(PART-B)
The Committees of
Correspondence for Democracy and Socialism
SOCIALIST EDUCATION PROJECT
“On Neoliberal Globalization and its Impacts”
PART-A
Table of Contents
Introduction
Primary Readings
1. International Labor Organization, “Globalization
Failing to Create New, Quality Jobs or Reduce Poverty”
2. Edward S. Herman, “The Threat of Globalization”
3. Manning Marable, “Globalization and Racialization”
4. Ralph Blumenthal, “Levi’s Last US Workers Mourn Loss
of Good Jobs”
5. Celia W. Dugger, “Guatemala: Supermarket Giants Crush
Farmers”
Further Readings
6. William K. Tabb, “Progressive Globalism: Challenging
the Audacity of Capital”
7. Raul Zibechi, “Privatizations: The End of a Cycle of Plundering”
8.
Harry Targ and David
Cormier, “Globalization, Neoliberalism and
Workers”
9. William I. Robinson and Jerry Harris, “Towards a
Global Ruling Class? Globalization and the Transnational Capitalist Class”
Monthly Review
February 1, 1999
I will address some aspects of globalization in our time and what they mean for working people. I will start with some general definitions and suggest that the most significant features of what is called globalization have always been part of capitalist development, even if the forms are different in different periods (including our own). I will then discuss the arrogance of capital as it tries to remake our world in its preferred image. In this regard, I will contrast U.S. initiatives in the area of labor standards with worker demands for labor rights. I will then consider the institutions of an internationalized capitalist regime, which seeks to impose itself using vehicles such as the International Monetary Fund and the proposed Multilateral Agreement on Investment. Finally, I will talk about resistance.
Globalization refers to the process of reducing barriers between countries and encouraging closer economic, political, and social interaction. Globalization could vastly increase the ability of people everywhere to improve their living standards by sharing knowledge and the fruits of human labor across those barriers. This, of course, does not happen. The point, and it is one too easily glided over and too often ignored, is that, as Richard Walker has written, "Accumulation is the main driving force of the world economy, along with its correlates, capital-capital competition and capital-labor exploitation. This is why it makes sense to speak of 'the capitalist system' rather than 'the global market.' The greatest economic myth of all is that the market has as its principal purpose the service of human needs rather than the aggrandizement of capitalists and their corporations."
So when we hear that "Nothing can be done, the global market is just too powerful, and governments are helpless," it is important to ask whose government we are talking about. The state in a capitalist society is the capitalist state. The government is not a neutral arbitrator with weak powers against market forces, but a structural part of the capitalist system in which we live. Globalization is not a steamroller against which the U.S. government is helpless; the state is an active participant in the structuring of globalization. If the United States has lost power to the international market, the loss has been largely self-inflicted. As British political scientist Susan Strange argues, "In order to make the rest of the world safe and welcoming to American capitalism, successive U.S. governments have broken down barriers to foreign investment and promoted capital mobility." These changes may be increasing the asymmetries of power between states to the advantage of the more market-oriented. Opting out of the world market economy is no longer an option. That, as Strange argues, "is what dependency means today." The state is forced to become, as the Canadian theorist Robert Cox writes, "a transmission belt from the global to the national economy, where hithertofore it had acted as the bulwark defending the domestic welfare from external disturbances." Since opting out is not possible, the questions are about what kind of relationship state formations will have to global capital, and how they will use the power they have, individually and collectively, to shape their own and global institutions. The present is threatened by the strength of hyper-liberal globalization. The assertion of social control and pursuance of a leveling-up and, in sum, a more balanced and positive development, could change the nature of the globalization process. Surely it is our task to push things in that direction as much as we can. The idea that this is impossible, the sense of inevitability, is an ideological construct and the product of political forces acting through powerful mechanisms in the realms of government and media.
Globalization is not simply a technologically driven force. The spin put on globalization and the politics of the period combine to misrepresent much of what has happened and why it has been able to take place. For example, the relationship between globalization and jobs and income in the United States is not a simple one. Most U.S. trade is with countries that pay higher wages than we do. Traditionally imports from low-wage countries have been in products we cannot produce here, easily or at all - bananas, coffee, bauxite. The recent rise of the East Asian manufacturing exporters and NAFTA raise questions about whether this is changing. Because of innovations in transportation and communication, many industrial goods are being produced outside the core. As a result, there has been much talk about unfair competition and the need to protect workers' rights. I would like to discuss some aspects of the way these issues are being presented.
Capital's Reformism
Whatever else Soviet communism was or was not, it supported national liberation struggles and could protect Marxist governments from the full force of American imperialism (as in the case of Cuba and others). With the end of the Cold War and the demise of the Soviet Union, transnational capital has revised its state theory and practice. In the new climate, the brutal dictatorships that characterized the free world regimes of the periphery, with their naked repression, mass murders, torture, and extortionist attitudes toward business activity within their territories, are no longer required. They are costly, inefficient from a business point of view, and tend to crystallize mass opposition. Such opposition can be repressed only at significant cost and at the risk of promoting mass movements which adopt anticapitalist ideologies, because repression and foreign capitalist control are widely understood as linked. Better to have democratic governments, managed by local elites who are committed to transnational capital's globalist vision. In this way, well-meaning, democratically elected governments enforce IMF austerity, arguing that there is no alternative to market-oriented globalism. Once the threat of revolution recedes, a local business class is a better partner for transnational capital than a rent-seeking military regime.
Interestingly, the major industrial countries, and especially the United States, want to write international labor standards into the World Trade Organization's mandate. They would include rights already recognized by the International Labor Organization: freedom of association, the right to organize and bargain collectively, non-discrimination, minimum age requirements, and a ban on compulsory labor. There are proposals in Congress and the European Parliament to restrict imports which do not meet stipulated labor standards. Such an approach is part era larger agenda that stresses democracy and elections and is critical of the old-style dictatorial regimes which the United States did so much to encourage in the Cold War years.
The classical liberalism of Bill Clinton and Tony Blair is ready to intervene and tell third-world governments what is good for their people: free trade, free competition, open economies which do not discriminate among market participants, and free elections (in which the power of money holds sway). This is not to say that, in countries where popular movements threaten the power of elites favored by the imperial powers, force is not a necessary remedy. Rather, formal freedom with strong markets is favored over rule by officials who seek to shake down not only their own businessmen but foreign capitalists as well. They are no longer a necessary evil in a period where few, if any, local elites would prefer to opt out rather than compete to attract foreign investment.
So we can advocate for better labor standards and formal democracy, provided that elections are consistently won by friends of free market policies. By breaking the connection between non-democratic governance and economic repression, such democratization, with its formally free elections won by bourgeois and free market parties, changes the political balance and makes it harder for popular movements to organize against neoliberalism. Granting even abstract and formal labor rights, and ending autocratic and military, rule, are important steps forward and make a big difference in the lives of working people. But the condition of this development is the restriction on working-class power in the economic arena, just as the condition of regularly scheduled elections and freedom of speech is that control of the state remains in the hands of neoliberalism, however unpopular its policies may be.
Labor Standards/Labor Rights
To help us understand what is going on, consider the distinction between labor standards and labor rights. Labor standards are externally determined yardsticks which are used to exclude the products of particular countries from other markets. Labor rights are about the responsibilities of employers and governments to respect workers and their organizations, and above all, about the power of the working class to organize itself.
It is also important that the working class has the power to redefine the rules governing the relations between capital and labor. Labor standards are granted. Labor rights are won. Labor's friends are important contributors to the achievement of both, but the emphasis is different. Even where labor standards are formally accepted, terrible practices are left untouched in sectors where production is not for export but for domestic consumption, which in some economies is the largest sector. There are no international sanctions proposed to help these workers. They can only be helped by winning labor rights. Labor standards are typically enforced by governments or self-policing trade groups and not by independent union monitoring. External agencies focus on symbolic standards. What is crucial is the ability of the workers to organize themselves and strengthen their independent organizations.
The United Nations Declaration of Human Rights recognized the universal rights of people as workers as framed in the ILO conventions, which banned child labor and asserted the right of association and the right to organize. But the ILO depends on voluntary compliance. It has no enforcement powers. The World Trade Organization does. It could compel and enforce labor standards as it does intellectual property rights. But it chooses not to because ... well, because these issues fall within the jurisdiction of the ILO! It is useful to remember that the ILO was formed in 1919 to prevent the spread of Bolshevik influence among the workers of the world, especially those of Europe, where the appeal of the Revolution at that time threatened to become more than substantial.
