Capitalist Globalism In Crisis


Robin Hahnel

When
real world outcomes differ from the efficient ones predicted by mainstream
models in text books, the memories of pro-capitalists are jogged to recall
catchall phrases, like “perfect competition,” and “complete markets.”
The word “perfect” refers to knowledge and requires complete and accurate
information for all participants in the economy about the consequences of all
their conceivable choices, as well as accurate knowledge about all present and
future prices for all goods and services. When someone points out that there
is uncertainty in the real world, mainstream theoreticians only think of
things like earthquakes and hurricanes, and redefine “perfect” to include
accurate information about the probability distributions of uncertain events.
The word “competition” refers not to strategic behavior to best one’s
market opponents—which is what anyone grounded in the real economy would
naturally assume—but instead, to the number of buyers and sellers in
markets. A competitive market is one in which there are a sufficient number of
buyers that no buyer can influence the price she must pay by deciding to buy
more or less, and no seller can influence the price she receives by selling
more or less. A “competitive” market is therefore one where all buyers and
sellers are “price takers,” and all attempts at collusion are doomed to
failure. In other words, the competitive market of mainstream theory is
precisely a market in which all “competitive” behavior is pointless, and
therefore not to be expected. Markets are “complete” if there is a market
for everything of consequence. Completeness refers to coverage, and requires
that anything that anyone cares about can be bought or sold in a market—a
perfectly competitive market, of course.


Once
our capitalist visionaries remember that text book predictions of full and
efficient use of all productive resources (including labor) depend on the
assumption that there are perfectly competitive markets for everything, as
explained above, economic policy is straightforward and simple: reform the
real world to conform more closely with the assumptions of the text book
models. Create new markets, generate more information, and add sellers and
buyers to markets by clearing away obstacles to foreign participants. This is
the logic behind conventional “new architecture” proposals, which are the
standard remedies recommended by those who orchestrated international
liberalization in the first place.

Greater
transparency and disclosure by both public and private national financial
institutions is called for so that depositors and investors are less likely to
operate in blissful ignorance of negative developments, only to be jolted by
unpleasant revelations when they become impossible to hide. Improved
prudential regulation of banks and other financial institutions for developing
countries is now recommended as a panacea, ironically by many of the same
people who presided over deregulation of the financial sector in the U.S. and
in Europe during the past 20 years. It’s amazing how many see the wisdom of
“prudential regulation” of financial markets after a crisis has hit, but
recommend removal of “regulatory obstacles” to financial market
“efficiency” when the credit system is running smoothly. There is a
general consensus that reducing moral hazard is called for. But the question
is whose moral hazard, and how to reduce it. Some complain that IMF bailouts
lead third world countries to borrow more dangerously than they otherwise
would dare to, because they believe they can count on the IMF for emergency
loans if need be. Others complain that IMF bailouts lead international
investors to make riskier loans than they otherwise would, because they count
on IMF bailout loans to their creditors which can be used to pay them off when
their investments have gone sour. Still others complain that national banking
policy traditions such as those in Japan, South Korea, and China encourage
private banks in those countries to go further in debt than they otherwise
would because they believe they can rely on governments to back them up in
case of trouble even if there has been no formal or legal underwriting
agreement. Finally, many argue that an unintended side effect of government
deposit insurance has been to eliminate monitoring of banking activities by
depositors—who if uninsured would have more incentive to discipline risky
banking practices by denying those banks their deposits.

But
there are sobering short-run economic costs to eliminating each of these
practices that have, indeed, increased moral hazard. There are long run costs
to consider as well. What will happen to people in the next third world
economy that needs emergency international financial help if it is not given?
What will prevent financial contagion from spreading to other economies deemed
similar by international investors? What will prevent recessionary contagion
from spreading from the economy that was not thrown a life saver to its
trading partners? What will happen to the depositors as well as the
stockholders in the next group of international banks, and what will happen to
the shareholders in the next group of mutual funds whose international
investments fall into default because no international relief effort is
launched? What will prevent contagion from spreading to other banks and mutual
funds with extensive overseas investments? What will prevent the ensuing
financial crisis in the international investor economies from triggering an
economic recession as those who lose their wealth consume less, and as
financial institutions swamped with unexpected losses find it impossible to
make new loans to perfectly healthy domestic businesses? Does not government
deposit insurance reduce the incentive for runs on banks? Does not government
deposit insurance keep interest rates lower and thereby stimulate economic
growth? Nor is private deposit insurance a panacea. If equally effective, it
creates the same moral hazard as public deposit insurance does currently. But
it is unlikely to be as effective because the key to effective deposit
insurance is that the insurer be perceived as “too big to
fail”—otherwise we have an infinite regress of depositor doubts. Since
nobody bests Uncle Sam in the role of “too big to fail,” private deposit
insurance cannot discourage bank runs or lower the cost of borrowing as
efficiently as government deposit insurance.


