1. Is Globalisation avoidable?
The real impact of this 'globalisation' does, of course, extend well beyond the negative or positive impact on economic growth. Growth statistics are of no direct benefit to the working class. Neither can economic growth be the holy grail that it is so often assumed to be when it is achieved at the expense of environmental destruction and neglect of the needs of a large proportion of the global population. (See Who Owns the World?.)
The anti-free trade lobby are right to point to the conflict between the drive towards free trade and other environmental and social needs. After all, if the purpose of free trade is to increase profits, such a conclusion is quite predictable. As Larry Elliott put it, writing in The Guardian:
In reality, globalisation… represents the final triumph of capital over labour, since the corollary of the deregulation of finance is the shackling of trade unions . It means the national governments are left powerless in the face of multinationals who will relocate at the first whiff of interventionist policies.(9)
So what is the alternative to 'globalisation'? For the World Socialist Movement, socialism is the only solution to the problems brought about by globalisation. (What Socialism Means). That socialism is the only solution becomes even clearer after examining the proposals for combatting the effect of globalisation within capitalism.
The Keynesian proposed route to economic development is closely tied to Keynes' suggested approach to alleviating the booms and slumps of capitalism. (See Booms and Slumps—What Causes Them? for a critique of the Keynesian view of economic crisis.) Economic slowdown, according to this school of economic thought, is the result of a lack of demand for the goods that are being produced. The Keynesian approach involves government intervention in the economy to try and stimulate demand where possible.
Arthur McKewan, in his book Neo-Liberalism and Democracy, discusses this Keynesian approach. Two proposed Keynesian methods for stimulating demand that he considers, include lower interest rates or increased government expenditure, although he can see problems with both:
difficulties appear most clearly with policies directed towards the management of aggregate demand: attempts, for example, to stimulate economic expansion in a country through lower interest rates may drive capital abroad in search of higher returns; attempts to stimulate through expansion of the government deficit may raise imports, diverting some of the impact outside the country.(13; p68)
One form of Keynesian argument that has often been used against the policies of the World Bank/ I.M.F is known as the under-consumptionist argument. This brand of Keynesianism is proposed by McKewan. He argues that the inequality resulting from lower welfare payments and higher unemployment, as well as the undermining of domestic industries, is inherently damaging to prospects for economic growth. Given that the rich save a higher proportion of their income, he argues, demand for consumption goods will be lower than if national income were distributed more evenly. Lower demand, he continues, means lower potential for economic growth.
This crude form of under-consumptionism has been criticised by David Perrin who points out that demand does not solely consist of demand for consumption goods by individuals to satisfy their direct personal needs. He writes:
aggregate demand is not… solely determined by the consumption of workers and the capitalists, but by their consumption plus the investment of capitalists."(p89; 23)
Indeed, for growth to be achieved over anything approaching the medium term, the right conditions for investment by capitalists, as well as consumption by workers needs to be ensured. This leaves little scope for governments to increase the tax burden, as would be required by McEwan's redistributive policy. Once many countries of the South had accumulated the large scale of debt built up during the 1970s, such a policy would in fact have been completely impossible, in any case.
Another anti-globalisation proposal advocates a more protectionist strategy for states of the South. It has been widely argued that the protectionist strategy adopted by East Asian economies such as Japan, South Korea, Thailand and Malaysia was an important contributory factor in their huge success during the 1980s and early 1990s. It was this success that led them to become known as the 'Asian Tigers.' The countries of the Asia-Pacific region, for example, (Taiwan, South Korea, Hong Kong and Singapore) registered an average GDP growth 7 per cent a year (1960–82.)
