROWTH HAS STAGNATED, DESPITE THE HARVESTING OF THE WORLD’S RESOURCES TO THE “NORTH” ---WHY?

• Despite decades of development and the growth of a number of industrial Third World countries in Asia and Latin America, the most important “investment” by transnational corporations is not NEW investment, but rather buying up existing plants and equipment, and consolidating them under “Northern control”
• Concentration of wealth has not increased investment, global economic growth as slowed to rate well below the postwar era;

• Capitalism always a global system, but now poor countries are increasingly sources of manufactured goods and not simply raw materials, and more than one-third of trade takes place not between different companies, but between parts of the same corporation. . The output of foreign branches of multinational corporations now exceeds the volume of world trade.
• Economic growth in last 20 years has in fact stagnated in developing world; insider critics who have implicated the WB and IMF policies for this (siphoning off money from the country prevents investment in manufacturing and/or home-country based investment) have been fired (3 world bank economists in last 4 years)

· Trade agreements are really the continuation of DEREGULATION OF CORPORATIONS that we have discussed in this course, but on a global scale: reducing the social obligations of corporations and financial investors from countries.

· Recent trade agreements are designed to ensure corporate interest is not interfered with by social concerns of people such as labor, environmental regulations of national governments.

· Better name would be deregulated international commerce, and the comparison to the Savings and Loan fiasco of 80s and 90s would be the model of this sort of “deregulation” that benefits the powerful over the marginalized

· Huge increase in unregulated financial capital and radical shift in its use, from long-term investment and trade to speculation—effect has been to undermine national economic planning as governments are compelled to preserve market “credibility”, driving economies towards “low-growth, high-unemployment equilibrium,” with declining real ages, increasing povetrty and inequality for the many, and profits for the few

· --parallel process of internationalization of production provides multinational corporations with new weapons to undermine working people in the West—explains the attack on the Canadian health care system, as well as so many other recent developments that decrease the social infrastructure.

· Global corporations want to write whatever rules there are for the international eocnomy in ways that minimize government regulation, making it more difficult to protect the environment, public health, communities and other crucial components of a satisfying and sustainable equality of life.

· Financial Times of London call the global institutions-- IMF, WORLD BANK, WTO, NAFTA a “defacto world government” that operates in secret and without accountability.

· –fading of meaningful and democratic proceses—as decision making is vested in private institutions and the quasi-governmental structures that are coalescing around them.

Rules of NAFTA (North American Free Trade Agreement), WTO (World Trade Organization) AND PROPOSED FTAA allow corporate power to be EVEN FURTHER OUTSIDE OF public intervention

NAFTA—sold as a jobs program for Clinton administration; claim that out exports to Canada and Mexico would expand faster than imports. Exports would support a net increase in U.SA. jobs. IN fact, U.S. trade balance with Canada and Mexico has worsened.

· NAFTA established unelected International tribunals composed of business representatives—small group o f international tribunals handle disputes between investors and foreign governments-- has led to national laws being revoked, justice systems questioned and environmental regulations challenged.

-- all in the name of protecting th rights of foreign investors under NAFTA

--Example: under NAFTA, Canadian government lifted restrictions on manufacturing an enthanol-based gasoline additive that it considered hazardous after an American manufacturer said that the ban hurt its business.

=A tribunal ordered Mexico to pay an Ameircan company 16.7 million after finding that local environmental laws prohibiting a toxic-waste-processing plant that the company was building were tantamount to expropriation

--A Canadian-based funeral company is asking for $725 milllion in compensation because local jury in Mississippi assessed $500 million in damages

· NAFTA Directly related to devaluation of the peso—foundation for an aggressive export-led growth strategy in Mexico. Assumption: expanding Mexico’s exports would create jobs for Mexico’s rworkforce—devalued the peso to attract foreign investment and export-oriented manufacturing that the NAFTA agreement was designed to promote—This prompted calls for rejection of debt, and eventually, US taxpayers bailed out Wall Street , but conditions placed on Mexico to further reduce wages and living standards to attract more foreign investment

· Zapatista uprising in Chiapas Mexico---NAFTA viewed as death sentence for Indians, a gift to the rich that will deepen the economic divide, and destroy what remains of indigenous society

o --in past decade, the number of people in rural areas of Mexico living in extreme poverty has increased by almost a third.

· 50% lacks resources for basic needs, a dramatic increase since 1980

Word Bank-IMF prescriptions shifted agricultural production to export and animal feeds ---strawberries and broccoli for US consumers, rather than corn for the people

—this policy benefits agribusiness, foreign consumers, affluent sectors in Mexico at the expense of general population.