The WTO Secretariat Report on Trade and Investment argues "that a lack of rule, policy and coherence [poses a] danger to security. and stability, which are basic goals of trade and investment agreements." While such coherence extends to a very broad variety of investment-related policies, from trademark enforcement to protecting the rights of foreign producers in a host of specific ways, the protection of workers' property in their ability to determine the conditions under which they labor is not trade-related. This is not the business of the WTO, which could do something about it, but of the ILO, which has been able to accomplish very little since it was created, by capital, as a cooling-out device during the Bolshevik scare.
The advanced countries are already in compliance with the ILO labor standards. Some, most prominently the British and the Americans, have been most effectively (but of course legally) undercutting labor rights, however. In fact, labor standards can be a stick with which the advanced countries can threaten and discipline East Asian and other newly-industrializing economies. But the developing countries that strongly object to labor standards by no means do so because they are concerned with labor rights. They share with the advanced economies' governments the goal of maximizing capital accumulation, but for their own capitalists. Among the official voices of developing market economies, one will not find advocates of livable wages and better working conditions, or indeed any rights for workers.
The basic problem for workers in both the developed and the developing countries is not foreign competition but the power of capital. Jobs need protection because capital creates and maintains coercive pressure on labor, and uses state power and the so-called freedom of the marketplace to escape social control, to the maximum degree possible. Capital keeps workers competing as best it can and attempts to erode class consciousness and working-class power.
If concern for the social conditions of workers were driving government policies, we would be seeing something very different from the subsidies that favor capital, tax write-offs for machinery, and favorable tax treatment for industry when plants are closed (but nothing for the stranded workers), and the reduction of already inadequate spending on job creation, health and education for working-class families. A socially conscious government would focus on the taxation and regulation of capital, not immigration and allegedly unfair labor advantages of other countries.
These remarks are not made to suggest that the struggle for labor standards cannot be an important way to place some limits on capital in industrializing countries, and to raise consciousness concerning the extent of exploitation and oppression, but to underline that the struggle must be for working-class power. This requires workers' rights achieved in struggle by workers themselves, with as much support as possible from other progressive movements, and not simply the adoption of standards rendered ineffectual by the absence of enforcement mechanisms.
Progressive forces recently pulled out of negotiations with producers over a code of conduct that would address problems in third-world sweatshops. They did so precisely because industry-dominated and carefully limited inspection was being crafted not as a tool for advancing labor rights, but as a public relations vehicle for large transnationals, embarrassed by unflattering publicity, who wished to escape more meaningful scrutiny. I shall return to this issue, but first it is necessary to underscore the following point.
We do not and cannot expect the needs of working people to be uppermost in the minds of governments that serve capital, and will continue to permit and encourage systematic violation of worker rights in the name of competitiveness. Trade unionists, perhaps more than others, grasp the distinction between the interests of the state and the interests of the exploited millions around the world. Additionally, the ILO now has a new director who seems committed to more activism, and there is some hope that perhaps the ILO can become a more powerful vehicle for the pursuance of working-class interests. But its structure - unlike the World Trade Organization, which has power to enforce the demands of transnational capital and excludes labor from decision-making - is tripartite. Capital is an equal partner along with labor and governments. Decision-making is consensual, and compliance is voluntary. The real action is elsewhere, in the same way that the United Nations General Assembly is allowed to debate while economic issues are decided in other fora, such as the World Bank and the IMF, where it is not one nation, one vote, but one dollar, one vote, and the United States alone has sufficient votes for veto power.
Globalization from the Top/Resistance from the Bottom
There is no great interest, on the part of those international organizations that have real power, to struggle for the emancipation of labor and protection of the environment. At the same time, some agencies of corporate globalism are very much involved in pursuing the emancipation of capital from popular control. The Multilateral Agreement on Investment (MAI) was negotiated in secret for years and, earlier this year, Business Week called it "The Explosive Trade Deal You've Never Heard Of," noting that until Public Citizen Global Trade Watch put a draft of the agreement on the Web, few lawmakers in Washington had ever heard of it. Renato Ruggiero, the Director General of the WTO, describes the MAI proposal as the constitution for a single global economy. It takes the principles enshrined in the North American Free Trade Agreement and the World Trade Organization to a higher level, and prohibits governments from making new laws which interfere with the right of capital to free investment where and when it likes, and rolls back existing restrictions on capital. The rules also require a five year period before any country can withdraw from the agreement, and no protections and privileges for corporations can be undone for another fifteen years. Nations would lose control over their economies and could be sued for interfering with transnationals. Penalties would have to be paid if national policies caused the companies to forego profit.
Today the MAI is off the immediate agenda, not least because the left was able to expose its aims and act as part of a broader movement of opposition (with national capitals and cultural nationalists). But it is important to realize how many of its provisions are already enshrined in the World Trade Organization, and are being imposed in the proposed charter revision that would further the IMF's effort to transform nation-state level practices.
It is surely clear that capital is attempting to create an international regime with powers unaccountable to elected governments. This regime would obey only the rule of the marketplace, as defined by transnational capital and its bureaucratic allies, and be empowered by the political elites of states which, having attempted to carry out such policies, would dread facing re-election. By saying "It is out of our hands, and globalization is beyond what we can do anything about," they surrender sovereignty to capital. Only organized opposition by a working class aware of what is at stake can reverse these developments.
It will be a long and hard fight. But awareness of the real issues is spreading fairly rapidly. The high tide of neoliberalism has probably passed in the core advanced countries. The problem now is not Thatcher-Reagan attacks on the working class and its organizations. The appeal of harsh anti-working-class governments has passed, as the cost of their policies has become widely experienced and understood. The Blair-Clinton approach is to feel worker's pain, to preach democracy, and to convince us that there is no choice but neo-liberalism with a smiley face. The problem is not that we are part of a globalized society, but a capitalist society. This is increasingly clear to popular movements mobilizing to challenge the world's most powerful corporations.
Popular Resistance and Progressive Globalism
Opinion polls show that four out of five Americans would avoid shopping in a store that sells garments made with sweatshop labor, and would pay a dollar more on a $ 20 item for a guarantee that the product came from a worker-friendly supplier. Companies know that their exploitative policies are unpopular and that they are vulnerable when capitalism's business-as-usual can be dramatized in the mind of the public. The in-their-face militancy of grassroots labor, environmental, and human rights groups has been able to do just this: dramatically and powerfully putting forth evidence that companies like Wal-Mart and Disney are greedy exploiters, and urging people to stand up for workers' rights.
The fact that Disney pays six cents in Haiti for garments it sells for $ 19.99 in the United States, and other similar statistics, are being made widely known by groups like the National Labor Committee and the People of Faith Network. Militant marches, demonstrations, leaflets, press conferences, and other consciousness-spreading tools: have begun to produce widespread awareness of how capitalism operates in our time. The Global Sweatshop Coalition of solidarity, justice groups, and trade unions has informed many who were previously unaware, by bringing workers from El Salvador, Haiti and Nicaragua to U.S. audiences. A People's Right to Know Campaign is calling for corporate disclosure about who makes products, where, and under what living and working conditions. Often, companies refuse to release such detailed information to consumers.
A number of developments suggest that a powerful movement is emerging. Schools are being challenged to be sweatshop-free in their purchasing. As big corporations themselves, many schools are resisting such pressures. Jim Keady, former soccer star, assistant coach at St. John's University, and theology, student, was forced to resign for protesting the unethical relationship his school had entered into with Nike, in which the company gave the school money and equipment, turning the coaches and players into moving billboards for products made in sweatshops. Keady continues to speak out and challenge the morality of his school's deal with Nike. Nike has similar arrangements with over 200 schools. Leo Johnson, a youth worker at the Edenwald-Gunhill Neighborhood Center in the Bronx, has inspired kids to refuse Nike sneakers (and to return their old pairs to the company) in protest, until Nike starts to pay all of its workers a living wage. A growing coalition of settlement houses and youth organizations is asking young people to face not only what Nike has done to its workers abroad but what Nike is doing to them, through advertising that mercilessly pushes $ 150 shoes without which some refuse to go to school (and for which others steal). This advertising is, in Johnson's words, "sucking the brains out of their heads."