Calls
for better IMF surveillance of borrowing countries and making staff reports
and minutes of IMF meetings public are now commonplace, as are suggestions for
improved supervision in creditor countries. Another suggestion is to encourage
private insurance companies to go into the business of selling insurance
against international defaults to international investors. The idea is that
international investors could invest in Russian government bonds, for example,
and then take out an insurance policy on that investment, and the IMF would no
longer need to intervene in the event of a Russian default to prevent
financial panic in creditor nations’ financial markets because investor
losses would be covered. Proponents characterize this suggestion as creating a
private market to replace a problematic public intervention. But notice, this
“solution” does nothing for the Russian economy. It also does nothing for
international investors who opt not to buy the (expensive) insurance. If there
are enough who do not insure, the practical dilemma of whether or not to
intervene remains, even if the moral case for allowing risk takers to suffer
losses is made even more compelling than it already is.


I
agree with my colleague Professor Robert Blecker’s evaluations of all these
“conventional new architecture” proposals: “Most of these measures are
helpful but they are not sufficient to prevent financial crises or to lessen
their impact on real economic performance. They are also not adequate for
restoring high growth rates with full employment and broadly shared
prosperity. We need different kinds of policies to make capital flows serve
these objectives, rather than just to make capital markets work more
efficiently and with less disruptions for wealthy investors.” (Policies
for Restoring Financial Stability and Global Prosperity
, chapter 3,
Economic Policy Institute, forthcoming.) However, I would add that if those
who suggest these reforms offer them as alternatives to more far reaching
reforms—which they usually do—then they are not “helpful,” but
counterproductive to efforts to combat international inequity and prevent
disruptions in the international credit system that cause terrible economic
waste. I would also point out that precious few of the alternative proposals
coming out of the “Keynesian” side of the mainstream discussed below
address the issues of international inequality and environmental destruction.
Not surprisingly they focus almost entirely on restoring financial stability
and decreasing global disequilibrium.









Bring
Back International Keynesianism


Within
the mainstream the battle is between neoliberal free marketeers and a group of
“new” international Keynesian who have recently found their voices. Prior
to the outbreak of the Asian crisis neoliberals were riding high on the wave
of free market triumphalism and the international Keynesians were a chastened
lot. But the international crisis has put neoliberals on the defensive and
heartened Keynesians who have crawled out of the closet and gone on the
attack, full of suggestions about international economic reform. Yet this is
actually an old debate, and the proposals of the newly vocal Keynesians are
mostly old policies as well. Nonetheless, as usual, mainstream Keynesian
policies are an improvement on policies based on a religious faith in orderly
markets despite all evidence to the contrary.


Regulating
Capital Flows:

There is too much hot money sloshing around the world. Most economists would
cringe at this way of putting the issue, and insist on definitions for “too
much,” “hot,” and “slosh.” But that is the simple truth of the
matter. Gerhard Schroeder, Germany’s new Social Democratic Chancellor, gave
voice to this sentiment when he told a recent gathering of the world’s
economic cognicenti “if even George Soro—and he’s a man who ought to
know, having earned billions of dollars through speculation himself—urges us
to introduce regulatory factors it is high time for us to get down to some
serious negotiation on a new international financial architecture.” (The
Toronto Globe and Mail
, 2/2/99) The best known suggestion for discouraging
speculation in foreign exchange markets is the Tobin tax. More than 20 years
ago Nobel laureate James Tobin suggested something on the order of a tenth to
a half of a percent tax on all foreign exchange transactions to discourage
speculation in these markets. Opponents immediately pointed out that unless
all countries agreed to the Tobin tax, those who did would be penalized by
free riders. Critics also asked who would enforce and collect the tax, and
argued that taxing one kind of international investment only creates
incentives to turn to other forms of international speculation, thus
“distorting” international investment markets and possibly driving
speculation into even more socially counterproductive areas. Given the present
volume of activity in foreign exchange markets, it is now generally conceded
that a tax of this size would generate considerable revenue but would reduce
the volume of foreign exchange transactions by only an insignificant amount.
No doubt Jacque Melitz’s proposal of a 100 percent tax on short-term foreign
exchange transactions would be a significant deterrent, but opponents point
out this is politically out of the question even if it were good economic
policy. Since IMF assessments of member countries are both a practical
problem—getting U.S. Congress to ante up—and a source of
inequity—forcing taxpayers to assume the risk of international lending while
investors enjoy the benefits—the major attraction of a Tobin-like tax seems
to be as a source of funds for international bailouts. Estimates are that a
Tobin tax could generate between $100 and $200 billion a year which could be
used for international bailouts and/or interventions to stabilize currencies.
Since it is the international investors who benefit from bailouts and currency
speculation, why not at least raise the funds for bailouts and currency
stabilization by taxing them instead of taxing ordinary citizens as the
present system effectively does?


