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Winter 2000 cover

National Observer Home > No. 45 - Winter 2000 >Articles

Protests Against Globalisation

Bob Browning

This article examines the debate sparked by recent worldwide protests over the effects of globalisation.

After the world headlines gained by the protests against "globalisation" in Seattle, Davos, Madrid, and Washington, neo-liberals rushed to reassure their supporters that they were not only on the right track economically, but had nothing to worry about morally.

Thomas Friedman led the charge in "The New York Times", on 14 April 2000. He claimed that readers would not get the real facts from the protesters, but they would from the United States consulting firm A.T. Kearney which had just done a "major study" on how globalisation had affected 34 developed and undeveloped countries. Friedman said that the consultant's report confirmed what he claimed economists had long known:

"Overall, countries integrating rapidly with the world economy have fared better than those integrating more slowly . . . the fastest globalizing countries have enjoyed rates of economic growth that averaged 30 to 50 per cent higher over the past 20 years. The same countries also enjoyed greater political freedom . . . more social spending and received higher scores on the U.N. Human Development Index, an indicator of longevity, literacy and standard of living."

The consulting firm's report claimed that in 1981 some 34 per cent of the world's population lived in absolute poverty, but by 1990 that number had dropped by more than half. Friedman claimed this showed that 1.4 billion people had escaped absolute poverty "as a result of economic growth associated with globalisation".

After accusing the protesters of being emotive and not approaching issues in a balanced way , Friedman went on to set less than a good example. He exhorted readers to "[r]oot against the economic quacks peddling conspiracy theories about globalization; the anti-free-trade extremists, such as Ralph Nader's group, Public Citizen; the protectionist trade unions; and the anarchists. These groups deserve to be called by their real name: 'The Coalition to Keep the World's Poor People Poor'."

He was especially condemnatory of trade unions, accusing them of launching "a protectionist jihad against more free trade with the developing world". United States unions say they support free trade so long as it is with countries seeking to raise their workers' standards to something approaching a level playing field. But Friedman dismissed this as a cover. Trade unions were merely hiding their self interest and fear of competition, he said. Moreover, they were "unable to point to a single country that has flourished, or upgraded its living or worker standards, without free trade and global integration. They offer the Third World no coherent plan for how to develop. Their only plan is that developing countries stop developing . . . U.N.I.T.E., the reactionary garment union, is currently blocking a compromise bill aimed at giving the poorest countries in Africa duty-free access to the U.S. apparel market, even though this bill would link these trade benefits to improved worker standards".

Despite condemning conspiracy theorists earlier, Friedman proceeded to claim a conspiracy existed between the unions, consumerist groups and a textile tycoon. He hinted darkly about

"the relationship between Ralph Nader's and Lori Wallach's Public Citizen group and Roger Milliken, the far-right billionaire textile factory owner . . . a longtime backdoor funder of protectionist groups".

Friedman devoted only one sentence to the possibility that neo-liberal globalisation - not just the protest movement - might have a downside or two. He was prepared to acknowledge briefly that countries that were rapid globalisers had witnessed "a growing gap between rich and poor, rising corruption and higher levels of environmental pollution". These seemed to be matters of low priority, however, compared to economic growth.

He reassured readers that he was not knocking self-interest. How could a neo-liberal do that, even when the trade unions were involved? Self-interest is the keystone of neo-liberalism. The pursuit of self-interest within a competitive market system is what economic rationalists believe makes the world go round better:

"There's nothing wrong with unions, or owners, protecting their interests - it's just what they do it in the name of helping the poor that's contempt ible. So as you watch this demo, give your heart to those who not only care about the poor and the rain forest but have real ideas of how we can help both grow in a more integrated world. And give the back of your hand to those who pose as friends of the downtrodden but whose real goal is to take care of themselves and keep the poor poor."

Do the primary concerns of those driving neo-liberalism globally really include helping the poor and saving the rain forests? Former World Bank chief economist Joseph E. Stiglitz has doubts. Shortly before the Washington protests, he stated (New Republic, 6 April 2000):

"Next week's meeting of the International Monetary Fund will bring to Washington, D.C., many of the same demonstrators who trashed the World Trade Organisation in Seattle last fall. They'll say the I.M.F. is arrogant. They'll say the I.M.F. doesn't really listen to the developing countries it is supposed to help. They'll say the I.M.F. is secretive and insulated from democratic accountability. They'll say the I.M.F.'s economic 'remedies' often make things worse - turning slowdowns into recessions, and recessions into depressions. And they'll have a point."