At a gut level, people understand that the fetishism of commodities is powerfully destructive to human potential. The anti-sweatshop coalition holding candlelight marches on New York's Fifth Avenue, from Niketown to the Disney store, makes the connections as well. Disney's relentless, upbeat, tirelessly promoted image of harmless consumerist family values does not sit well with the reality of a greedy, exploitative company, whose abuses range from employing sweatshops in Haiti to busting a technical workers' union at its ABC-TV network.
Companies like Nike are scrambling for cover. They are negotiating with church and labor groups, human rights and workers' rights coalitions. But these meetings have not produced much substance. They have recently broken down because the companies insist on a code of conduct that, for example, allows them to employ 14-year-old children for up to sixty hours a week at the local "legal" minimum wage, a less-than-living wage set by repressive governments to meet the requirements of these same corporations. The industry's offer of independent monitors (auditors in fact beholden to the companies, with no role for the movement groups) and of inspections (limited to five percent of a company's contractors in any given year) seemed so obviously a whitewash that all groups agreed it was better to have no agreement than to let these companies use a "No Sweat" label in their garments and deceive consumers into thinking that they were treating workers fairly.
Campaigns like the ones mentioned here are, of course, only a beginning. Capitalism will not be overcome or transformed by consumer boycotts. But these consumer rebellions may indicate a change in the wind. Together with popular struggles in some third-world countries, where people have taken to the streets to oppose exploitation by globalized capital, these movements suggest that people are beginning to challenge the idea that there is no alternative.
The conditions that have made globalization possible are the very conditions that now threaten it. The communication breakthroughs that enable global sweatshop production for core markets can also expose its horrors. The tools that make possible overnight wealth for a handful of global speculators also make possible overnight global financial panic. Even tightly controlled media and the alternation of competing neoliberal parties, which seemed to offer free elections without risk to the rich or transnational corporations, did not prevent the great majority of Venezuelans from seeking to reject the whole system this past December. In France, the MAI, negotiated in extreme secrecy, has nevertheless been exposed and rejected under severe popular pressure. The same technology that is supposed to be the cause of neoliberalism is making it clearer every day throughout the world that neoliberal globalization is not the inevitable product of technological progress, but the result of a political struggle that is far from over.
William K. Tabb is professor of Economics at Queens College and of Political Science at the Graduate Center of the City University of New York. His book, Reconstructing Political Economy: The Great Divide in Economic Thought, will be published by Routledge in late Spring of 1999. This talk was prepared for the November 20, 1998 Monthly Labor Leadership Breakfast, sponsored by the Queens College Labor Studies Center. It was then revised for the Seminar on Labor and Popular Struggles in the Global Political Economy at the School of International and Public Affairs at Columbia University on February 15, 1999.
Americas Program
November 1, 2004
One of the cornerstones of the neo-liberal policies adopted by most Latin American governments in the 1990s was the privatization of state-owned enterprises. This process of passing national wealth on to the private sector has been so injurious that it could soon render entire countries unviable. On occasion, citizen organization has succeeded in halting privatizations through public demonstrations that at times have turned into outright insurrections.
The public has almost always viewed state-owned enterprises as “its own,” and to a certain extent these companies have served public or national interests. Many state-owned enterprises were created following the economic crisis of 1929 and especially during and after World War II. During those years, the decline of Great Britain as the hegemonic power in Latin America and its replacement by the United States encouraged tentative development based on a more active role for nation-states in economic management through import-substitution industrialization.
State-owned enterprises--generally services, transport providers, or manufacturers--were part of the national wealth, although they were known to be mismanaged and to primarily benefit the political elite. Though state-owned companies were necessary for countries attempting to industrialize, many governments used them to perpetuate their power by doling out favors and privileges. These practices, along with inefficient management, undermined state enterprises by unnecessarily bloating employee rosters, thereby reducing efficiency and raising costs.
Consequently, in varying degrees from one country to the next services provided by state-owned enterprises deteriorated for three decades following the end of WWII. Many had fallen into serious financial crisis. This state of affairs greatly facilitated the work of the privatizers of the eighties. Promising efficiency to consumers fed up with shoddy goods and second-rate services, this first wave of privatization encountered little effective resistance.
The Debt Crisis
Broadly speaking, “the privatization of state enterprises is always linked to the renegotiation of a country’s foreign debt,” notes Belgian economist Eric Toussaint, president of the Committee for the Abolition of Third World Debt.1 The roots of privatization policy can therefore be traced back to the so-called “debt crisis” ignited by Mexico’s payment moratorium in August 1982.
At that time, Washington was facing a crisis in its global hegemony caused by the United States ' military defeat in Vietnam, domestic antiwar protests allied with the black civil rights movement, and the demands of Third World countries. This erosion of power culminated when the Iranian Revolution of 1979 sparked the hostage crisis the following year.
The convergence of these multiple challenges laid bare the declining hegemony of the world’s most powerful nation and ushered in a long-term shift: “Domestic and global New Deals were abandoned, and the United States tried to restore its military prestige. To pay for increased military expenses for the Second Cold War, it raised interest rates and began to compete actively for international capital in search of investment. During the 1980s, it attracted the global surplus and precipitated the ‘debt crisis,’ signaling the abandonment of the promise of ‘development.’”2 As the U.S. Federal Reserve hiked interest rates, loans to poor countries were drastically curtailed, preventing them from obtaining new loans to repay their debts. As a result, Third World debt became unpayable.
Until the 1980s, Third World indebtedness had several objectives: to create an outlet for Eurodollars accumulated in financial markets, to encourage arms purchases, and to lubricate the corruption mechanisms of pro-U.S. governments. By design, Third World debt did not affect the balance of payments of the lending countries. To give just one example, two-thirds of all debt assumed by the Argentine military dictatorship (1976-83) was deposited in bank accounts in the North.3 Needless to say, the money lent--largely as “aid” to poor countries--often never arrived or arrived piecemeal to the economies of the recipient countries and their constituencies.
The Brady Plan, devised in the 1980s, required bilateral accords between Latin American countries and U.S. authorities on the reduction or staggering of debt payments.4 One of the linchpins of the Brady Plan was the privatization of state-owned enterprises. In 1985, after a conference on foreign debt in Berne, Henry Kissinger was characteristically blunt: “There is no painless solution to their critical situation, but we must promote some corrections to the IMF’s adjustment program. The solution will entail sacrifice; I prefer that debtor nations ensure their external obligations vis-à-vis their creditors rather than receive aid in the form of real assets, by surrendering the assets of state companies.”5
To ensure their ability to repay their debts, countries adopted structural adjustment policies promoted by the International Monetary Fund (IMF) and the World Bank (WB). As far back as the early 1980s, those two bodies became the debt crisis managers and were put in charge of implementing adjustment policies and collecting debt payments. IMF- and WB-promoted adjustments touted macroeconomic stabilization (devaluation, lifting of price controls, and fiscal austerity) as a first step on the path to structural reforms based on trade opening, deregulation of banks and financial activities, greater labor-market flexibility, and privatization.
This set of policies clearly entails a loss of economic sovereignty for countries applying them. In addition, debtor nations had to forfeit their political sovereignty, either beforehand or simultaneously. As dictatorships and corrupt democracies did the “dirty work” of applying the reforms, foreign debt in Latin America multiplied eightfold between 1971 and 1980. In nearly every Latin American country, state-owned companies were already heavily indebted, since governments used them to contract debt as a way of obtaining loans from private banks. In 1976, at the beginning of military rule, Argentina’s state-owned petroleum company, YPF, had a debt of only $372 million. Seven years later it owed $6 billion, and nearly all of the money borrowed remained in the hands of the dictatorship without entering the coffers of the company. YPF was forced to send its petroleum to private refineries, since it was not permitted to acquire its own refinery. In 1982, when the dictatorship ended, nearly all of the company’s assets had been collateralized for debts.6 As a result, when the company was privatized the sale price did not even cover outstanding debts. The debt merely served to enrich those in charge of implementing the policies of dependence and subordination.
