Global Policy Forum

The Threat of Globalization

Globalization is both an active process of corporate expansion across borders and a structure of cross-border facilities and economic linkages that has been steadily growing and changing as the process gathers steam. Like its conceptual partner, "free trade," globalization is also an ideology, whose function is to reduce any resistance to the process by making it seem both highly beneficent and unstoppable.

And as with free trade, while globalization may sometimes yield economic benefits, both the process and economic-political regime it is helping bring about threaten progressive ends, and should be recognized as such and fought at every level. Admittedly this is a formidable task, as the economic and political power of its beneficiaries, and its momentum, are great an contesting it seems an almost utopian undertaking. But globalization has its vulnerabilities, and attacking it intellectually, at the local level of plant abandonments and moves, as well as at the national political level, can help build understanding and support for a larger oppositional movement.

Globalization is just one of an array of concepts and arguing points that have been mobilized to advance the corporate agenda. Others have been deregulation and getting government off our backs, balancing the budget, cutting back entitlements (non-corporate), and free trade.

Like free trade, globalization has an aura of virtue. Just as "freedom" must be good, so globalization hints at internationalism and solidarity between countries, as opposed to nationalism and protectionism, which have negative connotations. The possibility that cross-border trade and investment might be economically damaging to the weaker party, or that they might erode democratic controls in both the stronger and weaker countries, is excluded from consideration by mainstream economists and pundits.1 It is also unthinkable in the mainstream that the contest between free trade and globalization, on the one hand, and "protectionism" on the other, might be reworded as a struggle between "protection"--of transnational corporate (TNC) rights--versus the "freedom" of democratic governments to regulate in the interests of domestic non-corporate constituencies.

As an ideology, globalization connotes not only freedom and internationalism, but, as it helps realize the benefits of free trade, and thus comparative advantage and the division of labor, it also supposedly enhances efficiency and productivity. Because of these virtues, and the alleged inability of governments to halt "progress," globalization is widely perceived as beyond human control, which further weakens resistance.


The Economic Failure of Globalization

AS THE GLOBALIZATION PROCESS HAS BEEN ENGINEERED BY CORPORATE ELITES, and serves their interests, they have successfully conveyed the impression that globalization is not only inevitable but has been a great success. This is fallacious. Even ignoring for the moment its distributional effects, globalization has been marked by substantial declines in rates of output, productivity, and investment growth. Under the new regime of enhanced financial mobility and power, with greater volatility of financial markets and increased risk, real interest rates have risen substantially. The average rate of the G-7 countries (U.S., Britain, France, Italy, Germany, Canada and Japan) has gone from 0.4%, 1971-82, to 4.6%, 1983-942. This has discouraged long term investment in new plant and equipment and stimulated spending on the re-equipment of old facilities along with a large volume of essentially financial transactions--mergers, buybacks of stock, financial maneuvers, and speculative activities. This may help explain why overall productivity growth3 in the countries that are members of the OECD fell from 3.3%, 1960-73 to 0.8%, 1973-95, or by some 75%. Gross fixed investment fell from 6.1%, 1959-1970, to roughly 3.1% thereafter, or by half. OECD country annual rates of growth of real GDP fell from 4.8%, 1959-1970 to 2.8%, 1971-94, or by 42%.

But the elites have done well despite the slackened productivity growth. Because globalization has helped keep wages down, while increasing real interest rates, the upper 5% of households have been able to skim off a large fraction of the reduced productivity gains, thereby permitting elite incomes and stock market values to rise rapidly. But it was a different story for the global majority. Income inequality rose markedly both within and between countries. In the United States, despite a 35% increase in productivity between 1973 and 1995, the median real wage rate was lower in the latter year. Inequality rose to levels of 70 years earlier, and underemployment, job insecurity, benefit loss, and worker speedup under "lean" production systems all increased.4 Insecurity is functional. As Alan Greenspan complacently explained to Congress in 1997, wage rates were stagnant in this country because worker insecurity was high.5 That this high insecurity level reduced the well-being of the affected workers did not bother Greenspan, or Congress and the mainstream media.

The gap in incomes between the 20% of the world's population in the richest and poorest countries has grown from 30 to 1 in 1960 to 82 to 1 in 1995, and Third World conditions have in many respects worsened. Per capita incomes have fallen in more than 70 countries over the past 20 years; some 3 billion people--half the world's population, live on under two dollars a day; and 800 million suffer from malnutrition.6 In the Third World, unemployment and underemployment are rampant, massive poverty exists side-by-side with growing elite affluence, and 75 million people a year or more seeking asylum or employment in the North, as Third World governments allow virtually unrestricted capital flight and seek no options but to attract foreign investment.7

The new global order has also been characterized by increased financial volatility, and from the Third World debt crisis of the early 1980s to the Mexican breakdown of 1994-95 to the current Asian debacle, financial crises have become more and more threatening. With increasing privatization and deregulation, the discrepancy between the power of unregulated financial forces and that of governments and regulatory bodies increases and the potential for a global breakdown steadily enlarges.

