Global Democratization: Spotlight on the United States

Ellen Frank

[from New Politics, vol. 8, no. 1 (new series), whole no. 29, Summer 2000]

ELLEN FRANK is an associate professor of economics at Emmanuel College and a member of the editorial collective of Dollars and Sense magazine. Her articles on the U.S. and global economic policy have appeared in Dollars and Sense, the New Internationalist, Dissent, and the London Observer.


RECENT GLOBALIZATION PROTESTS GENERATED A HEAVY DEMAND for pro-trade pundits. As events unfolded last fall in Seattle, economic commentators like Paul Krugman, Jagdish Bhagwati and Thomas Friedman were everywhere, dismissing the protesters as hopeless naïfs, unacquainted with the hard facts of economic life and clueless about the Third World. Citing a plethora of statistical studies, the pundits argue that globalization, contrary to popular mythology, is not driving down U.S. wages, depriving U.S. workers of jobs, or degrading environmental standards. As evidence, mainstream economists point out that the U.S. economy has been creating jobs at a record pace. Despite globalization, average U.S. wages rose briskly over the past two years.

Mainstream studies of foreign investment also question whether globalization has set off an environmental race to the bottom. Dirty and heavily-regulated industries have moved production off-shore, but so have all industries. Regulated industries like chemicals are no more likely to flee the U.S. than are lightly-regulated industries and may, in fact, be less likely to shift production abroad.

Finally, free-traders argue that any attempt to rein in the global juggernaut will destroy the hopes of impoverished countries to raise their own living standards through imports of modern technology and industrial jobs. Bhagwati and others charge that first world protesters are elitists, concerned only with protecting their own incomes and indifferent to the aspirations of the developing world.

To counterpoint the critiques of the protesters, free-trade enthusiasts have composed a pro-globalization refrain that seems compelling and reassuring. Globalization is good, or at least there's no evidence it's bad. More markets mean more prosperity. Trade is a win-win game that yields cheap goods for the middle class and new jobs for the poor. Yes, globalization requires change and change can be painful, but free-traders are realistic and hard-headed. Globalization is the wave of the future. It is modern and multi-cultural, cosmopolitan and dynamic, embraced by people with vision and verve.

As globalization proceeds, rhetoric of this sort has become critical in the struggle for the hearts and minds of the U.S. public. Those who oppose current globalization trends -- unions, environmentalists and progressives of all stripes -- face a great challenge. They must convince themselves, their supporters and the public at large not that that pro-trade position is wrong, but that it is wholly beside the point, an elaborate distraction from the issues of power and control that are fundamental to such organizations as the IMF and WTO. The debate over globalization is not, and must not devolve into, a debate over the costs of lost U.S. jobs versus the benefits of jobs gained in Haiti.

Whether or not the global expansion of unfettered markets -- the program rightly known as neo-liberalism -- destroys jobs or depresses wages, there is no question that many Americans experience the neo-liberal agenda as a threat. By lowering tariffs and codifying property rights, trade treaties like the WTO and NAFTA vastly simplify the process of moving goods, jobs and money across borders. Whether or not businesses actually move, the agreements represent a credible threat to move and this threat, in and of itself, severely compromises the negotiating position of workers and ordinary citizens.

Over the past 25 years, wages and benefits for the average U.S. worker have fallen slowly but inexorably. Economists argue about how much of this decline stems from jobs moving overseas, how much from technological change, how much to the demise of unions. In fact, these are not separable causes. Labor researcher Kate Broffenbrenner reports that U.S. businesses routinely wield the threat of moving jobs abroad precisely to weaken unions and counter organizing drives. Economist Dani Rodrick cites ample evidence that the threat of moving jobs abroad is a potent tool in corporate battles over taxes, regulation and social policy.

This is the real stake in the battle over globalization. Whether corporations invest in the U.S. or Asia or elsewhere, the advent of institutions like the WTO give them the upper hand in all negotiations, everywhere. The ability of workers, community groups, environmental advocates, or state and local governments -- here or in other countries -- to demand better wages, safer working conditions, cleaner production processes, or even corporate tax payments is gravely undermined when corporations can credibly threaten to pick up and leave; when no restrictions are placed on capital flight or plant closings and when enforceable international property rights make shifting production a far less risky endeavor than it used to be.

The process of capitalist development, nationally and globally, has always been complex, improving the material standards of life in some areas and at some times, lowering them in others. The "new" global economy will no doubt bestow benefits and inflict harms unevenly and unpredictably, just like the economy of old. Some Americans have benefited and will likely continue to benefit from some aspects of globalization -- cheaper consumer goods, a booming high-tech, white-collar sector. Others have suffered and will continue to suffer from diminished job security and the loss of manufacturing jobs. Workers in developing countries are also affected in ways that are difficult to predict and confusing to interpret. Poverty rates have risen in many countries, but so too have the numbers of the middle class. Rapid urbanization in poor countries has brought with it all the attendant miseries of slums, poor sanitation and glaring inequity, yet in many of these rapidly urbanizing countries life expectancy is rising and infant mortality falling. Two years ago, opponents of globalization seized upon the economic crises in Asia as a symbol of all that was wrong with the new global economy. Yet those very crises helped bring down the corrupt Suharto regime and emboldened the Korean labor movement. In east Asia, thousands of young women are exploited in apparel sweatshops reminiscent of the New England textile mills of the 1800s. Yet like the New England mill-girls, some relish their new independence from the patriarchal village life.