A Gangster Style of Operating
Joseph Stiglitz, 2001 Nobel Prize winner in economics, former chairman of the Council of Economic Advisers for the Clinton administration, and former vice president of the World Bank, argues that one of the main problems with the IMF- and WB-promoted privatization policy was that it “had to be carried out quickly.” Thus countries that “privatized more quickly received the highest scores.”7 Stiglitz, a proponent of privatization, complains that the privatizations were carried out without the proper controls, that they replaced public monopolies with private monopolies so burdening consumers, and that they were shrouded in corruption and bribes.
In Latin America, privatization has not only decimated countries such as Argentina and Peru, but has also exacted a high human cost. Consider, for example, the October 2003 massacre during the “gas war,” in which Bolivians attempted to recover control of their main natural resource that a succession of neoliberal governments had surrendered to Repsol-YPF, Shell, Enron, and Petrobras.
Several significant cases reveal the modus operandi employed in the rush to privatize. In Argentina, a privatizer’s paradise, the first company to be put on the auction block was ENTEL, a telecommunications firm. Although its appraised value was $3.1 billion, the government set the minimum bid at $214 million. The sale needed the approval of the company’s creditors. After several delays and numerous irregularities, ENTEL was sold to a joint bid by the Spanish firm Telefónica and France Telecom. The companies paid a total of only $214 million in cash; the remainder consisted of the acquisition of foreign debt. At the time of privatization, ENTEL’s debt totaled $1.9 billion--$1.4 billion to foreign creditors and $500 million to Argentine contractors.
Although the government had promised to invest the privatization proceeds in health and education, 60% was used for foreign debt payments, and the remaining 40%, according to researcher Daniel Muchnik, “was lost in the back alleys of public administration accounting.”8
Carlos Menem’s government merely continued the corrupt ways of the Argentine military dictatorship. Between 1990 and 1992 the Menem government privatized much of the nation’s wealth, precipitating $60 billion in losses. In the privatization of YPF, U.S.-based Merrill Lynch was given the task of assessing the company’s value. But Merrill Lynch deliberately underestimated the company’s oil reserves by 30% to reduce YPF’s appraised value. Once the privatization had concluded, the hidden reserves reappeared on the books, and the purchasers thus reaped fabulous profits, thanks to the immediate increase in the stock market valuation of YPF shares.
In what might seem like a bad joke, “Argentina’s Central Bank stated that because it had no record of public foreign debt, the Argentine authorities that succeeded the dictatorship had to rely on declarations from foreign creditors and contracts signed by the members of the dictatorship, without these contracts having been verified by the Central Bank.”9 Moreover, the military government nationalized private debt contracted by the affiliates of Renault, Mercedes-Benz, Ford, IBM, Citibank, Chase Manhattan Bank, and Bank of America, among others. In 1981 and 1982, exchange risk insurance regimes were established--the state ensured a preferential exchange rate for these companies--through which a large part of the debts of those economic groups was transferred to the state.
In Brazil, in 1997 Fernando Henrique Cardoso’s government hired Merrill Lynch to appraise the leading public company, the mining concern Vale do Río Doce. Numerous Brazilian congressmen accused Merrill Lynch of underestimating the company’s mineral reserves by 75%. During the Cardoso period, in addition to the state mining company, the state-owned telephone company (Telebras) and government-owned gas and coastal shipping businesses were also privatized.
In Peru, the task of privatizing much of the nation’s wealth fell to Alberto Fujimori’s government, amidst notorious cases of corruption. Fujimori applied a neoliberal program of brutally and completely eliminating all controls on financial capital, reducing the country’s tariff protection, eradicating the entire regulatory framework governing wage labor, and dismantling state-owned manufacturing and services. Peru was thus relegated to the status of producing raw materials. The number in poverty rose from 7 to 12 million, between 1990 and 2000.
In recent years, since the failure of the neoliberal model has become obvious, privatizations have grown increasingly thorny and have encountered strong opposition. President Alejandro Toledo took office in Peru on July 28, 2001, after championing the social movement opposed to Fujimori’s policies. During his campaign, which focused on poverty and unemployment, he promised not to privatize state-owned enterprises in the southeastern city of Arequipa. But once in office, Toledo aligned with big money. To win the bankers’ confidence and tame the fiscal deficit, he continued with his predecessor’s privatization policy. Toledo’s privatization targets included two state electricity companies (EGASA and EGESUR) in the southern departments of Arequipa, Moquegua, and Tacna. Even though the sale violated a court order to bring the privatization process to a halt, on June 14, 2002, the two firms were awarded to a Belgian firm accused of paying kickbacks to Fujimori.10
In Bolivia, the October 20, 1999, passage of Law 2029 privatizing drinking water services took place with no public consultation whatsoever. To avoid a debate on water resources, Bolivia’s ruling coalition entered into a temporary alliance with its main political opponent, the MNR. The MNR is the party of former president Gonzalo Sánchez de Lozada, under whose administration the current economic model was designed. Law 2029 enacted regulations regarding the provision of drinking water and access to water sources for any use, granting exclusive rights to the licensee without taking into account the practices and customs of communities and social organizations, which were to become mere consumers of the services provided by the concession holder. The law pegged rate increases to the U.S. Consumer Price Index and gave legal status to contracts held by companies such as Aguas del Tunari, a subsidiary of the London-based International Water Limited, owned by Bechtel Enterprises of San Francisco, California, and Edison of Milan, Italy.
Both in Peru and Bolivia (as well as in Paraguay and Uruguay ), the privatizations sparked strong social opposition, leading to popular uprisings in several cases.
A Shocking Failure
Not only did the privatizations take place against a backdrop of rampant corruption and plundering of national resources; they were also a commercial failure, and the population of the countries involved ended up footing the bill. Meanwhile, poorer-quality services, higher rates, and a deterioration in infrastructure due to a lack of investment resulted in fabulous profits for multinational corporations.
A recent book by the American geographer David Harvey explains the logic of privatization.11 Given the growing difficulty of obtaining profits, due to an overabundance of capital and a dearth of opportunities to profitably invest it, global elites developed what Harvey calls “accumulation by dispossession.” This term refers to the fencing of communal land in Victorian England, which served as the catalyst for capitalist expansion.
But unlike the expropriation of communal lands--and the entire process of plunder, war, and colonial conquest through which capitalism established its ascendancy--the accumulation by dispossession currently under way combines brutal forms with more subtle “legal” types of dispossession: biopiracy, intellectual property rights, the pillaging of humanity’s genetic resources by a half dozen pharmaceutical companies, and privatization. Indeed, in capitalism’s current phase, neoliberalism “internalizes cannibalistic, predatory, and fraudulent practices” that once seemed eradicated.12 Most importantly, Harvey’s analysis shows that in the current economic era, corruption is the system’s “habitual” way of operating.
In response to the large number of irregularities in Argentina’s privatized companies, Néstor Kirchner’s minister of economy, Roberto Lavagna, requested a report from the General Auditing Office of the Nation. The agency compiled 40 studies on privatizations conducted since 1993, and found that companies do not comply with investment commitments, modify work plans, amounts and time schedules without authorization; do not comply with minimum asset requirements set forth in contracts to ensure solvency; resort to borrowing to finance operations; owe payments to the pension system; modify stock-options packages, despite contract prohibitions against this practice; and fail to protect assets.
Moreover, privatized companies fail to take out insurance or allow their policies to expire, adjust rates in violation of their contracts, neglect to pay fines imposed by regulators, lack complaint-reception procedures, and fail to submit government-required documentation. Several of the studies recommend that many privatization contracts be rescinded.13
A recent report by FLASCO (Latin American Faculty of Social Sciences) asserts that privatized companies in Argentina reap profits unparalleled anywhere else in the world. From 1993 to 1999, the country’s 200 largest businesses generated 25.9 billion dollars in profits; 54% of these profits accrued to 26 companies, which grossed $2 billion a year. The study concludes that in the 1990s, “the average profitability of privatized companies was between seven and eight times higher than the rest of the country’s largest firms.” The study also notes that illegal rate increases were levied, the quality of services worsened, and employee rosters were cut, resulting in a “transfer of resources, first, from wage-earning and low-income sectors to business sectors, and, second, within businesses, from small and medium enterprises to large ones.”14 Though the Argentine and Peruvian cases are among the most extreme, they illustrate how privatization has contributed to the concentration of wealth, eroding economic security for most people, polarizing countries, and undermining social harmony.