Capital
controls are far more likely to reduce speculative flows of short-term capital
than are taxes on foreign exchange transactions. The Chilean government has
placed a reserve requirement on short-term inflows, thereby discouraging
international investment “quickies” and encouraging long-term investments
not subject to any reserve requirement. Unlike countries who succumbed to the
IMF’s liberalization initiatives, China and India retained significant
restrictions on foreign exchange transactions and foreign ownership of assets,
and now Malaysia has reimposed restrictions. In wake of the damage to the East
Asian economies caused by massive outflows of foreign investment, a return to
restrictions on capital outflows has gained popularity in third world circles.
Others propose risk-weighted capital charges on mutual funds and pension plans
in advanced economies which engage in international investments to discourage
particularly risky foreign investments by uninsured parties.


It is
very difficult for individual countries to consider restrictions on capital
outflows without sparking a panic. And it is very difficult for individual
countries to maintain restrictions without jeopardizing new international
investment. Only if international organizations like the IMF and World Bank
sanction capital controls and facilitate coordination among borrowing
countries would controls have much chance of success. Of course the IMF and WB
long ago abandoned this role assigned them at Bretton Woods, and persist in
actively discouraging capital controls despite recent rhetorical
genuflections. Their Keynesian critics recommend going back to the Bretton
Woods system of internationally sanctioned capital controls by individual
country governments. This is a necessary step to stabilize the global credit
system. So it is an important short run goal to press for international
conditions that permit affected countries to deploy capital controls in their
defense without courting disaster and punishment. For the borrowing countries
can certainly not rely on governments in lending countries to solve the
problem with restrictions on lenders. While proposals to impose prudential
restrictions on capital outflows from industrialized countries through
risk-weighted capital charges on mutual funds and pension plans abound, and
restricting short-term capital inflows into the U.S. and other industrialized
countries to discourage panic driven capital flight to “safe havens” are
discussed, it would be extremely “imprudent” for underdeveloped countries
to wait for any of these programs to be implemented before enacting capital
controls themselves.


Reforming
International Organizations:

There is such a thing as a fireable offense. In a world where people take
responsibility for the consequences of their actions IMF Managing Director
Michel Camdessus and his chief advisor Stanley Fischer would have resigned
long ago. And if they were not honorable enough to submit their resignations
they should have been fired. But who would fire them? Clinton, Rubin & Co.
have not even criticized the fund, so why would they fire its directors? Even
with James Wolfensohn and Joseph Stiglitz, the President and Chief Economist
respectively of the IMF’s “sister” institution, the World Bank, in open
disagreement with the Fund over its outdated analysis and policies, the
Clinton administration has not even taken Camdessus and Fisher to the
woodshed. One can only assume this is because Clinton, Rubin & Co. have
not yet decided if they are unhappy with what the IMF continues to do. In any
case, there is no sign that the Keynesian “B team” is about to be summoned
to replace the “A team” of free market ideologues who have gotten us into
this mess.