Only an elite perspective permits this record to be regarded as an economic success.


Globalization as an Attack on Democracy

THE GLOBALIZATION OF RECENT DECADES WAS NEVER A DEMOCRATIC CHOICE by the peoples of the world--the process has been business driven, by business strategies and tactics, for business ends. Governments have helped, by incremental policy actions, and by larger actions that were often taken in secret, without national debate and discussion of where the entire process was taking the community. In the case of some major actions advancing the globalization process, like passing the North American Free Trade Agreement (NAFTA) or joining the European Monetary Union (EMU), publics have been subjected to massive propaganda campaigns by the interested business-media elites. In the United States, public opinion polls showed the general public against NAFTA even after incessant propaganda, but the mass media supported it,8 and it was passed. In Europe as well, polls have shown persistent majorities opposed to the introduction of the Euro, but a powerful elite supports it, so that it moves forward.

This undemocratic process, carried out within a democratic facade, is consistent with the distribution of benefits and costs of globalization, and the fact that globalization has been a tool serving elite interests. Globalization has also steadily weakened democracy, partly as a result of unplanned effects, but also because the containment of labor costs and scaling down of the welfare state has required the business minority to establish firm control of the state and remove its capacity to respond to the demands of the majority. The mix of deliberate and unplanned elements in globalization's antidemocratic thrust can be seen in each aspect of the attack process.


ONE OF THE MAIN OBJECTIVES OF TNC MOVEMENT ABROAD HAS BEEN to tap cheaper labor sources. Labor is often cheapest, and least prone to cause employer problems, in authoritarian states that curb unions and enter into virtual joint venture arrangements with foreign capital, as in Suharto's Indonesia and PRI's Mexico. Capital moves to such friendly investment climes in an arbitrage process, shifting resources from the more expensive to the less costly locale, in a process that penalizes and thereby weakens democracy.

The actual shift of capital abroad, and the use of the external option to drive hard bargains at home, has weakened labor. Labor has also been weakened by deliberate government policies of tight money and restrictive budget policies to contain inflation, at the expense of high unemployment. These policies, and the incessant focus on labor market "flexibility" as the solution to the unemployment problem, reflect a corporate and antilabor policy agenda, fully institutionalized. There have even been more open and direct attacks on organized labor--both Reagan and Thatcher engaged in union busting, and the latter was quite explicit in her aim to weaken labor as a political force.9 Democracy, according to pluralistic theory, is said to rest on the existence of intermediate groups, like labor organizations, that can bargain and work on behalf of an otherwise atomized population. The deliberate weakening of such groups is thus an attack on democracy.


IN THE UNITED STATES, BRITAIN, CANADA, AND OTHER COUNTRIES the business community has also mounted a sustained ideological campaign to make their preferred policies part of common understanding. These campaigns have proceeded in parallel with globalization and have been remarkably similar, reflecting the global flow of ideology and overlapping sources of funding. The favored neoliberal ideology pushes the idea that the market can do it all, that government is a burden and threat, and that deregulation and privatization are inherently good and inevitable. It presses an extreme individualism and the value of "personal responsibility," which is highly advantageous to corporate power, leaving bargaining between large firms and isolated individuals. Collective and community values, the threat of externalities and ecological damage from unconstrained business growth, free market instability--all are shunted aside in this ideological system. This ideological campaign has been highly successful, because vast sums of business money fed to intellectuals and think tanks, and business domination of the mass media, have allowed their views to prevail. Heritage Foundation leader Edwin Feulner has described the strategy of his corporate-funded and globally linked think tank as analogous to Procter & Gamble's in selling soap--saturate the market with messages that overwhelm any that are less well funded.10 But this is a corruption of democracy; it is a bought market of ideas, not a free market of ideas.

The business community has also mounted a powerful effort to dominate governments--either by capture or by limiting their ability to serve ordinary citizens. Globalization has contributed to this effort, partly by the arbitraging process mentioned earlier, which favors authoritarian rule. Apart from this, by enlarging business profits and weakening labor it has shifted the balance of power further toward business, so that political parties have been even more decisively influenced by business money in elections. In the United States, it is notorious that Mr. Clinton has sought and received enormous sums from business and serves their interests almost exclusively, with only token efforts on behalf of the major nonbusiness constituencies of the Democratic Party. The globalizing corporate media have added their growing strength to the advance of neoliberal ideology and opposition to any vestiges of social democracy, making social democratic policies difficult to implement. The Murdoch effect on British elections, and the current Murdoch-Blair connection illustrates the point.11

Another well-known and important antidemocratic force is the power of global financial markets to limit political options. Social democratic policies make for an unfavorable investment climate. Businesses will therefore respond to politicians and acts serving ordinary citizens with threatened or actual exit. Financial market effects on exchange and interest rates can be extremely rapid and damaging to the economy. Spokespersons for the new global economy actually brag about the ability of capital to penalize "unsound" policies, and the fact that money capital now rules.12

These business efforts, aided and validated by the IMF and by media support, regularly cause social democrats to retreat to policies acceptable to the rulers. Thus, in country after country social democratic parties have accepted neoliberalism, despite the contrary preferences of great majorities of their voting constituencies.13 But this means that nominal democracy is no longer able to serve ordinary citizens, making elections meaningless and democracy empty of substance. This helps explain why half or more of eligible U.S. voters no longer participate in national elections.

