globalisation
A view from the US on how the most important international economic institutions bleed the world’s poorest countries dry
Mark Weisbrot
On December 1 1999, as clouds of tear gas hovered over the streets of Seattle, President Bill Clinton said yes to 50E000 protesters when he wanted to say no.
He agreed to make labour rights an enforceable condition for trade among the countries of the World Trade Organisation (WTO), a concession that had the immediate effect of scuttling the millennium round of the WTO. The pundits were not amused, accusing Clinton of “taking a dive for labour, the enviros and the looney left”.
Their mostly contemptuous dismissals betrayed an underlying intellectual weakness; although the defenders of the status quo have been largely successful in pretending that they have the bulk of economic research and theory on their side, this turns out to be false.
Critics of corporate globalisation, on the other hand, have focused primarily on its most glaring injustices, its environmental destruction, its erosion of national sovereignty – and with good reason.
The International Monetary Fund (IMF) and the World Bank are bleeding Africa dry, exacting debt payments from the poorest countries in the world that are 10 times as large (relative to income) as the Allies considered conscienceable to take from Germany after World War II.
Their relentless promotion of resource- intensive exports has hastened the destruction of the world’s forests. And, of course, there is nothing good that comes from allowing the secret tribunals of the WTO to substitute their judgment for that of elected representatives on matters of public health and safety. But there is no need to concede the economic high ground to the system’s misinformed defenders; the economic argument for globalisation, as it stands, is mostly incoherent rhetoric.
Let us begin with the simplest, most commonly accepted definition of globalisation: an increase in international trade and investment. Is this necessarily beneficial for everyone involved? Or even for the majority of people in any given country?
In the United States, over the past 26 years, the typical wage- or salary-earner has not shared in the gains from economic growth.
In the Sixties and Seventies it was not uncommon for an average wage-earner to buy a home, support a family and even put his children through college with one income. This is no longer true.
The conventional theory also predicts that “low-skilled” workers will be harmed by increased international trade. Economists commonly define low-skilled workers as including about 70% of the labour force. In other words, the overwhelming weight of the empirical evidence, and even economic theory, indicates that the typical American has little to gain from the present course of globalisation and, in fact, has already lost quite a bit from the process.
This should not be surprising, given the form and substance of the institutional changes that we have witnessed over the past three decades. US political leaders have chosen to negotiate a series of trade and commercial agreements that throw US workers into increasing competition with their much-lower-paid counterparts throughout the world.
One does not need a PhD in economics to guess the likely results of such measures. Although manufacturing workers have been most directly affected, the lowering of their wages and the general weakening of labour’s bargaining power reduce compensation throughout most of the labour force.
It must be emphasised, because the contrary is so commonly believed, that this process is not driven by technology. Rather it is the result of quite deliberate political decisions. Our leaders could do the same thing to the salaries of doctors.
We could, for example, initiate and monitor licensing and training procedures in foreign medical schools, which would make it easier for foreign doctors to practise here and would thereby increase the supply of doctors. With a fraction of the effort and resources that it has taken to raise foreign trade and investment to current levels, and without sacrificing the quality of health care, doctors’ salaries would fall.
The potential savings to consumers are quite large – $70-billion a year could be saved just by lowering doctors’ salaries to European levels. This would be a hundred times larger than the direct gains from tariff reduction in the Uruguay round of the General Agreement on Trade and Tarriffs. But it is not likely to happen anytime soon, because doctors have enough political clout to prevent such an assault on their living standard. The same cannot be said for most of the labour force.
Lacking economic arguments on the domestic front, many proponents of globalisation have presented it as a helping hand to the poorer countries of the world.
This statement by USTreasury Secretary Larry Summers is typical: “When history books are written 200 years from now about the last two decades of the 20th century, I am convinced that the end of the Cold War will be the second story. The first story will be about the appearance of emerging markets – about the fact that developing countries, where more than three billion people live, have moved toward the market and seen rapid growth in incomes.”
This is not likely, unless the historians of the future are innumerate. In Latin America, for example, income per person has hardly grown at all over the past two decades: about 5,6% total for 1980 to 1997. If we compare this with the previous two decades, before the “Washington Consensus” of liberalised trade and investment was adopted, the contrast is striking: from 1960 to 1980, income per person grew by 73%.