International
organizations certainly need to be reformed, but if critics of globalization
cannot even get its most visible managers taken to the woodshed, there is no
reason to expect that serious and helpful reforms are yet on the horizon. Two
long-time experts on East Asia who lie well within the mainstream have called
for an Asian Monetary Fund. In the November issue of The Economist
Robert Wade and Frank Veneroso argue persuasively that the IMF is either
blinded by free market ideology or hostile to the successful Asian economic
development model. In either case they point out that the Asian economies
would have suffered far less had there been an Asian Monetary Fund that
understood and was sympathetic to the Asian model to play the role of lender
of last resort at the outset of the crisis. Wade and Veneroso are so
pessimistic about the prospects of reforming the IMF that they recommend
turning the Asian Development Bank into an Asian Monetary Fund to take over
the IMF’s neglected duties in the region. Apparently Japan was both able to
put up the capital and willing to initiate such a venture, only to have the
idea vetoed by the IMF and the U.S. In any case, it is obvious to any student
of banking that in a highly leveraged credit system it is not only
advantageous to the everyday functioning of the system to have a trusted and
responsible lender of last resort, it is highly risky to operate without
one—which is exactly what we have been doing. If I were advising Asian
governments I would certainly encourage them to act on Wade and Veneroso’s
recommendation. If I thought the financial backing were there for an African
Monetary Fund I would recommend it as well. If I thought the Inter American
Development Bank could break away from U.S. dominance and obtain sufficient
financing to play the role of lender of last resort for Latin America I would
support it too. Unfortunately, only the Asian Development Bank has any
realistic chance of pursuing this reform.


A
credit system without a central bank is an accident waiting to happen. So as
long as the global credit system operates without the equivalent of a global
central bank we are playing Russian roulette. Regulating financial
institutions to prevent them from destructive speculative excesses and counter
cyclical monetary policy are necessary roles that central banks play. But we
should be under no illusions that central banks are democratic or equitable
institutions. They are largely immune from public opinion and influence from
elected legislatures. They are secretive institutions that not only
disenfranchise workers and consumers but prioritize the interests of bankers
and investors over those of industrial capitalists. Of course we should demand
that a global central bank should be structured democratically and
equitably—that borrowers be represented on a par with lenders, that poorer
economies be represented on a par with wealthier ones, in a word, that
representation be based on population not wealth. There are dozens of
proposals for a global central bank under various titles. The more progressive
versions are by Jeremy Brecher and Tim Costello, Jane D’Arista and Tom
Schlesinger, John Eatwell and Lance Taylor, Paul Davidson, and Grieve Smith.
But we should be under no illusions about what kind of global central bank we
can expect given today’s political conditions. If one is created it will
look a lot more like the national central banks as they now are than like the
monetary authority of our dreams. When calling for a global central bank in
today’s context we are calling for a biased tyrant to create minimal order
out of chaos for lack of a better alternative, much as someone might dial 911
to a despised police department from the scene of a riot.


But
the IMF cannot even be trusted to play this minimal role—even though its
current management has recently hinted that they would be willing to do so, if
asked. For there is no reason to believe the IMF under its current leadership
would not sit on its hands while financial contagion spread even if they had
“lender of last resort” status sufficient to stop it. We certainly need an
international lender of last resort. We have every right to demand one that is
equitable and democratic as well as competent and effective. But at a minimum
we need an effective one, not a completely ineffective one, which is all that
could possibly come out of the IMF unless it were completely reorganized and
restaffed.


Exchange
Rate Management:

Under Bretton Woods we had fixed exchange rates; since 1973 we have had
flexible rates—broadly speaking. New proposals include perpetually fixed
rates maintained by independent currency boards in developing countries and
transition economies (Hanke), a three-way system of pegs between the dollar,
euro and yen (McKinnon), fixed real targets managed by an international
monetary clearing union (Davidson), and target zones with wide bands and
crawling pegs (Williamson and Smith). In my view it is more important to
implement some system of exchange rate management quickly than which version
is settled on. None is perfect, none is fool proof, and the differences
between them vis a vis democracy and equity are little. The essential
ingredients to an effective system of managed exchange rates are: (1) a
credible threat of massive intervention to deter speculation, and (2)
preventing deviations that generate excessive trade imbalances. This will
prove more possible to achieve the more speculative capital flows are
diminished. Without capital controls exchange rate management will surely
break down. But before either capital controls or an effective system of
exchange rate management can be implemented opposition from free market
skeptics like Treasury Secretary Rubin must be overcome. Bring back the
Keynesians.


