7 Redesigning the global economy
Globalization is increasing inequality and entrenching poverty worldwide as national governments lose the ability to control their development strategies and policies. Political solutions are needed to reinvigorate democratic control both North and South. But political reforms need to be combined with structural reforms. These should put meaningful employment and human rights at the heart of economic policy, boost local control and decision-making and restore the ecological health and natural capital of our planet.
Economic globalization is a powerful movement of people, goods, capital and ideas – driven by ideology, self-interest and bottom-line notions of economic efficiency.
But it is not a democratic process. For the most part it has proceeded without the approval or knowledge of those who have been most directly affected by the great economic upheavals of the past 35 years.
While it is true that globalization has boosted growth and lifted millions out of poverty, the process has been uneven. Cycles of boom and bust have produced growing inequality and widespread insecurity, tossing millions to the margins, North and South. It has also radically altered social relationships, stripping age-old cultures of their identity and threatening the environmental health of the planet.
Most of the measurable gains have been in Asia, especially in China and India. New investment, coupled with cheap labor and business-friendly governments, led to sustained growth in those two countries. That combination has reduced the number of extreme poor by half a billion since 1990, no small achievement.
In the past 30 years China has become the engine of global manufacturing, flooding the world with mass-produced consumer goods. The Chinese economy has been booming. When the rest of the world slumped after the 2008 recession, China grew by 8.7 per cent in 2009. In the previous three decades the country’s annual GDP growth averaged 10.2 per cent. China now uses nearly half the world’s steel and cement. It’s also the world’s second-largest oil consumer after the US, and the world’s biggest producer and consumer of coal. As a result of the country’s astonishing success in reducing poverty, Chinese planners have begun deliberately to throttle back growth, aiming to stimulate the domestic economy at the expense of exports. This adjustment has spooked commodity-dependent countries around the globe that have ridden the coat tails of the Chinese boom. The US Conference Board expects the Chinese economy to ease to 5.5-per-cent growth by 2019. Despite this planned slowdown, its economy will soon outstrip the US. The investment bank Goldman Sachs predicts China will be the world’s number one economic power by 2026. It’s already the largest trading nation, with 2013 exports totalling $2.2 trillion. (The value of US exports for the same year was $1.57 trillion.)
But growth in both China and India has come with a huge cost: poisoned water, deadly air, depleted soils, the world’s worst acid rain, and, in China, the largest migration from the countryside to urban areas in history.
According to the Worldwatch Institute: ‘Land degradation, depleted aquifers, water pollution and urban claims on land and water are nibbling away at China and India’s agricultural foundations – and may soon make it impossible for them to meet their rapidly expanding food needs.’1
Rapid growth has also heightened regional disparities and increased the gap between rich and poor. On average, workers in Indian cities earn nearly 40 per cent more than those in the countryside. In China, wage gaps are greatest between the booming east-coast cities and poorer rural areas. A Peking University study found that the average annual income for a Shanghai family in 2012 was $4,700 while the average in the northwest province of Gansu was under $2,000.2 According to an Asian Development Bank study, China is now East Asia’s second most unequal country after Nepal. The same Peking University survey found that the top five per cent of the country’s households scooped up 23 per cent of total household income in 2012, while the bottom five per cent earned a mere 0.1 per cent. The poor are clearly better off but the rich are getting richer much faster. China still has 600 million citizens living on less than $2 a day and India has another 800 million in the same boat.
Fearing social unrest as inequality grows, former President Hu Jintao admitted that China needs to build a ‘more balanced and harmonious society’. Signs of social discontent are multiplying. Strikes, walkouts and demonstrations are commonplace despite the Chinese state’s willingness to crush dissent. China spends more on internal policing than it does on its military.