Resistance: From Opposition to Insurrection
In the final decades of the past century, broad popular struggles in Latin America took aim at fiscal adjustment policies (the “Caracazo” in 1989) or at the corruption endemic to neoliberal governments (the “impeachment” of Brazilian President Fernando Collor de Melo in 1992) or at neoliberal policies generally, in nearly every country. This resistance intensified beginning in about 2000.
A series of struggles against privatizations succeeded in imposing bottom-up changes in neoliberal policies vis-à-vis state-owned enterprises. Most notable are the early-2000 uprising in Cochabamba over control of aquifer resources, the broad-based struggles in Peru and Paraguay in 2002, and the 2003 referendum in Uruguay on the privatization of the state oil company.
As the failure of privatization became evident, opposition grew more radical. Protests and referendums gave way to direct action in a process that accelerated toward the end of the 1990s from the revolts in Arequipa, Cochabamba, and Paraguay to the events of December 19 and 20, 2001, in Argentina and the gas war in Bolivia in September and October 2003. Neoliberal policies--especially privatizations--catalyzed opposition forces, uniting diverse social sectors including workers, the unemployed, and the middle class and triggering unprecedented crises.
Several examples illustrate this radicalizing transition.
In Uruguay the grassroots movement has often used legal mechanisms to repeal laws. By submitting the signatures of 25% of registered voters, activists can force the executive branch to call a referendum. In December 1992, during the term of Luís Alberto Lacalle, a broad social, trade-union, and political movement succeeded in blocking the State Companies Law (which called for several privatizations), when 72% of the votes cast in a referendum favored repeal. In 2002, the union of the state-owned oil company, ANCAP, the trade-union movement, and the political left obtained enough signatures to force another referendum. An overwhelming 62% of the voters favored repeal, while 35% voted in favor of leaving it on the books.
In countries without legal safeguards to prevent privatization, people have resorted to direct action. In Peru, on the day the government announced privatization of the power companies (July 14, 2002), Arequipa residents took to the streets, erected barricades, and openly defied the police. “¡Arequipa revolución!”--the mythic rallying cry used decades before in this city with an unruly tradition--was taken up once again.
Hundreds of protestors seized the airport, forcing flights to be rescheduled. Although the government sent in police and military reinforcements, the populace continued to rally. Not even a curfew and the imposition of military control convinced people to retreat. As the days went by, the protest contingent grew, spreading throughout the entire southern portion of the country and taking on insurrectional overtones. Cuzco, Tacna, Moquegua, and Puno demonstrated their solidarity with Arequipa , which by then had become the epicenter of an uprising that threatened to engulf the entire south.
On July 18, four days into the uprising--which had already killed one person, injured 100, and caused extensive damages--President Toledo backed down, apologized to Arequipa residents, and began negotiations with local mayors and the Frente Amplio Cívico de Arequipa (FACA). The talks resulted in the signing of the Arequipa Declaration, in which the government renounced its privatization project and promised to leave the entire issue in the hands of the judicial branch. Celebrations erupted, as the rebellion spurred the erosion of Toledo’s government.
An entire book could be written about Bolivia ’s “water war” in the city of Cochabamba . This was the first victorious large-scale street battle with specific objectives in many years and succeeded in coalescing very diverse social actors: workers, peasants, Indians, housewives, professionals, and young people. In early 2000, the Coordinadora por el Agua y por la Vida (Coordinating Group for Water and Life) was created as an umbrella group comprising a Water Defense Committee; Irrigators Federations; unions of factory workers, teachers, merchants, and peasants; and associations of professionals, including engineers, lawyers, and economists. The Coordinadora convened a popular consultation for Sunday, March 26, after marches, town meetings, and mobilizations were severely repressed by military deployments in the city. Fifty thousand persons expressed their opinion at more than 140 polling stations in every neighborhood in the city.
Based on the outcome of the consultation, starting April 4, calls were made for a general shutdown of the city and key roads. Appeals were issued for the government to find a definitive solution to the water problem, amid warnings that the “final battle” was beginning. Demands were made for the privatizing company, Aguas del Tunari, to leave the region, for water rates to be frozen, and for water privatization to be repealed. Starting April 4, the Coordinadora began its strike by closing local roads. It was joined by the Campesino Federation (CSUTCB), which blocked roads throughout the country. Workers of one airline (LAB) even delayed flights in support of the struggle in Cochabamba. Four days into the general strike, military and police forces seized Cochabamba ’s main plaza, which was packed with protestors, arrested the Coordinadora leaders, and declared a state of siege.
In the rural areas of the department of La Paz , three town meetings were held (the most important, in Achacachi near Lake Titicaca , was attended by 15,000 Indians) ratifying proposals to continue with the highway blockages. On April 7, Cochabamba was once again taken over by thousands of protestors, who regained the plaza and faced down the forces of repression. The mayor announced that Aguas del Tunari would leave, and a grassroots celebration broke out. Members of the military and police were cowed into returning to their barracks by the massive presence of the street protestors. In this climate, on April 10, the government acquiesced, signed an agreement with peasant groups, and confirmed that Aguas del Tunari would depart.
The Cochabamba insurrection witnessed “unprecedented forms of organization, capable of harboring a modern, hybrid proletarization of the urban population and the expansion of discursive constructs firmly anchored in a self-recognition of want, suffering, and laboriousness.” Marches and strikes--usually deemed appropriate for moments of upsurge--were eschewed as the main form of struggle in favor of the occupation of spaces. Grassroots opinion was polled through town meetings, and traditional representation gave way to self-representation. Such representation, exemplified by the multitudes in the street, was “an all-out expression of local self-organization,” a powerful network of power, mobilization, and territorial and regional self-control.15
An analysis of how opposition to privatization moved from disarray to militancy potency reveals its intense mobilization and the changes away from the centrality of the worker as the main social actor. “Each neighborhood, each water committee, began to arrive at the plaza with its leaders and banners at the fore of compact formations of young people, of men and women brandishing sticks, bottles, Molotov cocktails, rocks, and knives. Each neighborhood, agrarian union, and water committee had decided to wage war and was willing to do so.... The militarization of local structures of mobilization later led to the emergence of water warriors who entrenched themselves in Plaza 14 de Septiembre for the three following days.”16
In Paraguay, the leading protagonists of the struggle against privatization were the peasants, who in just four years succeeded in unifying the entire grassroots movement into the Democratic People’s Congress (CDP). The congress, an umbrella group of more than 60 peasant, trade union, grassroots, and political organizations, was constructed from the bottom up after peasant unity was fractured in 1998. In addition, activists wove broad alliances that coalesced in the formation of the Front for the Defense of Social Assets and National Wealth and the People’s Plenary Against State Terrorism.
Anticipating the imminent privatization of state-run enterprises and increased repression, including the introduction in the Paraguayan Congress of an antiterrorist law openly promoted by the U.S. Embassy, the CDP was created on May 15, 2002. In its first session, attended by more than 1,000 delegates, the CDP resolved to launch a broad-based national mobilization for the rejection of the Privatizations Law, the public banking system reform law, the antiterrorist law, a law privatizing national roads, and a law establishing an agricultural tax. The delegates also chose to target rampant corruption and impunity in the country.
On May 21, the first of a series of mobilizations began, with intermittent road closings at 18 points in 12 of Paraguay’s departments. In this highly polarized climate, peasants collided with the forces of repression, and more than 100 protestors and several social leaders were arrested. In the city of Coronel Oviedo, 130 kilometers from Asunción along the country’s main highway, solid walls of police and military prevented some 5,000 peasants from continuing their march to the capital, where one of their number had died. But in the coming days the campesinos broke through the cordons of repression and neared Asunción, while the wave of protests spread throughout the country. On June 3, peasants began streaming into Asunción, where they camped in the plazas across the street from the Paraguayan Congress, while in the other main cities protests raged and the highways remained closed. The next day, thousands of campesinos from the North broke through police cordons to converge on the capital with other columns that were approaching from the east and the south, while 1,500 protestors seized the commissariat of San Estanislao. Meanwhile, students closed highways, and classes were suspended throughout the country. In that climate, the Senate indefinitely suspended the Privatizations Law. This important victory came after 16 days of intense mobilization.