Arguing, therefore, about whether global markets will raise or lower wages, create or destroy jobs, generate prosperity or plunge the world into depression is profoundly unhelpful. Global capitalism will do all these things and more. Progressives must not allow these economic questions, important as they are, to divert attention from the essential question of power in the new global economy. The battle over globalization will be the 21st century's version of the centuries-old struggle for democratic governance. The neo-liberal agenda is profoundly anti-democratic, designed to enrich and empower economic elites. Opposition must never let up on the demand that both domestic and global institutions be built upon public control and popular accountability.

Power, Finance and the Role of the U.S.

THANKS TO SEATTLE, THE WTO, WITH ITS FREE-TRADE BUREAUCRATS and closed-door tribunals, became a lightning rod for popular discontent with globalization. Protesters call the WTO undemocratic, hostile to the rights of labor and indifferent to environmental protection. Poor countries complain that WTO rules favor the rich G-7 nations -- exempting U.S. textiles and Japanese rice, but not Ghanaian coffee or Ecuador's bananas, from the bracing wind of competition. Global trading rules, however, are not the only things rigged to the advantage of the western corporations.

The greatest villain by far in the global economic saga is the international financial system -- rigged by the IMF in close collaboration with the government of the U.S. The current system of global finance functions as an almost perfect mechanism for transferring wealth from the world's poor to the rich. Control over resources, labor and markets -- once seized and held by force of arms in colonial wars -- is now won through the device of currency crisis, foreign debt and IMF austerity plan.

The game of international financial control is almost fiendishly clever. First, developing countries are pressured to "open their markets" to foreign goods. Since poor countries lack the currency reserves to pay for trade, the IMF and private banks press foreign currency loans upon corrupt governments, opening the way to eventual economic control by the IMF, the G-7 and their corporations. Because neither private nor official lenders will lend to developing countries without IMF approval, even extraordinarily honest and well-managed governments are only an earthquake or crop failure away from foreign currency debt and IMF oversight.

Interest charges, also due in the foreign currency, mount quickly and the debt soon balloons. Once ensnared in the debt trap, poor nations must scramble for foreign exchange or be cut off entirely from world markets. It is this need for foreign exchange that drives the furious scramble for foreign investment dollars.

Before the debt crisis engulfed the Third World in the late 1970s, most poor countries -- even those with corrupt and autocratic governments -- saw "import substitution" and internal development as the foundation of their economic futures. Countries in Africa, Asia and South America hoped to build domestic manufacturing capacity by promoting local firms, boosting consumer purchasing power and developing domestic markets for locally produced industrial goods. "Protectionist policies" were designed to protect "infant industries" from direct competition with the larger and better-capitalized transnational corporations. Tariffs, capital controls and local-content rules kept resources at home where they could be used for internal development.

But foreign debts have forced virtually all poor countries to renounce internal development goals. Instead of promoting internal investment by local firms in local industries, countries vie for injections of foreign investment dollars with which to pay debts. Indebted governments offer up their "comparative advantage" in exploitable labor, cheap resources, lax health and safety standards to transnational corporations which receive, in return, control over mines, land and people.

The logic of debt repayment requires that both human and natural resources be exploited rather than conserved. Indebted governments must promote short-term foreign exchange earners like timber and beef, rather than nurture the long-term growth of local pharmaceutical or consumer goods industries. Environmental protection and labor rights suddenly become "luxury goods" -- too costly because they might drive away transnational investors like Disney or Chiquita. Entire nations are turned into export platforms, where human labor and natural resources are transformed into the foreign exchange needed to repay external debts.

SHOULD THE GOVERNMENT OF A DEVELOPING COUNTRY BALK, should they attempt to restrict access to their resources, or place limits on the removal of funds, the IMF steps in to remind them who's in charge. With an arrogance WTO bureaucrats can only marvel at, IMF officials dispense with the slightest pretense of openness or even-handedness in debt negotiations. Voting shares in the IMF are sewn up by the G-7 (the U.S. alone controls nearly a fifth of the votes). Debt agreements are hammered out in lengthy secret meetings between affected governments and high-ranking IMF officials. Dictators and popularly elected officials alike suffer public humiliation, as the IMF imposes loan conditions that strip countries of sovereignty, dismantle public employment, welfare and pension systems, or force dramatic transformations in the target countries' legal and political systems.