International
Macro Policy Coordination:

The objective of macro policy coordination is to diminish “beggar thy
neighbor” monetary and fiscal policies that trigger global deflation and
unemployment. Howard Wachtel proposes a plan where treasury secretaries and
the heads of central banks of the major economies meet to coordinate interest
rate reductions and fiscal stimulus when world demand is weak and interest
rate increases and fiscal restraint when inflationary pressures are
great—with promises not to “cheat” to gain individual advantage. He
argues that if only this were done, the problems of capital controls and
exchange rate management would be considerably lessened. John Williamson’s
plan focuses on coordinating interest rates while leaving countries’ fiscal
policies independent. His plan also relies more on formulas for determining a
world average interest rate as well as country differentials, where the
formulas are what would be agreed to in advance. Again, the differences vis a
vis democracy and equity are minimal, and the trade-off between effectiveness
and political viability are unclear. The important point is that individual
nation rationality regarding monetary and fiscal policies often proves
globally irrational. Hence, some rough system of coordination can yield
significant improvements over the current state of affairs. Once again, there
is no reason for us not to shout: “Bring Back the Keynesian. Any
Keynesian.”


Debt
Relief:
Since the
early 1980s progressives have been calling for debt relief on equity and
humanitarian grounds—to no avail. Now some mainstream Keynesians like
Jeffery Sachs have added their voices in support of strategic debt relief.
What gives? Have these new international Keynesian suddenly had a change of
heart and joined the campaign for international economic justice? We can only
hope, but it is more likely that some of them have simply come to hard headed
conclusions that without writing off some of the bad international debt it
will prove impossible to restore order in the global credit system. We don’t
need to ask whether or not they are correct in this assessment—that is an
argument between new Keynesians who think stability requires significant debt
relief and new Keynesians who think stability can be achieved without such
“concessions.” Our position should be “no debt relief, no global
stability” even if stability were possible without debt relief. But the fact
that some of the “best and the brightest” mainstream economists now
counsel “power,” that getting what they want—stability in global
financial markets—cannot be achieved without debt relief, does open
discussion on an issue that had been taboo when only economic justice was at
stake. Our job, of course, is to press to extend “strategically necessary”
debt relief as far as possible into “equitable and humane” debt relief as
well.


 

Labor
and Environmental Standards


Suppose
working conditions, or “labor standards” were the same in all countries.
And suppose environmental laws and regulations, or “standards” were the
same in all countries as well. But suppose that the real wage were lower in
some countries than others. If capital becomes mobile businesses would move
from high wage countries to low wage countries, depressing wages in the high
wage countries and increasing wages in the low wage countries—assuming no
offsetting effects in the low wage countries like the destruction of
traditional agriculture discussed above. Even if capital were not mobile, if
we open up free trade in goods between countries, businesses would specialize
in producing capital intensive goods in the high wage countries and specialize
in producing labor intensive goods in the low wage countries, also depressing
wages in the high wage countries and increasing wages in the low wage
countries—again, assuming no offsetting effects in the low wage countries.
So unlike a world where national economies are isolated from one another so
lower wages in one country have no effect on wages in other countries,
international investment and trade create a mechanism through which lower
wages in some countries will tend to depress wages in countries that have
higher wages. But could workers in the high wage countries respond to the
downward pressure from free trade and investment by offering to accept
reductions in their labor standards, or in their environmental standards,
rather than take a money wage cut? Obviously they could, unless some
international treaty prevented them from doing so. Their employers could care
less about what kind of cost reducing concession they make, just so the
magnitude of the cost reduction is sufficient.


Which
means that lower wages in third world economies not only put downward pressure
on first world wages, they put downward pressure on first world labor and
environmental standards as well when we engage in free market trade and
investment. Similarly, lower labor or environmental standards in the third
world not only put downward pressure on first world labor or environmental
standards, they put downward pressure on first world wages as well when we
engage in free market trade and investment. More simply, any form of lower
living standard in the third world that lowers the private cost to businesses
of producing goods or services there puts downward pressure on all aspects of
living standards in the first world under free market trade and investment.
So, raising labor standards, or environmental standards in the third world is
not only good in and of itself, it also diminishes the downward pressure on
living standards in the first world from international capital flows and free
trade. But it does just as much to alleviate downward pressure on wages as it
does to protect first world labor or environmental standards. Raising third
world wages is not only good in and of itself, it also diminishes downward
pressure on living standards in the first world from free market
globalization. But raising third world wages does just as much to alleviate
downward pressure on labor and environmental standards in the first world as
it does to protect first world wages. Finally, if we actually established a
uniform code of labor and environmental standards, then all differences in
first and third world living standards must take the form of wage differences,
and lower third world wages would of necessity exert all their downward
pressure through international investment and trade on first world wages since
concessions in other aspects of first world living standards would be
prohibited by international treaty.