Martin & Schumann describe the policy of the Asian tigers as "Massive state intervention at every level of economic activity." "For them," he continues, "integration into the world market is not the end but only a means that they use cautiously and after careful consideration."(12; p143)
The Japanese model for economic development saw it make a rapid transition from an agricultural into an industrial society, by policies described by McKewan:
In the post-Second World War era, the Japanese government rejected free trade and extensive foreign investment, and instead promoted its national firms. In the 1950s, for example, the government protected the country's fledgling auto firms from foreign competition. At first, quotas limited imports to $500,000 a year, and then in the 1960s quotas were replaced by prohibitively high tariffs. Furthermore, foreign investment in Japan was virtually prohibited; allowed only in so far as it contributed to the development of the domestic industry. Japanese companies were encouraged to import foreign technology but they were required to produce 90 per cent of parts domestically within five years. Success was also obtained through protecting the Japanese computer industry. In the early 1990s, as the industry was developing, a foreign machine could bepurchased only if a suitable Japanese model was not available. I.B.M. (a large, western computing firm) was allowed to produce within the country, but only when it licensed basic patents to Japanese firms (and I.B.M. computers produced in Japan we covered by the restrictions on purchases of foreign machines)(13; p38)
Japanese policies were to bear an important influence upon the surrounding East Asian countries that followed in the footsteps of Japan. Korea, for example, closely followed the Japanese precedent, experiencing an "extremely rapid growth rate over an extended period an average over 9 per cent per year in the growth of real per capita income between 1965 and 1995." McKewan explains, "its role in world markets of such goods as automobiles and electronic equipment attest to a considerable degree of economic success. A heavy state role in regulating the country's international commerce, which led to a rapid transformation of technology, appears to have been a fundamental part of this success."(13; p38)
Malaysia was another country to follow the Japanese lead, as Bello explains:
Malaysia is one of the few Third World countries that escaped stabilization or structural adjustment by either the World Bank or the I.M.F. in the 1980s. In fact, it continued to maintain a protectionist trade regime, practised state-guided industrial targetting in key sectors such as the car industry and imposed strong controls on the operations of foreign investors. But Malaysia is now experiencing a 10 per cent growth rate, a development which is largely a result of the inflow of Japanese capital during the 1980s. Some U.S.$2.2 billion flowed in between 1985 and 1990, or over $100 per citizen of Malaysia.(10; p34)
While the 'Asian' type of development is proposed as an alternative to the 'free trade' model, it should be remembered that much of the East Asian growth was fuelled by exports.
Evidence from Auty.
Initially, it was through the processing and export of natural resources such as sugar, milling, coconut oil and tin that growth was achieved. As Yoshihara Kunion points out in her study of South East Asia:
Much of the resource exploitation was carried out by foreign companies, and the royalties they paid to South-East Asian governments funded industrial projects and fuelled economic growth.(15; p119)
These Asian economies were able to benefit from trade and the arrival of foreign capital whilst still imposing some regulation to protect their domestic industries. The assumption of those who advocate this more protectionist route to industrialisation for the South is that such a strategy could also have been adopted by other developing countries in Africa and Latin America.
In response to this suggestion it firstly needs to be noted that many countries in Africa and Latin America did adopt protectionist policies during the post-war years. Nigel Harris, in his book 'The End of the Third World' refers to this strategy as one of 'import-substitution,' involving as it does the use of protectionist measures to encourage the development of domestic industries to produce for domestic needs and so reducing dependence upon imports. He shows that, given the history of industrialising states (including Britain and the U.S.A.) using import substitution strategies to foster growth of their manufacturing industries, this was an obvious route for states of the South to choose to take if they were to achieve a similar kind of development.
Two examples that Harris explores in depth are the large Latin American economies of Brazil and Mexico. He shows that both of these states adopted strategies that leant more towards import substitution than those of the Asian countries. The exports of Brazil and Mexico peaked in 1980, as compared to the previous thirty years, when they were 9.6 and 8.2% respectively. This compares starkly to the figures of "32, 47, 72 and 162 per cent for South Korea, Taiwan, Hong Kong and Singapore" (18; p71.)
Still, an emphasis upon exports did not prove to be necessary during the postwar period from the1940s until the early 1970s. Harris highlights the rapid growth rates achieved by Brazil:
Brazil increased its gross national product on average by 6.3 per cent annually from 1932 to 1979 roughly 7 per cent between 1948 and 1961, and from 1974 to the eighties, with an 11 per cent rate from 1968 to 1974.(18; p72.)
It was a similar story in Mexico:
Mexico experienced two decades of annual growth of 6–7 per cent 6 per cent in the fifties, nearly 8 in the sixties, 6–7 in the first half of the seventies, and 8 per cent from 1977 to 1981.(18; p72.)