Summers seems to be excluding Africa, where per capita income grew by 34,3% from 1960 to 1980 but has since fallen by about 23%. Some of the “emerging markets” of Asia (China, Indonesia, South Korea) have in fact grown rapidly over the last 20 years, but they also grew rapidly in the previous decades. And even these countries are mainly the exceptions that prove the rule: the “crony capitalists” who have largely disregarded Washington’s advice; and China, a country that does not have a convertible currency, maintains state control of its banking system and allows little foreign ownership in equity markets.
All this simply evaluates the globalisation effort on the terms of its proponents: the growth of per capita income. But that is merely the most basic measure of economic progress; it says nothing about the distribution of income, which has also worsened both within and between countries as globalisation has proceeded, or environmental destruction, the loss of biodiversity, labour or human rights, or any of the other issues raised by the protesters in Seattle.
For most commentators, however, these questions do not arise, because the entire process is seen through a prism of technological and market determinism. Their narrative is a simple one: the poorer countries are passing through stages that we completed in the past century. Child labour, poverty-level wages, intolerable levels of pollution – these are things that will recede with development, helped along by trade and inflows of foreign investment. But in fact no nation has ever pulled itself out of poverty under the conditions that Washington currently imposes on underdeveloped countries.
Economists have long known that markets by themselves – whether international or domestic – would not accomplish the task of economic development. Although there have been many paths to development, virtually all have required a host of interventions by the state deliberately designed to alter the comparative advantage of the national economy.
The protection of northern manufacturing was a major cause of the US civil war, with the southern slaveholders unsuccessfully trying to raise the banner of free trade. And the few countries that have successfully industrialised after Europe and America – such as Japan, South Korea, Taiwan – have, as latecomers, needed much higher levels of protection, planning, industrial policy and other measures. Such policies are now increasingly prohibited.
This raises another crucial question: even if our political leaders were right, and the current miseries of globalisation were but a temporary hurdle on the road to economic progress, how should this process be directed?
The WTO, the IMF, and the World Bank – the three most important international economic institutions – are often described as “institutions of global governance”. But in practice they are much more of a global anti-government, unaccountable to any electorate. Indeed, one does not need a conspiracy theory to notice the progressive transfer of economic decision-making from governments to unelected bureaucrats.
Ironically, the WTO is the least- controlling of the three institutions; the IMF and the World Bank, still flying mostly below radar, are invested with vastly greater and more autocratic powers.
The IMF, which has 182 member nations but is basically run by the US Treasury Department, makes the major economic decisions for more than 50 countries. This makes it one of the most powerful institutions, of any kind, in the whole world. And most of the time it exercises this power without having to lend very much money; IMF approval is a prerequisite for other sources of multilateral credit and for most private credit as well.
Washington is very attached to this arrangement. To take just one example: in the summer of 1997, when the Thai currency began to fall and the Asian financial crisis was just beginning, the Japanese government offered to set up a fund that would provide the necessary guarantees to stem the haemorrhaging of capital. As the major foreign banks were well aware, this was exactly what was needed; a panic was setting in, foreign currency reserves were dangerously low throughout the region, and investors were selling local currencies just to get out before they fell further.
China, Taiwan, Hong Kong, Singapore and other countries offered support for a $100- billion fund to stabilise these currencies. But the idea did not sit well with the Treasury Department and Summers (then deputy secretary) was quickly dispatched to Asia to kill it. The orders from Washington were clear: any bailout would have to go through the IMF, with results that turned out to be an economic and human disaster.
The world’s financial and corporate elite have reason to be concerned. But their warnings of worldwide economic malaise brought on by a backlash against globalisation, their visions of a world on the brink of slipping into protectionist, isolationist chaos – as if no one would engage in trade or foreign investment unless they were bound by Washington’s rules – are self-serving and overblown.
Here is a more likely scenario: the collapse of the globalist agenda will be followed by a more honest and inclusive debate over international economic integration. As the iron grip of institutions such as the IMF and the World Bank is loosened, much of humanity will be freed to pursue new experiments; some of the many possible paths to social and economic development that have been blocked for so long will open up. The demise of the Washington consensus will give rise to new hopes and opportunities for a better world.
Extract from Globalism on the Ropes, by Mark Weisbrot, published on TomPaine.com in March. Weisbrot is co-director of the Center for Economic and Policy Research in Washington, DC, and co-author, with Dean Baker, of Social Security: The Phony Crisis, published in January by the University of Chicago Press