Typical was an April 2014 protest at the Taiwanese-owned Yue Yuen factory in Dongguan, 100 kilometers northwest of Hong Kong. The company is a major supplier of shoes for both Adidas and Nike. Thousands of employees at the 40,000-worker plant walked out in a dispute over social-security benefits and higher wages. ‘Workers today are more aware of what they are entitled to in legal rights,’ Geoffrey Crothall of the Hong Kong-based China Labour Bulletin told Business Week magazine.3
Meanwhile, globalization has all but completely ignored other parts of the world. In sub-Saharan Africa, between 1990 and 2002, per-capita income didn’t rise at all. The number of people living on less than a dollar a day increased by a third, to more than 330 million. As UNDP notes, income inequality is increasing in countries that account for more than 80 per cent of the world’s population.
Says Indian economist Jayati Ghosh: ‘Despite popular perceptions, a net transfer of jobs from North to South did not take place…Instead, technological change meant fewer workers could generate more output. Old jobs in the South were lost or became precarious and the majority of new jobs were insecure and low paying.’4
This same pattern has been repeated across the so-called ‘advanced’ nations as companies cut staff, wages and benefits. Indeed, the ‘race to the bottom’ is one of the basic tropes of corporate globalization. A new study by former World Bank economist Branko Milanovic reinforces the notion of income inequality on a global scale. Milanovic shows that income gains in the decade prior to 2008 were divided between the super elites, the top tenth of one per cent, and what might be called the ‘global middle’ – essentially the rising Chinese and Indian middle class. For everyone else – mostly middle-class workers in the West – incomes have barely budged. The overwhelming majority of ‘losers’, says Milanovic, are from the ‘old, conventional’ rich world, ‘predominantly the people who in their countries belong to the lower halves of national income distributions’. The concern, he says, is that ‘the continued hollowing out of the middle class in the rich world, combined with growth of incomes at the top, could imply a movement away from democracy and toward forms of plutocracy’.5
There is no doubt that what globalization purports to promise – increasing prosperity and decreasing poverty – is both compelling and necessary. And the forces behind this new global vision are formidable. But a top-down, unequal globalization is not inevitable. We can make the system work in a more just way. The economic structures that shape extraction, production and distribution are human-made. The institutions that make the rules governing the operation of the world economy are human-made. And the politicians that we elect to govern us are people too. Change is possible.
The crisis of globalization is a unique opportunity to address core issues of democracy and human development. It has invigorated a worldwide people’s movement whose loud demands for change are attracting attention and support: from consumers, environmentalists, trade unionists, women’s groups, religious activists, farmers, human rights advocates and ordinary citizens.
The World Social Forum has been one of the most visible expressions of opposition – an annual gathering of thousands of such groups from around the globe. The WSF was born in the aftermath of massive demonstrations against the World Trade Organization in Seattle in November 1999. It was initially organized to coincide with the annual gathering of political and business leaders at the World Economic Forum in Davos, Switzerland. The first three WSF meetings were held in Porto Alegre, Brazil. The fourth forum in Mumbai in 2004 drew more than 100,000 people. The 2013 meeting was in Tunis, the city that launched the ‘Arab Spring’ protest movement in January 2011. Activists from more than 150 countries have attended these yearly events but the WSF has also spawned dozens of local, regional and national social forums. These face-to-face encounters provide citizen groups with a chance to compare notes, to strategize and to hammer out alternatives to the prevailing model of economic globalization. This is not an ‘anti’ globalization movement as much as it is a ‘pro’ people’s movement. The motto of the WSF is ‘another world is possible’. It is, in essence, a network of networks focusing on global issues of social and economic justice, interacting when necessary, but mostly working independently on their own issues in their own countries or communities.
The Social Forum movement has so far managed to avoid fracturing into sectarianism and has avoided alliance with specific political parties – to its credit. On the other hand, the network has been sharply criticized for relying on funding from corporate sources, including the Ford Foundation and other liberal granting organizations under the umbrella of the Engaged Donors for Global Equity (EDGE). But ‘politics is the art of compromise’ as the saying goes – the terrain is tricky. The WSF understands that, in order to influence change, the movement needs to remain independent of formal politics, acting instead as a conscience and a goad. And there is good reason for this. The powerful gatekeepers of the global economic system can force even the most progressive political leaders into tight corners. Yesterday’s hero, bravely confronting the IMF or the WTO, can quickly collapse in the face of fierce pressures from international capital and become tomorrow’s victim of corporate collusion.