The
basic lesson here is that any distinctions people make between labor
standards, environmental standards, and wages is artificial when we are
dealing with the consequences of globalization and strategies to combat its
pernicious effects. The issue is living standards and differences in living
standards. When national economies are integrated through free markets lower
living standards in some countries make it more difficult to raise or preserve
living standards in countries with higher living standards. Or, put
differently, as long as their are differences in standards of living in
different countries, making labor and environmental standards uniform
throughout the world does not make the playing field even. It simply dictates
that all of the unevenness will be squeezed into the part of living standards
composed of wages instead of spread out over the entire field of living
standards which includes wages, labor standards, and environmental standards.


For
this reason we should not limit our equity demands to creating uniform labor
and environmental standards. Contrary to popular opinion uniform standards
would not create an “even playing field.” It would merely force all of the
inequality in international living standards to take the form of differences
in wages, and it would mean that all of the downward pressure of lower third
world wages would be brought to bear on first world wages. Uniform standards
is only a partial program for improving global equity, and an unwise retreat
from a full program demanding equitable terms of trade and investment. The New
International Economic Order program of the Non-Aligned Movement of the 1970s
was a better program for reducing international inequities than a program
calling only for uniform international standards.


 

To
Integrate or Not to Integrate?


Among
the stories buried under the past year’s obsession with President
Clinton’s scandal is a remarkable transformation in the debate over the
global economy and its effect on the jobs and incomes of Americans. While
everyone talks about history’s verdict on Clinton and impeachment, the
change in our approach to organizing the world’s commerce bids to play a
larger role in defining this era’s historical legacy. Clinton hinted at this
in his State of the Union message. “I think trade has divided us and divided
Americans outside this chamber for too long,” he told Congress. “Somehow
we have to find a common ground…. We have got to put a human face on the
global economy.” Clinton went on to embrace a new International Labor
Organization initiative “to raise labor standards around the world” and
pledged to work for a treaty “to ban abusive child labor everywhere in the
world.” He promised trade rules that would promote “the dignity of work
and the rights of workers” and “protect the environment.”


Behind
these words is a battle that has been waged in Washington, largely out of
public view, since the 1997 defeat of a bill that would have given Clinton the
authority to negotiate trade treaties on a “fast track.” The fast-track
defeat demonstrated that liberal, pro-labor Democrats now have veto power over
legislation to promote free trade and to support global economic institutions
such as the World Bank and the International Monetary Fund. Without the
liberals, there aren’t enough votes in Congress to pass such initiatives.
Pro-labor Democrats have used their newly found influence to push for more
assistance to workers who are hurt by freer trade and for stronger
international rules to protect workers’ rights and the environment.


Rep.
Barney Frank (D-MA) says the new situation can be explained by the division of
Congress into three groups. There are, in his terms: (1) “isolationists”
who are skeptical of all international institutions and free trade; (2)
“trickle downers” who favor free trade and free markets but oppose any
rules to regulate the global economy; and (3) “international New Dealers”
who accept the global market as a reality but care passionately about lifting
labor standards and wages, in the United States and elsewhere. Because the
“trickle downers” lack the votes to pass free trade or support
international institutions on their own, they need the “New Dealers” to
create a majority. The Clinton administration, particularly Treasury Secretary
Robert Rubin, came to realize this and opened negotiations last year with
Frank and his allies—they include House Minority Whip David Bonior (D-MI)
and Rep. Nancy Pelosi (D-CA). In October, Rubin sent a letter to Frank making
important concessions in pursuit of the group’s votes on new financing for
the IMF. “I believe that one of the ways to build the confidence of workers
is to seek the adoption and promotion of policies abroad that will enhance the
respect for core labor standards,” Rubin wrote. “The United States,” he
went on, “will work to affect the policy dialogue between the IMF and
borrowing countries so that recipient countries commit to affording workers
the right to free association and collective bargaining through unions of
their choosing.” Rubin also pledged to push the global financial
institutions “to encourage sound environmental policies.” Clinton’s
State of the Union pledges were the logical next step in this running
negotiation. Frank saw Clinton’s promise to work against “abusive child
labor” as especially significant. “It’s important for some of the labor
people, and it’s one of the most visible examples that you can do
something” to regulate the workings of the global marketplace.