Tentative Balance: Social and Political Crisis
Seen through the prism of grassroots struggle, the victorious campaigns against privatizations in Peru, Paraguay, Uruguay, and Bolivia reveal how new social actors have evolved in the wake of changes promoted through two decades of neoliberalism. These conflicts also reveal the fragility of nation-states, the emergence of new forms of struggle, and the maturing of relations between social and political stakeholders.
Since 2000 the social sector has regrouped--as manifested in the struggles against privatizations--following setbacks in the 1980s and 1990s. However, this offensive occurred within a social landscape modified by the neoliberal model. The most obvious tactical adaptations embraced by grassroots activists are related to the nonexistence of a central stakeholder comparable to workers in the previous period. In their stead a diverse ensemble of protagonists (from informally employed and unemployed laborers to technicians and professionals) has emerged, establishing de facto alliances responding to concrete situations. In all cases, there has been a tendency for distinct relations to be established between social forces and political ones. The vitality of the mobilizations has been provided by the former, while the latter seek to reshape old structures on the left (as in the Bolivian case) or are excluded offstage (as in Peru).
The South American struggles against privatization also reveal the increasing weakness of nation-states. Except in Uruguay, where the state has maintained discipline over civil society, governments have exhibited a striking inability to resolve social conflict without resorting to repression. This undermining of social contracts is directly related to neoliberal policies and to the further weakening of the traditional left throughout most of the continent.
Sociocultural changes are reflected in changing forms of struggle, closely linked to the crisis of representation experienced in most Latin American countries. Road closings and insurrectional mobilizations have nudged into the political space once occupied by the labor movement’s strikes and work stoppages. These innovative forms of struggle have two noteworthy characteristics: they represent the emergence of geographically delimited stakeholders with a new configuration and spatial relationship in which shantytown dwellers, peasants, the unemployed, women, and young people all play a significant role. Grassroots movements seize public spaces, because they reject representation. By organizing independently, they give life to a new grassroots force that has characterized the most important civic battles in recent years in Latin America.
Same Old Problems, New Questions
Lastly, a new debate is taking shape that is intimately related both to the failure of privatizations and to the success of struggles against neoliberalism: What is to be done with the privatized companies? How are they to be recovered? And, above all, how are they to be managed, and who is to manage them?
The recent referendum in Bolivia may provide some insights. First, the social movement, which appeared very united in its opposition to privatization, fragmented when solutions were sought. The Bolivian people’s solidarity in defending the gas nationalization with their lives evaporated when Carlos Mesa’s government called for the July 18 consultation.
The problem, in the end, is the state. An increasing number of social sectors are suspicious of governments’ capacity to properly manage national resources. The memory of corruption in the managing of companies that were later privatized undermines the option of state ownership. Nevertheless, the debate is still alive. In Bolivia, since both the water war in Cochabamba and the October 2003 uprising over the gas issue, as well as in Argentina and in many other countries, these issues are being hotly debated.
The choice is no longer reduced to public vs. private ownership. The Argentine economist Julio Gambina, echoing the sentiment of popular assemblies and piquetero (unemployed) groups, recognizes that the outright nationalization of the privatized companies is not the answer, “because [nationalized companies] end up being bureaucratic and subjugated to the political group that happens to run the state at a given moment.”17 No one has ready-made alternatives, but the ongoing debates reveal possibilities for state-run or, at least, mixed management: cooperative companies run by users by users, with the possible participation of the state, and for creating a flexible social space capable of accommodating non-state-run companies, mutuals, cooperatives, and community organizations.
All of these options can be open to joint management by consumers, workers, and perhaps the state. This still-inchoate debate has an enormous virtue: it channels the concerns of common people in a new direction--toward resolving how to achieve empowerment vis-à-vis public assets without blindly handing over their management to some outside expert. If this direction is strengthened and clarified, the terrible history of privatizations might yet have a happy ending.
Endnotes
Julio Gambina, “Cómo recuperar las empresas privatizadas,” at www.lavaca.org.
Harry Targ, Department of Political Science, Purdue University
David Cormier, Institute of Labor Research, University of West Virginia
Introduction
Political commentators, journalists, and economists have been talking about globalization since the collapse of the Socialist Bloc. Some are excited about it; others are terrified. Some activists from the political left and right mobilize against it, yet others, both left and right of center celebrate its promise.
This chapter walks the reader through a discussion of globalization and the neo-liberal policies that made the phenomenon a reality. It relates global processes and policies to capitalism today. It then surveys how globalization has affected workers. The central theme of this chapter is that the pursuit of profit and capital accumulation, the driving forces of capitalism, shape the contemporary global political economy; that even though the elements of the era of globalization, and late capitalism, are unique to the 21st century, the basic character of the global capitalist system, which emerged in the fifteenth century, remains the same. Effective resistance strategies require an understanding of the basic elements of capitalism as a system and what is new about capitalism today.
Globalization: A Definition and Some Questions
Whether writers embrace it, denounce it, believe it is something new or not, they all see it as involving a qualitative increase in the number and size of interactions across national, sovereign, borders. The common assumption is that trade, investment, financial speculation, or the spread of images of Michael Jordan or Bono or the growing presence of McDonalds or
Kentucky Fried Chicken, or Levi Strauss, and probably all of the above constitute a new global reality. The movement of money and jobs and idolization of sports and music icons is creating a world that knows fewer and fewer territorial divisions. A world organized around more or less secure nation-states for hundreds of years has been replaced by a new global system. In addition, the bounded nation-states promoted the economic interests of their own ruling classes and corporate and investment houses to the exclusion of those in other countries. Some theorists argue that today the political and economic boundaries of nation-states have been significantly reduced. Metaphorically, the military fortress has been replaced by the internet.
Much of the discussion of globalization has involved elaborating on a variety of questions. Are there important agents stimulating these interactions? Why do these agents act the way they do in the world? Have there been particular public policies that have encouraged the increased frequency of interactions? Further, have there been significant historical events or conditions that have increased the likelihood of globalization to have occurred; such as the collapse of the Soviet Union in 1991. What are the roots causes of globalization: new technology, the internet, or the continual and advanced drive for profit in a world largely free of impediments?
Agents of Globalization
While debates about their role, positive or negative, still go on, multinational corporations (MNCs or what are often called transnational corporations or TNCs) clearly are agents of globalization by virtue of their size, the scope of their activities, and their presence in production, distribution, and consumption in just about every country in the world. As was discussed in the last chapter, these corporations have become more concentrated (that is a small number of them control a greater share of global economic activity than before). Data indicated that half of the world’s biggest economic agents are multinational corporations (the other half being nation-states). And about 250 such corporations control about a quarter to a third of all that is produced on the face of the globe.
International banks and investment houses have dramatically increased in size, global presence, and power in recent times. Lenin pointed out in his famous essay, Imperialism: the Highest Stage of Capitalism, that banks, which in the 19th century had served as accountants for manufacturing capital, had become independent and powerful economic actors in the large capitalist countries. Banking capital, he said, had become integrated with industrial capital, thus creating a new version of capitalism, finance capital.
Lenin could not have foreseen the magnitude of the role of finance capital, which is a critical feature of the era of globalization. Banks and investment houses oversee the transfer of trillions of dollars of investment across the globe and fund the huge debt incurred by poor countries over the last thirty years. They manage the global speculation of capital that has become a staple of the current era, buying and selling currencies, stocks and bonds, properties, and in general paper with value. The radical shift in the magnitude of economic exchanges from those relating to trade in commodities to trade in paper is managed by these institutions.
Alexander (1999) pointed out that the global capital market volume increased from $1.5 trillion a day in 1990 to about $4 trillion in 1998. Further, at the time of her writing, she estimated that the top twenty investment bankers in the world controlled 97 percent of the capital market business.
International organizations (IOs) increasingly have become the target of debate and popular mobilizations by those most critical of globalization. The Bretton Woods institutions-the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development, or World Bank-were established at the end of World War II to manage international financial exchanges and to provide short and longer term assistance to war-devastated nations for economic reconstruction. A few years later, the General Agreements on Trade and Tariffs (GATT) was established as an organization of nations interested in trade liberalization. In 1995, the GATT system was transformed into the World Trade Organization (WTO) with over 130 nations as members. These three organizations were less than fully visible before the 1980s but had become the agents promoting a set of market-based economic policies, often referred to as “neo-liberal,” that led to the transformation of the economies of virtually every country in the world. By managing the dramatic increase of indebtedness since the 1970s the IMF, the World Bank, and trade agreements (GATT, then WTO) increased the opportunity for international capitalist penetration of poor countries. With the collapse of socialism, the possibilities increased enormously. As the IMF/World Bank/GATT-WTO institutions increased in influence over the global economy, the role of the United Nations, which gave voice to poor nations through the General Assembly, declined.