Like the World Social Forum, the Occupy Wall Street (OWS) movement was a direct response to the failures of globalization, specifically the rising tide of economic inequality. The movement began quietly in September 2011 when several thousand people pitched tents in a small park in lower Manhattan. ‘We are the 99%’ was their slogan. It caught on, capturing in a short phrase the discontent and injustice of a broken global economy that was bypassing the vast majority. OWS triggered a wave of parallel protests in North America and across Europe, helping to shine the spotlight of public opinion on the long-festering but largely ignored issue of income inequality. Since then the issue has gone viral, seen by all but hidebound conservatives as a critical problem urgently needing attention. Critics, like UC Berkeley economics professor Emmanual Saez, have written that exploding wealth inequality is ‘a direct threat to the cherished American ideals of meritocracy and opportunity’.6 Saez found that 95 per cent of income gains in the US since 2009 have gone to the top one per cent. Meanwhile, Saez’s colleague, French economist Thomas Piketty, saw his book, Capital in the 21st Century, soar to the top of the bestseller lists. Piketty’s detailed broadside against inequality quickly caught the attention of policymakers, reinforcing the message first raised by OWS and since backed by UN agencies like UNICEF, NGOs like Oxfam and millions of concerned citizens from Bogotà to Bangkok.
Other campaigns to rein in the globalization juggernaut have succeeded in educating millions about global inequalities. The Jubilee 2000 campaign to cancel Third World debt galvanized tens of thousands of supporters, both North and South. More recently, the Make Poverty History movement and the global Trade Justice Campaign have continued to push for significant changes to the world trading system to improve the lives of the world’s poor. Even so, industrialized nations still drag their feet, refusing to lower subsidies and open the door to Southern exports. Commenting on his own country’s predicament, Filipino Congress member Walden Bello noted: ‘Three decades of export-oriented growth have resulted in trade accounting for some 30 per cent of gross domestic product. WTO-imposed liberalization has converted the country from a net food-exporting country into a net food-importing one…The main pillar of the economy is now the export of labor, with some 10 per cent of the country’s 90 million people working and living outside the country.’7
Political leaders are feeling increased pressure to improve the lot of those who have been bypassed by progress. Across Latin America, opposition to globalization has exploded since Brazil’s 1998 economic crisis and the collapse of the Argentinean economy in 2002 – both of which were triggered by hard-line IMF policies and meddling by financial speculators. Following the 2002 election of former labor activist Ignacio ‘Lula’ da Silva in Brazil, leaders opposed to wide-open markets were elected in Argentina, Ecuador, Venezuela, Bolivia, Nicaragua, El Salvador, Uruguay and Chile. At the November 2005 Summit of the Americas in Buenos Aires, many of those nations spearheaded opposition to the proposed Free Trade Area of the Americas (FTAA), derailing plans to extend free trade from the Arctic to Patagonia. The dissenting nations claimed in the Summit’s closing declaration that ‘conditions do not exist to attain a hemispheric free-trade accord that is balanced and fair with access to markets and free of subsidies and distorted commercial practices.’ By 2015 there were few national governments in Latin America willing to give free rein to open markets.
Even so, national differences continue to shape policy. In recent years countries like Argentina, Venezuela and Brazil have been wary of another free trade proposal, the Trans-Pacific Partnership, while nations like Chile, Peru and Mexico, encouraged by their own business leaders, have been more open to the idea.