During the 1970s problems hit both states, as the global economy slowed down. Harris shows that Brazil and Mexico were did not significantly alter their import substitution strategies in the face of declining demand for the goods produced by their heavy industries. These heavy industries continued to be heavily subsidised, not least due to an extensive network of vested interests that were tied into the long established policy. States such as Korea and Taiwan had also subsidised certain heavy industries which they saw as key to developing diverse national economies. By contrast, as Harris points out, they were able to respond much more quickly to the world slump of the 1970s and reverse this policy. This, he argues, was an important factor in their being able to avoid the extent of public sector debt that was to plague Mexico and Brazil during the 1980s which stemmed from their persistence with subsidising unprofitable industries during the difficult period of the mid-1970s.
With regard to Latin America then, it is unfounded to argue that the problems in achieving development that they experienced were due to an absence of protectionism. Harris shows that, in fact, their policies were less geared towards exports than those of the Asian countries. Richard Auty in Patterns of Development supports this, showing that the more export-orientated nature of the economic policy of the Asian countries was a key factor in their success. Some trade protection was given to these industries initially but not to such an extent as they became uncompetitive, as was the case in Latin America.(30)
In any case, Harris points out, the strategy of import substitution would not have been viable at all in the many smaller economies of the South (including many African countries), which were unable to produce the full range of the goods they needed due to their size. African countries tended to specialise in agricultural production. A renowned thesis of the development economist Raul Prebisch has shown that, from the 1930s, a generally large worldwide supply of agricultural products led to much less favourable terms of trade for producers than those enjoyed within the manufacturing sector. These circumstances led to difficulties for the countries of the South. The Asian economies were able to achieve a shift away from agriculture and towards manufacturing which was an important factor in their success. Whilst the reasons for this sustained success, driven by their exports, would require an entirely separate study to be identified, it is clear that they were not simply an absence of protectionism.
Another oversight of those who propose that, within recent years, the South could have better achieved development through protectionist strategies is the difference that they miss between the world economy of the 1980s onwards and that of the 1930s. As Harris puts it:
The world of the 1980s is qualitatively different from that of the 1930s. The division of labour between manufacturing centres and primary-commodity-producing peripheries, as well as the political sway of multinational empires, enforced measures of economic isolation on the great economic blocs the dollar, franc, sterling, mark and yen areas—and particular countries. Today, these simple divisions have disappeared. The impact of slump has been not to recreate the old empires, nor regional trading blocks, but rather to increase the integration of a multitude of independent powers. It is this emergence of a new set of geographical relationships underlying a new world system of production that has left the old import-substitution strategy on one side.(18; p130)
A protectionist strategy carries fewer benefits in a more integrated global economy, and provokes retaliation from economic rivals. The trade barriers imposed by the Asian economies did not go unnoticed by the U.S.A. in the 1980s. In 1988, the U.S. Treasury accused Taiwan and Korea of manipulating their exchange rates to gain 'unfair competitive advantage' in international trade. This drew a response from the Korean government who had to force an appreciation of the Korean won. Between 1986 and 1989, the won appreciated by more than 40 per cent and Korean exporters suffered as a result.
In 1989 Korea, Taiwan, Singapore and Hong Kong, were removed from the General System of Preferences (G.S.P.), which, as Bello explains "extends preferential tariff treatment to imports from Third World countries in order to assist their development." (10; p75) In the U.S.-Korea Super 301 Agreement of May 1989 Korea agreed to add to the sectors of the economy that were open to investment and to simplify the procedures for foreign investors.