Stiglitz is now a senior fellow at the Brookings Institution in Washington and is considered one of America's foremost economists. He has an insider's view of how international agencies managed the global financial crisis of 1997-99, using the neo-liberal so-called Washington Consensus as their strategic guide:

"I saw how the I.M.F., in tandem with the U.S. Treasury Department, responded. And I was appalled. The global economic crisis began in Thailand, on 2 July 1997. The countries of East Asia were coming off a miraculous three decades: incomes had soared, health had improved, poverty had fallen dramatically. Not only was literacy now universal, but, on international science and math tests, many of these countries outperformed the United States. Some had not suffered a single year of recession in thirty years."

But the seeds of calamity had already been planted. In the early 1990s, East Asian countries liberalised their financial and capital markets. Not because they needed to attract more funds, Stiglitz says. Their savings rates were already 30 per cent or more. They "liberalised" because of international pressure, including pressure from the U.S. Treasury Department:

"These changes provoked a flood of short-term capital - that is, the kind of capital that looks for the highest return in the next day, week, or month, as opposed to long-term investment in things like factories. In Thailand, this short-term capital helped fuel an unsustainable real estate boom. And, as people around the world (including Americans) have painfully learned, every real estate bubble eventually bursts, often with disastrous consequences. Just as suddenly as capital flowed in, it flowed out. And, when everybody tries to pull their money out at the same time, it causes an economic problem. A big economic problem."

Stiglitz keeps his eye on the real economy which the financial markets allegedly exist to serve. But he thinks the I.M.F. keeps its eye mainly on the health of the financial markets. He says its policies during the Asian crisis benefited the creditors rather than the people. In a recession or depression, government spending should expand not contract, but the I.M.F. focussed on inflation. It insisted that raising interest rates would make stricken countries more attractive for money to return. If you're a lender, Stiglitz says, you worry whether you are going to get your money back, not just the interest rates you hope to be paid. In his view, the I.M.F.'s policies ended up helping to weaken currencies by hurting the real productive economies of the countries and increasing the risk of financial default.

Stiglitz states that he found it virtually impossible to change the minds of those at the I.M.F. He describes their thinking as ideological:

"When I talked to senior officials at the I.M.F. - explaining, for instance, how high interest rates might increase bankruptcies, thus making it even harder to restore confidence in East Asian economies - they would at first resist. Then, after failing to come up with an effective counter argument, they would retreat to another response: if only I understood the pressure coming from the I.M.F. board of executive directors - the body, appointed by finance ministers from the advanced industrial countries, that approves all the I.M.F.'s loans. Their meaning was clear. The board's inclination was to be even more severe . . ."

Stiglitz is equally caustic about the effect of neo-liberal globalising pressure on Russia. He believes that what happened in Russia was a calamity that shared characteristics with the crisis in East Asia:

"They [the I.M.F. and the U.S. Treasury] bungled the transition [from communism to capitalism] in Russia. More than 50 per cent of the people are impoverished, versus two per cent just 10 years ago. Gross domestic product is 50 per cent of what it was. It's startling. We told these countries that, if you go to a market system, you're going to see things like you've never seen before. It was like nothing they had seen before, but it was the opposite of what we had told them to expect."

Stiglitz says that the Treasury Department and the I.M.F. stymie open debate within policy circles over Russia policy. The dominant thinking driving the Washington Consensus comes mainly from macro-economists whose faith in the market is unmatched by an appreciation of the conditions required for the market to work effectively, he says. As a result:

"In the December 1993 elections, Russian voters dealt the [economic rationalist] reformers a huge setback, a setback from which they have yet really to recover. Strobe Talbott, then in charge of the non-economic aspects of Russia policy, admitted that Russia had experienced 'too much shock and too little therapy'. And all that shock hadn't moved Russia toward a real market economy at all. The rapid privatization urged upon Moscow by the I.M.F. and the Treasury Department had allowed a small group of oligarchs to gain control of state assets.

The I.M.F. and Treasury had re-jiggered Russia's economic incentives, all right - but the wrong way. By paying insufficient attention to the institutional infrastructure that would allow a market economy to flourish - and by easing the flow of capital in and out of Russia - the I.M.F. and Treasury had laid the groundwork for the oligarchs' plundering. While the government lacked the money to pay pensioners, the oligarchs were sending money obtained by stripping assets and selling the country's precious national resources into Cypriot and Swiss bank accounts."