C.
Fred Bergsten, director of the Institute for International Economics, thinks
the trade debate has changed fundamentally. “Most trade types thought the
merits of free trade were so obvious, the benefits were so clear, that you
didn’t have to worry about adjustments—you could just let the free market
take care of it,” he says. “The sheer political gains of the
anti-globalization side in the last few years have made the free trade side
realize that they have to do something to deal with the losers from free trade
and the dislocations generated by globalization.” This battle has only begun
and the common ground that Clinton says he seeks could prove elusive. “The
jury is still out,” Frank says, referring to the administration’s
intentions. But creating a global economy that promotes growth with a measure
of social justice is a big and worthy project—yes, the sort of thing that
might matter more to historians than our current preoccupations.


 

Let’s
review: Round 1: In 1994 Congress passed NAFTA when Slick Willy sold trickle
down snake oil to enough international New Dealers—promising only a few
trinkets that he later reneged on—to overcome the “nay” votes of
conservative isolationists. Round 2: Enough snake bitten international New
Dealers voted with the conservative isolationists to deny Willy fast track
authority—denying Clinton a blank check and waiver of future Congressional
rights regarding international economic policy. Round 3: Conservative
isolationists committed political suicide over the impeachment debacle, and
Willy and the international New Dealers are now bosom buddies, having repelled
the Republican attempted coup d’etat via impeachment. Willy, Rubin, &
Co. are once again selling the same old snake oil dangling the same old
trinkets in front of their international New Deal allies in Congress.


The
good news is, thanks to the negative effects of NAFTA on most Americans,
thanks to the sobering effects of the greatest economic crisis since the Great
Depression, thanks to the arrogance of the MAI managers, and thanks to the
tireless efforts of the international grassroots anti-globalization network,
“liberal, pro-labor Democrats now have veto power over legislation to
promote free trade and to support global economic institutions such as the
World Bank and the International Monetary Fund.” The bad news is that
“liberal, pro-labor Democrats now have veto power over legislation to
promote free trade and support global economic institutions such as the World
Bank and the International Monetary Fund.” This is the bad news because they
are notorious wimps and the last people in the world you would want to rely on
when their feet get put to the fire. It is hard to imagine that anyone could
believe that Clinton, Rubin, & Co. would pressure the IMF to pressure
governments of borrowing countries to improve their workers’ living
standards. But I am willing to bet that a number of liberal Democratic
Representatives will sign off on a significant piece of international economic
legislation before Clinton leaves office with only the fig leaf of a
meaningless, unenforceable clause critical of “abusive child labor” (as if
there were such a thing as “non-abusive child labor”) to hold up over
their shame.


The
unfortunate truth is that for the foreseeable future the balance of power in
the U.S. government, the balance of power in international economic
organizations, the balance of power in the mainstream media, the balance of
power between corporate America and labor, and the balance of power between
the rulers of the first world and the citizenry of the third world are
extremely favorable to those who favor further undemocratic, inequitable,
environmentally destructive and inefficient globalization, and extremely
unfavorable to opponents of this unfolding disaster. This means that for the
foreseeable future desirable globalization is not possible. We should not be
charmed by the sellers of trickle down snake oil, or deluded into believing
any concessions they offer would be better than just stopping further
globalization for the time being. This is a time for opponents of reactionary
globalization to organize under the banner “hell no,” and threaten any who
negotiate on our behalf if they capitulate.


But
this does not mean we who stubbornly oppose globalization today—and that is
what I recommend—are anti-globalization per se. This does not mean we deny
that international investment and greater international specialization of
production can be part of making the world a better place to live. We can, and
should present examples of trade agreements and conditions for international
investment that would really yield efficiency gains, and would really
distribute those gains in a way that increases global equality and restores
environment balance. We can and should propose reforms in our international
economic organizations that would make them more democratic and more effective
managers of the global credit system reducing the destructive economic
disequilibria it gives rise to. But we should be under no illusions that this
kind of globalization will be accepted by those who, for the moment, hold the
upper hand. In other words, we should not be politically naive, and we should
not deceive ourselves that just because the world’s villages could be better
off in a more highly integrated system of equitable cooperation, that
permitting more global pillage is moving us in that direction.
                                                      
Z