Those who control the global economy understand that popular opposition to the project of economic globalization is growing. More than a decade ago, at the 1999 Asia Pacific Economic Co-operation (APEC) meetings in New Zealand, then-US trade negotiator Charlene Barshefsky admitted that the single greatest threat to globalization is ‘the absence of public support’. Her concerns are justified. There is now a worldwide citizens’ movement attempting to rethink the global economy from the ground up. It is a movement which is spreading and becoming stronger by the day. And it is premised on one shared, central truth. The only way to convince states to act in the interests of their citizens is to construct a system that will put people at the center of economic activity. And critically, the economic rights of individuals and communities must be in harmony with environmental limits.
Inevitably, this is a question of politics as much as economics. What’s encouraging is that millions of people in scores of countries around the globe are actively lobbying, debating and campaigning for change.
What follows are a few of the ideas currently being discussed.
Abolish the Bretton Woods institutions
The IMF, along with sister organizations the World Bank and the World Trade Organization, should be abolished – replaced with completely new organizations with new mandates and new staff.
The new agencies should be decentralized, regional institutions built on co-operative principles rather than free trade and capital mobility. They must become more democratic and more focused on the needs and interests of the citizens of the world rather than fixated on narrow market goals.
This regional approach is now being seriously considered.
The continuing global financial crisis has prompted even mainstream political leaders to speculate about a new European equivalent of the IMF. When Greece’s debt soared in early 2010, the country teetered on the brink of bankruptcy. The European Union’s concern was the impact of the plunging euro on the rest of the EU. The possible solution: a European equivalent of the IMF – a European Monetary Fund – to provide financial backing for Greece. ‘We want to be able to resolve our problems in the future without the IMF,’ said German Chancellor Angela Merkel.
These new institutions will need to be more accountable to all their members – with more democratic and more transparent decision-making.
In the past the Fund has been arrogant and closed to criticism. New regionally based agencies would need to move beyond finance ministry officials to talk (and listen) to trade unions, peasant organizations, women’s groups and non-governmental organizations – the people who will be on the receiving end of the social impact of any agreement. To improve accountability, there should be regular external evaluations of whatever programs and policies are put in place.
Critically, structural-adjustment policies – political, social and economic conditions attached to balance-of-payment loans – should be jettisoned. The standard recipe – austerity, balanced budgets and ‘efficient markets’ – should not be allowed to erode national sovereignty, or interfere with the decisions of elected governments. Coercion is by nature anti-democratic.
The central goal of these new regional organizations must be to improve the lives of ordinary people – to alleviate poverty, to wipe out Southern debt, to promote equity and to encourage efficient, green technologies. Markets should serve people, not the other way round.
As long as a global market economy exists – and it doesn’t show signs of disappearing soon – multilateral institutions will be necessary to regulate and manage the flow of capital, goods and services. But, in the words of Keynes, we should ‘minimize’ rather than ‘maximize economic entanglement among nations.’
Co-operation must be the watchword of any new regional institutions. A single-minded, inflexible approach based on market fundamentalism will exacerbate the instability and inequality of the global market. By scrapping the Bretton Woods trio – the IMF, the World Bank and the WTO – we can start afresh to build new institutions with a moral purpose and a democratic mandate which will work to the benefit of the majority of the world’s citizens.
Support a tax on financial speculation
Unregulated investment has turned the global economy into a casino where speculators search for instant profits, ignoring the human consequences of their actions. Nowhere was this more evident than in the world-shaking financial crisis which erupted in 2008. The combination of sub-prime mortgages, speculation and greed by banks, insurance companies and investment firms triggered the most severe economic downturn since the Great Depression. By March 2009 more than $50 trillion of assets were wiped out, including $7 trillion in US stock-market wealth and $6 trillion in US housing wealth.8
Currency markets can be useful – taking the worry out of international buying and selling by figuring out today what a future purchase will cost. But it’s estimated that just 2-4 per cent of currency trading has to do with real market exchanges. The rest is pure speculation, making money off money. A tax on speculative dealings in foreign currencies, shares and other securities would put people ahead of profits.