Stiglitz claims that the United States was heavily implicated in what he calls "these awful developments". In mid-1998, Lawrence Summers, soon to be named Robert Rubin's successor as Secretary of the Treasury, made a public display of appearing with Anatoly Chubais, the chief architect of Russia's privatization. In so doing, the United States seemed to be aligning itself with the very forces impoverishing the Russian people. "No wonder anti-Americanism spread like wildfire", Stiglitz comments. He adds:

"Today, Russia remains in desperate shape. High oil prices and the long-resisted rouble devaluation have helped it regain some footing. But standards of living remain far below where they were at the start of the transition. The nation is beset by enormous inequality, and most Russians, embittered by experience, have lost confidence in the free market. A significant fall in oil prices would almost certainly reverse what modest progress has been made."

Many of the anti-neoliberal protesters are ideologically anti-capitalist and self-interested. But this should not be used to distract attention from the expressions of deep concern and valid criticism also present in the growing protests. Stiglitz reminds us that since the end of the Cold War, enormous power has flowed to the people entrusted to spread the gospel of the market to the far corners of the globe. These economists, bureaucrats, and officials who are now managing the global economy act in the name of the United States and the other advanced industrial countries. Yet they speak a language that few ordinary citizens understand. They positively avoid dialogue or serious consideration of rising criticism:

"Economic policy is today perhaps the most important part of America's interaction with the rest of the world. And yet the culture of international economic policy in the world's most powerful democracy is not democratic."

In the absence of world government and with the recent decline of national sovereignty, transnational economic and social policy tends to fall under the sway of the world's leading power - or more accurately those elite interests that exert most influence on U.S. economic policy.

The interests and associated ideological preferences of the United States are the dominant influences on and through the inter-government organisations (I.G.O.s). Voting strength in organisations such as the I.M.F. and the World Bank is based on the financial status and contributions of member states. The United States is the world's leading economic power and the biggest contributor to the I.G.O.s. The United Kingdom, and especially the City of London, have a well-known special relationship with the United States. It is Anglo-U.S. dominated inter-government organisations that conduct the supranational steering of the economic and social policy of nations in the neo-liberal direction. The O.E.C.D., I.M.F., W.B., W.T.O. and tG7 are all strongly influenced by the U.S. government and by U.S.-U.K.-managed capital.

The economic rationalist political agenda at the core of the Washington Consensus is to induce "competitive austerity" through structural change. This includes "flexible labour markets" - that is, downsizing, part-time-izing, casualising, and de-unionising. It also includes the reduction of public spending, privatisation, and the transfer of the tax burden to salary earners and consumers via indirect taxes.

In its "World Economic Outlook", May 1994, the I.M.F. typically praised the U.S. model for the "greater flexibility" of its "labour market" which it described as

"less generous unemployment insurance provision in terms of benefit payments, duration of benefits, and qualification of benefits; wider earnings dispersions; lower levels of unionisation and less centralised wage bargaining; less government intervention in the wage bargaining process; fewer restrictions on hiring and firing of employees; and lower social insurance charges and other non-wage labour costs, such as the amount of paid vacation".

Critics regard flexibility as little more than a neo-liberal euphemism for the commodification of labour, that is treating people as tradeable things, as just one of the various available means of production. Treating people as expendable and of value only in relation to production is dehumanizing - an attitude not altogether different from that of another economistic ideology, communism. But with the communist threat and the socialist alternative gone, and with social democracy in retreat, there is an absence of any real political competition. All major parties have become essentially the same, especially as they become increasingly dependent on corporation approval and money for electioneering.

"Business Week" (24 April 2000) tended to lean towards Stiglitz rather than Friedman:

"So is the hostility aired in Seattle and now in Washington just the raving of fringe groups? Or does it express a more widespread anxiety that decision-makers have ignored until now?

Fringe groups do play a role, but there is mounting evidence for the second conclusion, as well. The protesters have tapped into growing fears that U.S. policies benefit big companies instead of average citizens - of America or any other country.

Environmentalists argue that elitist trade and economic bodies make undemocratic decisions that undermine national sovereignty on environmental regulation.

Unions charge that unfettered trade allows unfair competition from countries that lack labor standards.

Human rights and student groups say the I.M.F. and the World Bank prop up regimes that condone sweatshops and pursue policies that bail out foreign leaders at the expense of local economies."