Not satisfied with this level of political control, the business community has pushed for international agreements, and policy actions by the IMF and World Bank, that further encroach on the ability of democratic polities to act on behalf of their constituencies. These agreements and the demands of the international financial institutions invariably call for precisely the policies desired by the TNC community. The EMU conditions give primacy to budget constraints and inflation control, in accord with the neoliberal and corporate agenda. GATT, the WTO, and the NAFTA agreement also give top priority to corporate investor and intellectual property rights, to which all other considerations must give way. In the early 1980s, the IMF and World Bank took advantage of the Third World debt crisis and used their leverage with numerous distressed Third World borrowers to force their acceptance of Structural Adjustment Programs. These forced the borrowing countries to agree to give first priority to external debt repayment, private as well as government; it compelled them to adapt austerity programs of tight money and budget cutbacks focusing heavily on social expenditures affecting the poor and ordinary citizens; it forced a stress on exports, which help generate foreign exchange to allow debt repayment and that more closely integrate the borrower's economy into the global system; and it stressed privatization, allegedly in the interest of efficiency, but serving both to help balance the budget without tax increases and to provide openings for TNC investment in the troubled economy. The IMF is doing the same in Asia today.

A second characteristic of the new agreements and IMF-World Bank actions is their denial of democratic rights to non-corporate citizens and elected governments. These are subordinated to the rights of corporate investors, the superior class of global citizens with priority over all others and beneficiaries of the New TNC Protectionism. In the NAFTA agreement, governments are denied in advance the right to take on new functions; any not asserted now are left to the private sector and to the superior class of citizens. In these agreements, also, and even more aggressively in the Multilateral Agreement on Investment now under consideration, the global TNCs have no responsibilities and none can be imposed on them. They can fire people, abandon communities, fatally damage the environment, push local companies out of business, and purvey cultural trash at their full discretion. They can or will be able to sue governments, and disagreements are to be settled by unelected panels outside the control of democratic governments.

A third characteristic of the new agreements and IMF-World Bank actions is that they rest not only on neoliberal theory but on a false reading of recent experience and economic history. As noted earlier, globalization so far has been a productivity failure, a social disaster, and a threat to stability. The claim of its proponents that free trade is the route to economic growth is also confuted by longer historic experience: no country, past or present, has taken off into sustained economic growth and moved from economic backwardness to modernity without large-scale government protection and subsidization of infant industries and other modes of insulation from domination by powerful outsiders. This includes Great Britain, the United States, Japan, Germany, South Korea and Taiwan, all highly protectionist in the earlier takeoff phases of their growth process.14 The governments and institutions bargaining on behalf of the TNCs today, through the IMF, World Bank, WTO and NAFTA, have been able to remove these modes of protection from less developed countries. This threatens them with extensive takeovers from abroad, thoroughgoing integration into foreign economic systems as "branch plant economies," preservation in a state of dependence and underdevelopment, and most particularly, an inability to protect their majorities from the ravages of neoliberal top-down development priorities.



IN SUM, WE ARE IN THE MIDST OF AN ANTI-DEMOCRATIC COUNTERREVOLUTION in which globalization and its imperatives are being used to weaken popular and elected authority in favor of a system of domination by super-citizens, the TNCs. This process sows the seeds of its own destruction, as it serves a small global minority, damages the majority, breeds financial instability, and exacerbates the environmental crisis. Its destructive tendencies are likely to produce an explosion if the process is not contained and democracy is not rehabilitated.

Halting this anti-democratic juggernaut will be difficult, not only because of the power of its beneficiaries, but also because it operates within the framework of nominally democratic structures and musters plausible arguments. But these arguments are self-serving and wrong, and should be vigorously contested. An agenda should be advanced that serves ordinary citizens rather than the TNCs and financial institutions. Negatively, this agenda will include strenuous opposition to all supranational arrangements that take power out of the hands of democratic governments to serve some alleged economic need. Positively, the agenda requires support for the imposition of serious limits and responsibilities on TNCs, including capital controls and other deterrents to financial speculation. Pursuit of this agenda is going to require a combination of understanding and effective organization of the large majority who are the victims of globalization.


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