In 1978, the Nobel Prize-winning economist James Tobin proposed that a small worldwide tariff (less than half of one per cent) be levied by all major countries on foreign-exchange transactions in order to ‘throw some sand in the wheels’ of speculative flows. The tax would have no effect on serious long-term investors. A tax of .05 per cent would dampen speculation while stabilizing global markets and capturing much-needed funds for global development. According to UNCTAD, daily foreign-exchange trading now tops $4 trillion, while only one per cent of foreign exchange trading is actually related to merchandise trade. Even if the trade fell by 25 per cent after a transaction tax was imposed, it would still yield billions in revenues for the public purse.
There is a significant movement to back such a tax. France and Germany have signalled support and in early 2010 more than 350 economists urged the G20 governments to adopt the so-called ‘Robin Hood’ tax as ‘a matter of urgency’. The tax has won widespread support from charities, environmental groups, trade unions, celebrities, financiers, religious leaders and even a few politicians. Columbia University economist Jeffrey Sachs says: ‘The transaction tax is technically feasible and morally essential to repair the mess made by the banks.’ The goal is to dampen speculation and to raise funds to support global development – a rare opportunity to capture the enormous wealth of an untaxed sector and redirect it towards the public good.
At this point the main barrier is not technical, it’s political. The tax is seen as a threat by the financial community and has met with stiff resistance by a sector with massive political clout. The very idea of putting people ahead of markets challenges the foundations of the current global economic model and those who control it.
Control capital for the public good
The world was a heartbeat away from complete economic collapse in 2008. Only a multi-billion-dollar bailout by national governments helped stave off disaster. Globalization – the freewheeling era of unregulated capital flows and free markets – brought us to the brink. And we will bear the social and psychological scars for years to come. The costs of the crisis have been huge: industries have been shuttered while trade has plummeted and unemployment has spiked. Social services have been slashed in the wake of government budget cuts while cynical politicians stir up anti-immigrant bigotry. Renewed recession is still a looming threat.
In countries like Iceland and Ireland the bailouts of the banks cost more than two-and-a-half times the national income. And governments everywhere are faced with massive deficits which may haunt them for decades. Memories are short: the deficit hawks warn that we will all have to tighten our belts to pay for the malfeasance of the financial community. But we must not forget what caused the crisis in the first place: a globalized financial system which was unaccountable, unregulated and driven by greed. Now is the time for a clean start. We have the greatest opportunity since the Great Depression of the 1930s to restructure global economic relations in a more democratic and sustainable way.
Here are some brief notes on alternative strategies to economic globalization that could take us in a new direction.
Regulate the financial system
Capital needs to be used as an instrument of development, not as a tool for turning a quick profit at the expense of people and the Earth. Democratic control of capital means strict regulation of banks and investment firms. They should not be in the business of gambling.
Close tax havens
They serve no useful purpose except to help corporations hide their profits and to make rich individuals even richer. They should be closed immediately and international rules should be put in place to allow tax officials in all countries to exchange financial information and to end banking secrecy.
Break up the big banks
If they’re too big to fail, they’re too big. Period. After the meltdown of 2008, governments in Britain, the US and elsewhere became part-owners of some of the biggest banks and insurance companies. But the crash also spawned even larger banks as ‘winners’ swallowed ‘losers’. The big banks should be broken into smaller units so that if they do fail they don’t threaten the entire system. At the moment their gambling is risk-free; if they lose, taxpayers pick up the tab.
Fix foreign investment
Foreign investment should be welcome only if social obligations are met; governments should be able to restrict the repatriation of profits. Governments should also have the right to require corporations, both foreign and domestic, to meet basic social obligations and development priorities such as labor standards, job quotas, environmental safeguards and social-security contributions. Free trade should not override the democratic will of the electorate.
Promote public enterprise
Governments have a responsibility to use tax revenues for protecting the ‘commons’ through public investments. These could include: exercising public ownership over key sectors of the economy; establishing social programs and public services; safeguarding ecologically sensitive areas; and protecting cultural heritage.