"Business Week" concluded that globalization was undoubtedly a paradox. It brought big gains at the macroeconomic level, but the benefits were being very unfairly shared - not to mention the risks and social costs:

"Those pluses are often eclipsed in the public eye by all the personal stories of pain felt by the losers. But that pain remains mostly hidden, as economists and politicians emphasise the upside while down playing or omitting altogether the drawbacks."

The paradox of globalisation is unravelled when the comments of Friedman and Stiglitz are considered in the context of more comprehensive studies by Professors Dani Rodrik and Ramesh Mishra. The term "globalisation" is used in confusing ways. One needs to distinguish between the neo-liberal ideology behind certain policies pushed by the U.S.-influenced inter-government agencies like the I.M.F., W.B., O.E.C.D. and G7, and the more unplanned effects of new information and transport technologies that are changing the world.

Dani Rodrik emphasises the difference between technological developments which are more or less inevitable and the policies for managing those developments, which are optional There is not just one way - the economic rationalist way - of increasing trade and inter-communication between countries while achieving economic growth and social decency.

Rodrik, Professor of International Political Economy at Harvard University, has written two small but provocative books on political economy: "Has Globalisation Gone Too Far?" (Institute for International Economics, 1997) and "The New Global Economy and Developing Countries: Making Openness Work" (Overseas Development Council, 1999). He argues that there is no evidence to back claims like those of Friedman that integration into the global economy will of itself improve a country's economic performance. The evidence is different, he says. Countries that have done well are those that have been able "to formulate a domestic investment strategy to kick-start growth" and those that have had "the appropriate institutions to handle adverse shocks".

What are the appropriate institutions? Rodrik's list includes "participatory institutions, civil and political liberties, free labour unions, non-corrupt bureaucracies, high-quality independent judiciaries, and mechanisms of social insurance such as social safety nets". Rodrik has no doubt that globalisation - the revolution being wrought by technological change and liberalised trade and investment - is the major dynamic of our time. And he thinks it can be a positive good. But for globalisation to work beneficially, governments must strive for all round good governance. It is not sufficient for governments merely to pursue international competitiveness through radical restructuring at any cost.

The rising competitiveness of The Netherlands and Finland adds support to Rodrik's argument. The Swiss-based Institute for Management Development recently released its Year 2000 World Competitiveness Study (analysed by Sheryle Bagwell in "The Australian Financial Review", 20-25 April 2000). The study found that The Netherlands had jumped to fourth place among the 47 countries ranked by the I.M.D. It was beaten only by the United States, Singapore and Finland, which had leapt 13 places since 1996. Despite its on-going Thatcherism and leaning to the U.S. model, Great Britain remained stuck in 15th place. Australia slipped back to 13th place.

The Dutch have deregulated their labour markets and embraced globalisation but without sacrificing social cohesion. Economic growth over the past four years has surged ahead by an average 3.4 per cent a year, while unemployment, as Bagwell noted, "has been pulverised to a tiny 2.7 per cent". Although inflation is higher than the euro-zone average it is still only 2.2 per cent. The Dutch have an Australian-like accord with the unions. The unions agreed to swap automatic wage indexation and rigid work practices for a commitment by employers to create jobs and preserve the social welfare system.

The most significant finding of the Institute for Management Development study was that a new model of competitiveness was emerging in continental Europe. The Dutch model takes the social consequences of globalisation into account. It would seem to confirm that good governance can move beyond obsession with the economy (as narrowly defined), maintain social decency, and still advance the country's competitiveness.

There needs to be a recognition that global competiveness comes with severe costs and risks. The winners are always happy to allow the losers to bear the main costs and risks, but this is hardly good for society, and not good in the long run for capitalism itself.

For most economists, Rodrik is heretical because he debunks the "free market religion" and derides "knee-jerk globalizers," though only in passing. His books are far from being diatribes against globalisation. Globalism, not globalisation is the problem. Globalism is the obsessive and often ruthless pursuit of economic liberalisation and capital deregulation for its own sake or in pursuit of special interests.

Globalisation of one sort or another is inevitable. The issue is how to deal with it. Managed properly, it can increase productivity, spur growth, create millions of new jobs, and expand and shift wealth to improve life for the poorer as well as the better off around the world. But this will be so only if countries adopt policies that protect all their people, particularly the vulnerable, from the inevitable costs that go with rapid economic, social and political change. Otherwise, the effects will rebound to bite the hand that fed it. As Karl Polanyi warned, the creative destruction of revolutionary laissez-faire capitalism can devour its own children. Polanyi thought it had done so previously during the first half of the Twentieth Century. He thought it had helped bring about the retreat into protectionism, the Great Depression, Fascism, Bolshevism and the Great Wars.