There is very little wrong with the global economy that can be made right without fundamental and thorough-going reform of the global financial system. Moreover, there is little wrong with the global financial system that could not, with sufficient political will, easily be made right. The IMF's own Articles of Agreement, hammered out by John Maynard Keynes and Harry Dexter White in the 1940s, contain many laudable ideas for global financial restructuring -- ideas that were never put into practice. Numerous international financial experts, like Jane D'Arista of the Financial Markets Center in the U.S. and John Eatwell of Cambridge University, have developed well-conceived workable plans for reform. The G-24, representing developing countries, called last year for broad-based international meetings to plan financial reform, as has the European Union and numerous NGOs.

But such calls cannot overcome U.S. obstructionism. U.S. and IMF intransigence impede even the most minimal financial reform gestures. Years of high-level discussion and blue-ribbon studies on African debt, for example, have had no impact. The IMF's plan to partially forgive debts of such desperately poor countries as Mozambique is so tangled in attached strings, extended waiting periods and conditionality that it amounts to no relief at all. In the meantime, IMF and U.S. Treasury officials actively prod larger economies -- like Brazil, Indonesia, or Ecuador -- to "liberalize" their financial sectors and attract foreign investor dollars with the lure of high interest rates or casino-style stock exchanges. When investors panic and flee, the IMF arranges "bailouts" in which affected governments underwrite losses, usually by borrowing from the IMF, leaving their countries mired in debt.

Is it any wonder that representatives of developing countries scoffed when Clinton called for international labor standards in the WTO? That delegates of poor nations yawn when Clinton or Blair exhort CEOs and other big-wigs about the "unintended costs" of globalization and the need to look out for those "left behind"? Officials of developing countries perceive, correctly, that these calls for reform are opportunistic political gestures, intended to mollify first-world labor groups. To be sure, government leaders in developing countries are often corrupt opportunists themselves, cynically complaining of ruinous debts and first-world oppression while secretly conspiring to sell out their citizens. But this does not mean that they are wrong about the real intentions of the U.S. government and its allies in the IMF. If the U.S. were serious about the plight of impoverished workers in poor countries, our officials would not be convening meetings to extend the mandate of the WTO. They would be initiating broad-based negotiations to reform and democratize the international financial system.

The Road Ahead

AS THE GROUNDSWELL OF OPPOSITION TO GLOBALIZATION GROWS, pro-globalization officials will no doubt offer up compromises. A working group here, an investigative commission there. Pundits otherwise unalterably opposed to government "interference" in the economy will weigh in for limited regulations to protect the poorest and weakest from the market's excesses. This process is already well underway. Limited debt relief for very poor countries is on the table. There is talk of easing up on intellectual property laws, so that African nations can obtain drugs to combat AIDS. The object of these limited offers and small concessions is to hamstring the opposition in endless strategic disputes over whether to settle for minor reforms of the system.

What will not be offered up is genuine participation by the public at large. The WTO, World Bank, IMF and other international institutions were specifically and deliberately designed to concentrate power in the hands of the economic elite. The entire globalization project establishing the WTO -- pushing trade agreements through legislatures with minimal debate, pressuring country after country to open up financial markets, increasing the power and mandate of the IMF, pushing to extend the scope of NAFTA throughout the Americas, accelerating the entry of China to the WTO -- can best be understood as a concerted effort by corporations to establish a body of international laws and a system of international enforcement that will supersede local laws and weaken the ability of citizens to regulate business. The very structure of these institutions is a clear and present danger to democracy. Popular accountability and democratic access in international affairs must be the over-arching and uncompromising goal of the opposition.

An essential part of achieving such an ambitious goal must be to democratize the U.S. For American residents the old adage "think globally, act locally" is still particularly relevant. The U.S. government is the major stumbling block to genuine reform in the international arena. It is the U.S. government, not alone but more than any other, that controls the IMF and dictates policy, that harangues the entire world to "open up" economies to transnational investment. The U.S. stymies all efforts to address in a humane and rational manner the environmental consequences of economic development, by blocking and bottling up international accords on global warming and energy policy. The U.S. contemptuously disdains to ratify conventions on labor standards agreed upon by the United Nation's International Labor Organization and, indeed, refuses even to pay its debt to the UN.

When poorer countries attempt to exert some control over their own economic destinies by, for example, restricting foreign borrowing or imposing local content standards on manufactured goods, the U.S. orders them to cease and desist, threatening loss of access to the U.S. market or a cut-off of credit. And, of course, the U.S. has financed troops and trained torturers to put down strikes and protests all over the world.

This is not to say that international solidarity and global organizing efforts should be neglected. But those engaged in protesting globalization need to be aware that it is not simply the global institutions that need fixing. Global institutions are creatures of national governments and national governments must still be held to account. Local politics still matters. Union organizing matters. The governance and accountability of nation states matters. And the U.S. government matters most of all. People all over the world would breathe a huge sigh of relief if Americans could get their own house in order.

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Contents of No. 29

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