While most would agree that MNCs, international financial institutions, and the IMF, World Bank, WTO triad are central actors in the globalization drama, disagreements abound concerning the role of nation-states in this transforming global process. Despite disagreements, it seems clear that some states provide the levers of power, military as well as economic, for the promotion of globalization, and other states, by virtue of their weakness, can serve only as enforcers of big state economic policies on the poor and oppressed.
The big state coalition most relevant to globalization is that of the so-called G7 countries. Even within that coalition of large capitalist countries the United States has asserted its role as global leader. This does not deny the significance of threats to that leadership from an integrating European system, for example, or an Asia dominated by Japan, or China (not a G7 member). One cannot separate the influence of global corporations and banks from the military power of the United States which in recent years has made war on Afghanistan and Iraq, has over 700 military bases in over 60 countries and has an FBI, CIA public and covert presence in many of those countries.
Globalization:
Trade, Production, Investment, Speculation, and Debt
The trading of commodities produced by one group of people to another is central to the construction of all civilizations. “Comparative advantage” was based on differential skills, resources, climates and the ability to produce some things better than others. Out of the growing specialization of society, trade became a staple of human interaction. In the capitalist era, commodities produced ever more efficiently required consumers in other communities or nations. If production was for profit, finding consumers was central to realizing that profit.
And so production of goods and, later, services became central to societies with growing populations and growing needs. A hallmark of capitalism was the bringing together of “free” labor to produce more and more products more efficiently. Since the dawn of capitalism, productive processes have repeatedly been revolutionized in terms of use of technology, organization of work processes, distribution of units of production around the world, and mechanisms of worker control.
To promote production (usually at the lowest rates of workers’ pay), increase access to markets, and stifle growing worker resistance, patterns of investment shifted significantly in the twentieth century. For example, during the formative years of the Cold War (1945 to the 1970s) investment increased more than trade. The largest global corporations began to produce larger shares of their products outside their country of origin. In the U.S. case, production of electronics, textiles, shoes, and other basic goods were shifted to low wage countries. Direct foreign investment became a primary source of capital accumulation and profit during the last half of the twentieth century.
The demise of the regulation of currency rates under the Bretton Woods system in the 1970s and the radical deregulation of economies in the 1980s stimulated an enormous increase in investment in intangible commodities: stocks, bonds, currencies, and various other forms of paper. These financial commodities exist mainly as zeroes and ones in computers and can be transferred anywhere in the world with the click of a computer mouse. Thus, there emerged a “virtual economy,” of instantaneous global transactions that began to dwarf the trade in goods and services. National boundaries were traversed in surprising new ways. Paradoxically, foreign investments in goods, services, and paper in the United States began to exceed U.S. investment overseas. A new global finance capital arose that dwarfed the finance capital that Lenin wrote about just 80 years ago.
Finally, finance capital, and globalization in general, was facilitated by the growth of a system of international indebtedness that assumed enormous proportions in the 1970s. Oil- poor countries committed to industrial development had to borrow ever larger amounts to buy the oil which had dramatically increased in cost, due to the oil crisis and instability in the Middle East. The end result was burgeoning debt that by 2000 exceeded $4 trillion. Most countries fell into what Cheryl Payer called in the 1970s “the debt trap.” Countries could never even pay back the interest on the debt they owed so they had to “reschedule” their debt, that is borrow some more. The IMF and private bankers would approve new loans if debtor nations changed their economic policies. They were forced to reduce tariffs, cut government spending, and generally make their economies attractive to foreign investors. These policies were part of the now familiar program of policies called “neo-liberal.”
Neo-liberal Economic Policies and Globalization
With the collapse of Socialism, what is called neo-liberal globalization has expanded dramatically. “Neo-liberal” refers to a set of economic policies that are derived from the vision of Adam Smith and David Ricardo. These policies include limiting state involvement in economic life; promoting “markets;” reducing impediments to the global penetration of each and every country by capitalism (particularly in production, investment, trade, and finance); and finally privatizing the provision of all goods and services needed to maintain human existence. Emphasis is placed on reducing public services to citizens, such as access to cheap transportation, food subsidies, sanitation, and cheap water; privatizing public institutions, such as selling publicly owned businesses to private investors; and promoting exports of cheaply produced goods to wealthy countries, including shifting agricultural production from goods produced for local markets to crops for foreign consumers. Since globalization refers to a process of dramatically increasing cross-national interactions, particularly in trade, production, cultural exchange, and communication, the neo-liberal policies and the interactions are closely related.
Neo-liberalism as an ideology influences public policy today in nearly every state, whether industrial-capitalist, post-Socialist, or post-colonial. Every powerful global institution--the World Bank, the International Monetary Fund, the World Trade Organization, and the association of rich states known as the G7 countries--promotes neo-liberal policies. The most powerful instrument that global institutions have used over the years to induce countries to embrace the neo-liberal policy agenda has been the debt system. As suggested earlier, countries began borrowing billions of dollars in the 1970s due to dramatic increases in the price of oil. Now the world’s nations owe banks trillions of dollars. Each loan or each decision to reschedule a debt comes with demands for economic “reform.” In other words, banks, multinational corporations, and wealthy capitalist states force governments and people to accept the neo-liberal medicine.
Advocates of neo-liberalism claim that the policies they recommend will, in the long run, entice foreign investors which will stimulate economic development, rising living standards, and political democratization. For neo-liberals, the expansion of capitalist penetration helps needy countries grow. To the extent that globalization increases interactions of all kinds across sovereign borders, economic development will occur. “Global celebrants” believe that neo-liberal globalization will bring humanity to a new level of social and economic well- being. Data presented above and referred to below indicate that this claim has not been realized. In fact, many of the material conditions of peoples’ lives over the last thirty years have gotten worse, not improved.
Neo-Liberal Globalization and the United States Drive for Hegemony
The United States at the end of World War II was the hegemonic power; that is it had the capacity to dominate international affairs economically, militarily, and politically. It was estimated that the United States held three-fourths of the world’s invested capital and two-thirds of its industrial capacity in 1945. It had a monopoly on atomic power and then, later, maintained atomic, nuclear, and air superiority over its adversary, the Soviet Union. It was able to dictate the establishment of a variety of international economic and political institutions that served U.S. interests including the IMF, the World Bank, and the GATT trading system. As the Socialist Bloc and radical nationalist regimes emerged, the U.S. constructed an alliance system, the North Atlantic Treaty Organization (NATO) to defend “the free world” from Communism.
This context provided the opportunity for the U.S. to plant the seeds of a system of global trade, investment, production, and financial speculation that flowered and grew through the years. From the days of the Marshall Plan program, transferring $14 billion in “aid” to war torn Europe-providing the recipients used the dollars to purchase goods from the U.S., to the trade pacts of the 1990s, to the Central American Free Trade Agreement (CAFTA) in 2005, United States foreign policy has been shaped by the vision of a neo-liberal world order. Its achievement was only constrained by social movements throughout the world with alternative perspectives on economic policy and competing power blocs.
During the “Golden Age” of U.S. hegemony (1945 to 1968), the United States produced goods at home and shipped them to other nations. This included massive amounts of military equipment sent to selected allied countries. Because of the large foreign assistance programs for Europe and Japan after World War II, these countries accumulated the dollars to buy U.S. goods. Growing U.S. foreign investment occurred in agriculture and extractive industries such as oil, copper, rubber, and bauxite, all materials vital to industrial development and military production. U.S. foreign policy pursued the “Open Door,” working toward the elimination of barriers to economic penetration. Even with U.S. power, resistance to U.S. penetration grew among Socialist, nationalist, and newly independent post-colonial regimes. The Cold War was a byproduct of the contradictions between these competing economic visions.
As worldwide resistance to the global agenda grew, the United States developed an interventionist and military response to it (as well as government opposition to labor militancy at home). Domestically, anti-Communism was elevated to a national crusade, consumerism was promoted, and an accord between conservative sectors of organized labor and management was fashioned.