Rodrik echoes Karl Polanyi in his recognition that the economy cannot be separated from society's other essential values and institutions without dire consequences. The economy must serve man, not man the economy. Rodrik says:

"Good government is as vital as good economic management, and the two should not be compartmentalised. The preservation of democratic institutions and social justice are equally critical in ensuring a politically smooth adjustment to the inevitable external shocks that go with a powerful dose of globalisation, deregulation, privatisation and state reductionism. Periodic financial and other crises come with opening up markets to footloose international capital. The recent crises in Asia, Russia, Mexico, and South America remind us of that. Untempered globalisation also widens income and wealth inequalities within both developed and developing countries".

Ramesh Mishra, Professor Emeritus, York University, Canada, has taken up Rodrik's point about how neo-liberal policies distribute the benefits, risks and costs of globalisation unfairly, and in a way that is likely to prove ultimately self-defeating. In his latest work "Globalisation and the Welfare State" (Edward Elgar Publishing, 1999) Mishra examines the impact of globalisation on social protection. He questions the neo-liberal promise that economic growth as currently found will translate into more real jobs or higher wages for the majority of the workforce:

"Clearly 'trickle down' is dead. These developments - chronic unemployment, declining wages and working conditions, job insecurity and diminishing occupational benefits - call into question a number of optimistic assumptions connected with the globalising market economy. One of these is that a free market economy will - given sufficient time - take care of need and dependency through growth, job creation and higher wages. Another is that if the state withdraws from social provision, the ensuing gap can be filled by non-state sectors, notably employers, the market and voluntary organisations . . . But neither jobs, nor higher wages, nor social benefits can necessarily be provided by a growing economy . . The more the productive sector of the economy is de-socialised, and commodified, the greater is the need for compensatory social policy to provide a measure of equity and a semblance of secure and civilised public life . . . Moreover, with capital mobility, insecurity of employment, 'lean production', and labour market 'flexibility' , the education, training and retraining of the work-force is also far more likely to be the responsibility of the government rather than of corporations and employers."

Currently in O.E.C.D. countries there are over 35 million unemployed - even according to official figures which underestimate the jobless and exclude the under-employed. Much of the unemployment is structural and long term.

Frontal attack on full employment, social protection and community infrastructure can be electorally dangerous for political parties. Laissez-faire capitalism, entrenched welfare state institutions and attitudes and electoral democracy, as Mishra argues, can be an explosive combination. Populist outbreaks around the world add to his warning. Realising this, governments often prefer to advance their neo-liberal agenda by stealth. The tactic is to reduce slowly the quality and increase the charges for services like public healthcare and education; to introduce rationing through waiting lists and queues; to restrict eligibility; and to make access to benefits more complex and humiliating. (In this context, recent changes to Australia's public health and unemployment benefits systems are of interest.)

None of this makes for a decent or enduring society. History should not be forgotten. When laissez-faire capitalism was last allowed to run rampant, the Great Depression, Bolshevism, Nazism and two World Wars followed.

But what about the general public? The media debate reflects the thinking of a limited intelligentsia, not necessarily that of the man and woman in the street. Where do the democratic citizenry stand in relation to globalisation? When we refer to public opinion polls rather than the media commentators, it seems that many people are not being taken in by the worldwide barrage of neo-liberal promotion, obfuscation and stealthy social engineering from unaccountable elites operating through inter-government and private agencies above the reach of democratic processes within nation states.

A U.S. Harris poll, for example, released on 12 April 2000 at the time of the Washington protests, seemed to confirm what "Business Week" described as "a gnawing sense of unfairness and frustration that could boil over in the future". The poll showed that while most Americans supported globalization in principle, they disagreed with the way it was being carried out. Only 10 per cent described themselves as free traders. Most preferred to be described as supporting fair trade rather than free trade. Nearly 80 per cent wanted government to do more to prevent unfair competition, environmental damage and job loss. Nearly 70 per cent believed globalization dragged down U.S. wages. Polling in Australia is likely to show similar attitudes.

Democrats find such polls heartening. When it comes to the big questions, electors in open societies have a capacity to penetrate political hype, zero in on the key issues, and make socially responsible and morally decent judgments. Globalism should not be allowed to undermine the democratic process.

 

 

National Observer No. 45 - Winter 2000