Many sectors of the East Asian economies were effected by unilateral U.S. decisions to alter trade rules. South Korean agriculture, for example, suffered due to the flood of U.S. exports, as had numerous other countries in Latin America and Africa previously. The effect on the South Korean economy as a whole was, in fact evident in the wiping out of it's trade surplus with the United States. The surplus of U.S.$9.5 billion in 1987 turned into a deficit of $335 million by 1991.(10; p80)
U.S.A. tactics in this trade dispute show a state that was not simply 'upholding the principles of free trade,' as it's leaders would like to claim. Bello writes:
Aggressive trade tactics directed at all comers gave the 'free-market' administrations of Ronald Reagan and George Bush the distinction of being the most protectionist since the days of Herbert Hoover.(10; p85)
To summarise, although protection of certain industries was an important factor in the remarkable growth rates achieved in East Asia, export-orientated production should not be overlooked as a key factor in this success. Critics of globalisation often call for protectionism, ignoring that this can jeopardise exports. The potential for retaliation to protectionism is shown in the case of the U.S.A.'s actions in the trade disputes with Japan and Korea. There is particular dependence upon trade agreements among smaller developing countries, where self sufficiency is an unrealistic goal. Even in the larger economies of Brazil and Mexico, the lure of achieving self-sufficiency proved to be their undoing in the late 1970s when East Asian economies who adapted most effectively to changing conditions by moving away from protectionism. In so far as certain East Asian economies still persisted with some level of protectionism, we have seen that the U.S.A. countered these policies during the 1980s, being fully prepared to exercise its power through a trade offensive, as the world's largest economic power. The success of the East Asian economies was itself heavily dented by the economic slump that it suffered during the mid 1990s (Boom goes bust in Asia.) As Harris points out, the changing economic conditions that, have further diminished the potential effectiveness of protectionism. All of these factors mean that the so-called 'Asian model' should not be viewed as a panacea offering poor countries of the South a straightforward alternative to the free trade/ S.A.P. policies they have been forced to accept.
4. Regulation of the world financial system
Another suggested way of countering the effects of globalisation is through some kind of regulation of the world financial system. The suggested forms of regulation are not forwarded as complete solutions to the vast range of problems arising from global capitalism but are viewed by some economists as a means of gaining a degree of control over the world economy.
In a world where the daily turnover of foreign exchange transactions is of the order of $1 trillion a day of which only l5 per cent corresponds to actual commodity trade and capital flows (10; p20), it is not surprising that people point to the financial system as a cause of instability. The vast majority of financial transactions in shares, currencies or any financial commodity do not usually reflect the true value in the real economy that they seek to represent. See the article (Boom Goes Bust in Asia) for an explanation of this point. A large proportion of the excessive number of financial transactions are trades in derivatives which are predictions about the future trends of financial commodities and therefore more likely to be even more of a distortion of values within the real economy.
Some economists have sought a way of restricting the number of financial transactions within the global economy. Fewer financial transactions, it is suggested, would mean less volatility in the price of financial commodities. One idea is that of the 'Tobin tax'—a one percent levy on all foreign currency transactions—put forward by the American economist and Nobel prizewinner James Tobin. As Martin & Schuman acknowledge (in spite of themselves being in favour of the tax), there would be difficulties in implementing such a policy on a global basis:
if just one major financial centre were free of the tax, the currency trade would gravitate there. And even if the G7 countries all introduced a Tobin tax, the financial sector could formally switch its business to offshore branches from the Cayman Islands to Singapore and so undermine the intended restricting effect. Failure is therefore 'programmed into' such a tax on currency transactions, an economist at the Deutsche Bank cheerfully predicts.(12; p83)
Not only would there be difficulties in implementing the Tobin tax on a global level but it is questionable whether such a tax would provide the kind of stability that is assumed by economists such as Tobin. Price volatility for financial commodities is symptomatic of the unplanned nature of production within capitalism rather than simply the volume of transactions in financial commodities (see Boom and slumps—What causes them? and A capitalist criticises capitalism.)
Another suggestion has been made by George Soros—who, ironically, gained fame through his widely publicised, speculative financial dealings. (see A capitalist criticises capitalism.) He, as well as other writers, have suggested that the creditors involved in I.M.F. loans should be more liable if their investment fails. He suggests that if the banks who lent money to countries to support their drive towards export-orientated production should had had more at stake themselves, the scale of their loans (and hence current third world debt) would have been lower. What has happened instead, he points out, is that I.M.F. packages have bailed out creditors and so encouraged "irresponsible" levels of lending.
Yet the difficulties inherent in achieving financial regulation at the global level, as pointed out above with regard to the proposed Tobin tax, would also apply to this policy. Soros' suggestion would certainly need to be implemented right across the banking system if it were to succeed—it would otherwise simply mean that developing countries requiring credit would just have to search a bit harder for it.
5. Trade Zones and Regulations
Environmentalists often argue for a 'fairer' system of world trade in which other environmental and social needs are accounted for. For example, L.Wallach refers to the 'Group of 250' non-governmental organisations who wrote a letter to the U.S. government. They called for sanctions to ensure compliance with regulations, funding for their enforcement, taxes and duties on environmentally damaging practices and so on. In other words, they expect that the goal of increasing profitability can be compromised.