People before profits
A foreign corporation should not be able to demand compensation for an environmental law that placed a quota on the export of a nonrenewable resource or a health ban on the sale of toxic substances. Nor should a foreign company claim compensation for loss of future profits because government actions prevent a planned investment from going ahead.
Go local
The export-oriented model needs to be jettisoned and free trade corralled. The United States cannot continue as ‘consumer of last resort’ for global exports. Countries need to redirect production towards domestic needs. Trade policy, including tariffs and quotas, should be used to protect the local economy and to boost domestic manufacturing. This will both strengthen community bonds and benefit the environment.
Support fair trade
‘Max Havelaar’, the first fair-trade initiative, was launched in Holland in 1988. The name was taken from a fictional character who had opposed the exploitation of coffee pickers in Dutch colonies. In 1997, the Fairtrade Labelling Organizations International (FLO) brought Max Havelaar together with counterparts in other countries. Now known as Fairtrade International, the organization includes three producer networks, an independent certification body and 25 fair-trade organizations in Europe, Japan, North America, Mexico, Australia and New Zealand/Aotearoa. Meanwhile the World Fair Trade Organization gathers together organizations all over the world that demonstrate 100-per-cent commitment to fair trade in all their business activities and subscribe to a set of key principles. It’s a stunning achievement that producer networks in Africa, Latin America and Asia now represent nearly two million farmers in more than 70 countries.
Compared with conventional trading structures, these Alternative Trade Organizations offer higher returns to producers in the developing world through direct trade and fair prices. The fair-trade movement is a response to a global trading system that is both unjust and exploitative – global trading rules are rigged to benefit the rich and marginalize the poor. Fixing the global system will take major institutional changes and a determined campaign.
Unregulated trade allows corporations to pit workers against each another, to reduce the bargaining strength of trade unions, to strip away benefits, to ignore dangerous working conditions and to reduce wages.
Instead, trade agreements must bolster the rights of working people by promoting labor rights – including the freedom to form trade unions and bargain collectively. Free trade is a social issue as well as an economic one. To attract investors, countries compete to lower costs. That can trigger a ‘race to the bottom’ where job-hungry nations offer cheap labor, weak environmental laws, lax health-and-safety standards or reduced social services. Governments must have the right to regulate foreign investment to protect their citizens and to link investment to national development priorities.
Nations should have the power to establish and defend intellectual property rules that protect the interests of their citizens. Trade agreements must guarantee access to essential drugs, prohibit the erosion of traditional cultures and protect indigenous knowledge and biodiversity.
If democracy is to have meaning, citizens must help to formulate global trade rules. These agreements must promote civil and political rights as well as the social, cultural, economic and environmental rights of peoples and communities.
In the meantime, the fair-trade movement provides a chance to learn about the blatant unfairness of the global trading system. And to set standards that could redefine global trade to include social and environmental considerations.
1 State of the World 2006, Worldwatch Institute, WW Norton, New York, 2006. 2 Edward Wong, ‘Survey in China Shows a Wide Gap in Income’, New York Times, 19 Jul 2013. 3 Dexter Roberts, ‘Workers Continue to Strike at Nike and Adidas Supplier in Southern China’, businessweek.com, 17 Apr 2014. 4 ‘Downside up’, New Internationalist, No 430, Mar 2010. 5 Branko Milanovic, ‘Winners of globalization: The rich and the Chinese middle class. Losers: the American middle class’, The World Post, 21 Jan 2014. 6 Michael Hiltzik, ‘US income inequality is bad, but wealth inequality is a bigger problem’, Los Angeles Times, 24 Oct 2014. 7 Walden Bello, ‘Reflections of a Filipino MP’, New Internationalist, No 430, Mar 2010. 8 John Bellamy Foster, ‘The Age of Monopoly-Finance Capital’, Monthly Review, Vol 61, No 9, Feb 2010.