· Malnutrition has become a major health problem, agricultural employment declined, productive lands abandoned, and Mexico began to import massive amounts of food.

· Real wages in manufacturing fell sharply.

· Mexico’s leaders argue that fall in wages will induce foreign investment. This, along with repression of labor, lax enforcement of environmental regulations, and general orientation of social policy to the desires of the privileged minority.

--capital can move freely, but workers and communities suffer the consequences;

MEANWHILE, KEEP IN MIND THAT a vast component of “trade” consists of centrally managed intrafirm transactions (which constitute half of all U.S. exports to Mexico, for example—“exports” that never enter the Mexican market) –TRADE IS A EUPEMISM, NOT EXCHANGE OF PRODUCTS BETWEEN HOME OR NATION BASED DEVELOPMENT—RATHER, MUCH OF IT IS BETWEEN GM’S SUBSIDIARY IN MEXICO AND ITS US BASED PLANTS

IMMIGRATION flows resulted from system—not only from NAFTA but from all world capitalist institutions

These developments have spurred immigration to US and across the globe. But whereas global policies are designed to promote capital flows, there have been increasing attempts to restrict immigration

• 1965-1996 immigration laws loosened from 1921 and 1925 restrictions—no exclusion based on race.

o this immigration has resulted in a “brain-drain” from developing countries, as those with abilities emigrate to US and developed world to escape poverty and lack of opportunities there.

• Those doctors, engineers, etc who come to US have given special advantage to US—we didn’t have to pay for their training, yet US society benefits
• In 1996, US seeks to staunch flow of immigration, especially poor immigration, while it elevates the flow of capital.

· Migration gives worers freedom and opportunity, but ist can also impose harsdshps on them a d their communities;. Rising immigration since 70s in US has depressed wages of least skilled workers, both immigrant and native born, especially those without a scollege degreee. BLS suggests that immigration accounts for 15-25% of rising disparity in pay between low and high-skilled workers in the 80s. ; now increasingly creeping into skilled workers--; *****

· --corporations now have the power to blackmail governments and often demand lower taxes, less regulation and more “flexible” labor markets, but governments have capitaulated often in hopes of attracting investment. ;

o U.S. corporations are shifting risk to everyone else—flexible workers, subcontractors, communities—and to capture more and more of the value embodied in the business for shareholders, top executives and lawyers and consultants

US AS GLOBAL ENFORCER

New World Order—strip away the rhetoric, the military aspect of the New World Order is the principle that the US has the right to and the means to organize joint military interventions under U>S. leadership , or unilaterally, if need be. The aim of this aggression is to protect U.S. interests and maintain stability as defined by the U.S. and secondly, to further global capitalism.

· Reagan, Clinton, and Bush 1 & 2 constantly forced cuts in domestic programs to keep military spending high, even with the end to the Cold War.

Clinton commented: this is the cost of keeping “America’s leadership in harnessing the global forces of integration”--meaning the cost of continuing to reduce the rest of the world, and particularly the underdeveloped world, to adjuncts of Corporate America

The form globalization takes is not inevitable, even within the broad framework of capitalism. It is both a corporate globalization and a radically deregulated market globalization. We are living in an era of global commerce dominated by 44,000 multinationals, which increasingly treat most of the earth as one large, albeit segmented, market in which to obtain capital and labor and to sell their products. But it doesn’t have to continue. It was created by political forces, not by economic law

Continual crises of the system—your future

There is an ongoing crisis in the system that those at the top of it recognize—they are the crisis of surpluses of labor, production, capital—In this system, workers bid for scarce jobs worldwide and pull down wages at the top

--Surplus of productive capacity in major industrial sectors continues to grow, meaning more productive capacity, at the root of capitalism’s genius

--but this has created surplus capital--markets are glutted with too much potential output. So instead of investing in real production, finance capital seeks better returns on empty speculation, downsizing, and takeovers or lending more billions to indebted governments.

--US plays the role of buyer of last resort, propping up the global system by absorbing some of its surplus production. That is the meaning of our swollen annual trade deficits.

--US cannot do this forever; -when US finally buckles under its accumulated foreign indebtedness, systemic crisis will become visible--if the US can no longer mop up surpluses, who will buy China’s $40 billion in exports?

· “free trade” obscures the fact that the global system is only half-free--free for buyers and sellers of exports but not free for ma y of the people who make them. Unless workers in poorer countries have the freedom to speak for themselves and bargain collectively for fairer share of the returns, gap between supply and demand will likely grow wider --because when firms trade high-wage workers for cheaper ones somewhere else, system loses purchasing power