Others, such as James Goldsmith (well known businessman, self-styled environmentalist and leading light in the British 'Referendum Party' prior to his death in 1999) have called for a still greater compromise. He advocated that those areas "with economies which are reasonably similar in terms of development and wage structures" should each form trading regions with little or no imports or exports of goods between them. He suggested that:
Trading regions would enter into mutually beneficial bilateral agreements with other regions in the world. Freedom to transfer technology and capital would be maintained. (However)… commercial organisations wishing to sell their products in any particular region would have to produce locally, importing capital and technology, and creating local employment and development. That is the way to create prosperity and stability in the developing world without destroying our own.
"(To) gain access to our markets," he continues, "foreign corporations would have to build factories, employ our people and contribute to our economies."
The presentation of this 'model' of regional trading areas raises two questions. First, how could it be brought about? Second, how could it be maintained? The protectionist measures that Goldsmith called for each region to enforce would hinder the ability of successful companies to export their goods. This, in turn, erodes their profits especially since such companies operate on an increasingly transnational basis. What would possibly make them agree to such measures? Indeed, the huge influence they currently have upon world trade negotiations suggests that the proposals would never be implemented for this reason alone.
Even if Goldsmith's proposals were somehow accepted on a world basis, there would be a continuous incentive for producers and governments alike to break the rules. If overseas producers offer goods to a region at a lower price than their own equivalent, how could a government stop such goods being purchased on the black economy? The difficulty of establishing restrictions on ozone depleting chemicals has proved to be a case in point (Ozone depletion) <ozone.htm>. A black market in CFCs has developed, in spite of many large multinationals now investing in alternative, less damaging chemicals. In contrast, Goldsmith's system would lack any such vested interest to back it. It seems that it would only take one company to infringe Goldsmith's rules before the rest also reverted to the task of maximising profits, through operating on a global basis.
This brings us to the fundamental problem for all of the proposals that seek a solution to the problems brought about by globalisation within capitalism. Given the globalised nature of the economic system that they seek to hold in check, such solutions must be implemented at the international level. Yet proposed global reforms of capitalism overlook the built-in conflict of interests within the system, both between the capitalist class minority and the working class majority and within the different sections of the capitalist class itself. As described in sections 2 and 3 of this study on trade and structural adjustment, the prominence of the sectional interests of the capitalist class of the industrial states of the North has been crucial in shaping the kind of globalisation that has led to so much outrage amongst protestors. These interests have pushed the globalised economy towards trade liberalisation since World War II (though this trend has been interrupted by reversions to protectionism, most significantly during the 1980s). These interests have also pushed for huge cuts in state expenditure and economic intervention in the South, when faced with a danger of these states being unable to meet their debt repayments. These interests (or, perhaps, the interests of another section of the capitalist class) could puncture any agreement to regulate the market for social ends. More likely, they will punctuate any attempt to reach such an agreement in the first place.
The vested interests of the capitalist class in general have consistently undermined progress in the attempts of the United Nations to initiate international environmental agreements (see Environment section.) As it happens, there is little political will to achieve some kind of modification of the global market, even when compared to the small amount of hope among some politicians to make progrees on global environmental issues. The imperative for politicians is, rather, to push for trade agreements that best represent the interests of capitalism within the state they represent.
It should be acknowledged that it is the economic interests of certain sections of the global capitalist class that brought about the rise of free trade since the war. The pressure on (not to mention involvement in) various political processes by transnational corporations demonstrates this. The power of lobby groups representing industrial interests in the U.S.A. over government is well documented. Douthewaite, for example writes:
lobby groups such as the Global Coalition, which was set up by a PR firm, Burson-Marsteller, and which represents the American Forest & Paper Association, the American Petroleum Institute, Texaco, Chevron, Chrysler, the U.S. Chamber of Commerce, Exxon, General Motors, Ford and more than forty other corporations and trade associations are a formidable force.. Lobbyists spent millions of dollars in the run-up to Kyoto (the summit on global warming) on advertisements saying that the treaty would mean a '50 per cent per gallon gasoline tax' and higher prices on food and clothing, claims which could well be right.(14; p216)
While protectionism may suit the interests of certain sections of the capitalist class at certain times, there is a general need among all capitalists across the globe to avoid such regulation on their business of profit-making that has given rise to free trade agreements such as G.A.T.T. This is why the agreement came about and has expanded in scope.
The policy of structural adjustment was similarly unavoidable once the South had taken out loans during the 1970s. An illustration of this inevitability is provided by Bello. What he describes as "the dismantling of the economic role of the state" has, he continues, "taken place under leaders as politically diverse as the Peronist Carlos Menem in Argentina, the social democrat Michael Maniey in Jamaica, the socialist Jerry Rawlings in Ghana, the Nasserite Hosni Mubarak in Egypt, and the technocrat Carlos Salinas de Gortari in Mexico." (10; p70)
Structural adjustment is clearly more than just the policy choice of certain individual staff at the I.M.F. Equally, the G.A.T.T. agreements were more than just the policy choices of the particular politicians who held power at the time. Economic pressure within capitalism gave rise to these agreements and institutions. The absence of an I.M.F. would have meant less assurance of debt being repaid which could have led to the states of the North resorting to military force to preserve their interests. The absence of a G.A.T.T. agreement would make a more protectionist world more likely. Given that states use protectionism to serve their own interests rather than for the moral imperative urged by the anti-globalisation lobby, there would be no clear benefit to be gained from a more protectionist world economy. The problems of capitalism such as poverty and alienation would still be present (as indeed they were in the pre-war years when protectionism was the norm.) In any case, the globalised economy was an inevitable outcome of the need for capitalism to expand profits and cannot be simply reversed through reforms of capitalism. Globalisation must be understood as a product of the global division of ownership—a division that must strive to perpetuate itself as long as capitalism exists.
Sources:
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(1) See Economic Reform and the Process of Global Integration—Jeffrey Sachs & Andrew Warner, Brookings Papers on Economic Activity, 1995.
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(li) The Guardian 31.8.94
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(3) Capitalism Since 1945—P.Armstrong et al (1991)
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(4) Trilateralism—H.Sklar
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(5) Towards a renovated economic system—Trilateral Commission
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(6) The Case Against Free Trade (Earth Island Press 1993) ch 1. R.Nader
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(7) Trade Liberalisation: What's at Stake—I. Goldin & D. van der Mensbrugghe
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(8) The Trap—J.Goldsmith (MacMillan 1994)
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(9) Larry Elliott refers to U.S. agribusiness pushing through key parts of the Uruguay Round—The Guardian 27/5/96.
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(10) Dark Victory—The United States and Global Poverty—Walden Bello (Pluto Press 1999)
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(11) The Globalisation of Poverty—Michel Chossudovsky (Third World Network 1997)
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(12) The Global Trap—Martin & Schuman (Zed Books 1997)
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(13) Neoliberalism or Democracy?—Arthur MacEwan (Zed Books 1999)
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(14) The Growth Illusion: How Economic Growth Enriched the Few, Impoverished the Many and Endangered the Planet—Richard Douthewaite (2nd edition, Green Books 1999)
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(15) The Rise of Ersata Capitalism in South East Asia (Oxford University Press; 1988)—Yoshihara Kunio.
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(16) A Fate Worse than Debt—Susan Goerge (Penguin 1994)
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(17) The Global Struggle For More—Bernard Nossiter (New York: Harper & Row 1987.)
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(18) The End of the Third World—Nigel Harris (Penguin 1987)
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(19) Oppose Corporate Tyranny—Why the World Bank, IMF and WTO should be abolished (Resistance Books, 2000)
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(20) The Ecologist, September 2000.
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(21) The Glasgow Herald, 24 December 1999.
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(22) Quoted in The Ecologist, Dec 2000/ Jan 2001, p23.
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(23) The Socialist Party of Great Britain—Politics, Economics and Britain's Oldest Socialist Party - David A. Perrin (Bridge Books 2000)
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(24) Bank Data Don't Support Globalisation Claims, www.twnside.org
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(25) Chopping Block, The Economist, 30 Nov 2000
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(26) The Best Things In Life, The Economist, 30 Nov 2000
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(27) Global Transformations, David Held et al p168
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(28) Global Transformations, David Held et al p165
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(30) Patterns of Development—resources, policy and economic growth—Richard M. Auty, (Edward Arnold 1995).
See also: No Logo a review of Naomi Klein's critique of global capitalism
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