During this so-called Golden Age, corporate profits grew substantially, real wages rose, social and economic benefits to some workers grew, while women and minorities remained left out. In short, the United States constructed a post-war global order to achieve the neo-liberal vision. Its full realization was blocked by international and domestic forces but U.S. economic and military power grew despite resistance to it.
By the late 1960s, however, global conditions had changed. European and Japanese products began to compete with U.S. made commodities. Political opposition to established power spread at home and abroad. The debacle of U.S. foreign policy in Vietnam substantially weakened American prestige and power. The U.S., still an economic and military giant, was no longer the hegemonic actor in the world. Its position was challenged militarily, politically, and economically, by the Socialist Bloc, by revolutionary regimes, movements around the periphery of the capitalist world, and by capitalist friends of the United States who had now become major competitors.
The Bretton Woods system, the system of established exchange rates to regularize trade, collapsed in 1971. Faced with growing inflation and the weakening dollar, and, as a result, increased foreign demand for gold in exchange for the dollars Europeans and others were holding, President Nixon announced that the U.S. would no longer exchange foreign held dollars for gold and deflated the once unshakable dollar.
In the aftermath of these decisions, exchange rates were allowed to “float,” i.e. the price of any country’s currency would be determined by “market forces.” Exchange rates would then change precipitously, with the currencies of weaker economies made more vulnerable to dramatic fluctuations. As data reviewed earlier suggests, financial speculation rose. Massive fortunes were made in the virtual economy. Floating exchange rates coupled with liberalized investment rules set the stage for financial crises such as the Mexican peso crisis of 1994 and the Asian financial crisis of 1997.
Meanwhile, European and Asian goods began to compare favorably with U.S. goods in style, quality, and price. In 1973, an Organization of Petroleum Exporting Countries (OPEC) oil embargo during the war between Israel, Egypt, and Syria drove up energy prices, making operating U.S. cars more costly. Increasingly foreign exports appeared in U.S. markets. Significant among these were Japanese autos, German machine tools, and clothing and electronics from Asia.
U.S. foreign investment increased, including the opening of production facilities such as auto plants, steel mills, and clothing factories in countries where desired markets were located and/or where labor was cheaper than in the U.S. Spurred by dramatic tax cuts for the rich in President Reagan’s first term, significant investments shifted from manufacturing and service to financial speculation.
As a result, de-industrialization escalated at home. American corporate investors bought or built production facilities or contracted for assembly operations with foreign capitalists; in short, a substantial increase in the export of U.S. capital and ultimately the export of millions of high-wage manufacturing jobs occurred. Paradoxically, foreign manufacturing transplants began to open in the United States in selected industries, such as auto and computers.
Real wages for the average U.S. worker peaked in 1973. Subsequently, wages and incomes declined because of declining rates of profit, increased competition from imported goods, the growing mobility of capital worldwide, the loss of higher paying manufacturing jobs, and the rise of lower wage service jobs. Real wages did increase during the last three years of the Clinton administration but increases were reversed in the new century.
In addition to the attack on good-paying manufacturing jobs, the Reagan administration began a systematic assault on government programs that had their roots in the New Deal, the Fair Deal, and the Great Society. In sum, neoconservatives launched a campaign to reverse 40 years of government programs that were designed to guarantee worker rights and provide health care, housing, transportation, education and retirement security. As government was cut back, except for military spending, economic elites successfully pressured each administration from 1980 on to cut taxes for the rich while reducing social programs. De-industrialization wiped out more unionized jobs, union density declined, and bargaining power of labor weakened. The power of the working class had been significantly weakened by the 21st century, perhaps to a degree not seen since the dawn of the 20th century.
At the same time in the Global South many countries were forced to borrow more money from international banks to pay for the rising cost of oil. Banks holding profits from oil revenues readily lent money to these countries. As suggested earlier, a debt spiral was launched in which many countries became entrapped, borrowing billions of dollars with limited means for ever repaying their debt. The pattern of incurring balance of payments deficits (importing more than exporting), being unable to repay the interest on old debt, and incurring more debt in order to stabilize their economies became a regular feature of the international financial landscape. Poor countries victimized by the “debt trap” became prime targets for neo-liberal economic reforms enforced by the financial community. Therefore, debt became the lever by which the global political economy influenced the destiny of most nations, and the majority of humankind.
The era of neo-liberal globalization was initiated in the Carter administration and fully flowered during the reign of Reagan and his successors. Faced with declining rates of profit, growing economic competition from allies, revolutionary ferment around the Global South, and continued but weakening resistance to penetration from the Socialist Bloc, Reagan initiated a campaign to reestablish U.S. global hegemony to reverse the declining profit rates. Embracing policies very different from the pump-priming via social programs of the 1940s and 1950s the policies of the 1980s radically increased the national debt through massive tax cuts and the largest peace time escalation of the arms race in U.S. history. Huge infusions of money from the tax cuts were channeled into financial speculation instead of U.S. manufacturing.
The tax cuts and the arms build up, created a qualitatively increased national debt. It required the U.S. to borrow hundreds of billions of dollars from foreign investors during the 1980s. Foreign investment in the U.S. soared. With de-industrialization the U.S. economy shifted from producing goods to providing services while huge quantities of goods produced overseas were imported. Negative trade balances which began in the 1970s continued to grow. By the mid-1990s, the U.S., in Greider’s terms (1997), had become the trader of last resort. Despite the enormous annual trade deficits the global economy relied ultimately on the U.S. ability to import the increased goods produced in poor countries.
Foreign policy was intimately connected to international economy. Reagan embarked on a global military program to undermine and overthrow regimes that did not support marketization. “Low intensity” wars, that is wars fought with US weapons and training but not its own troops, were fought in Nicaragua, Angola, Ethiopia, Cambodia, and Afghanistan. The Reagan Doctrine called for the rollback of international communism, including any regime that had relations with the Soviet Union. U.S. massive military spending, perhaps purposefully, drove the Soviet Union to compete which ultimately bankrupted their regime.
In the 1990s, the neo-liberal agenda was encouraged by the United States in the Western Hemisphere with NAFTA, in Asia with the Asian-Pacific Economic Cooperation network, and in the former Socialist states via intense financial support for pro-capitalist leaders such as Boris Yeltsin, President of Russia. President Clinton declared that his foreign policy priority was creating “market democracies.” To that end he engaged in diplomacy and war in the former Yugoslavia, maintained a regular bombing campaign over Iraq, and sought to control Latin American countries through his “war on drugs” in Colombia, managing economic change in Bolivia, military training throughout the continent, and promotion of a hemisphere-wide free trade agreement.
The collapse of the Cold War international system meant the end of resistance to neo-liberal globalization. Even the former Socialist states would be penetrated by global capital. The process of globalization, begun at the dawn of capitalism, had finally reached world-wide dimensions. Economic consolidation and military power had conjoined in a new world order in which opposition from nation-states had almost completely collapsed.
Capitalism by any kind of measure has become more concentrated than ever before in world history (as suggested in Chapter 2). Literally a few hundred corporations dominate manufacturing, retail commerce, and finance. With the growing concentration of capital, the flight of investments from domestic to cheap labor venues overseas, the rise of financial speculation, the rise of Post-Fordism, the shift from government transfers to survival in the informal sector, inequalities in income and wealth expanded within countries and between them.
Reviewing data from Chapter 2, in the United States, wealth and income inequalities had been growing since the 1970s.Rates of poverty have either stayed constant or worsened over the last thirty years as well. In total, a longitudinal examination of wealth, income, and real wages, suggests that the U.S. economy became increasingly unequal and during the period of neo-liberal globalization (from the late 1970s to today), the condition of the vast majority of Americans has either stayed the same or worsened. Neo-liberal globalization may not have been the root cause of the worsening conditions of working people but it surely has not helped them either.
Unfortunately, global data demonstrates a parallel and growing gap between rich and poor everywhere. As reported earlier, nearly half the people on the globe live on $2 a day, and about 1.7 billion people live on $1 a day. The UNDP reported that at the dawn of the new century of the 4.6 billion people living in developing countries, more than 850 million are illiterate, a billion lack access to water, and 2.4 billion lack access to basic sanitation. Nearly 325 million children are out of school and 11 million under age five die each year from preventable diseases.
In 1980, according to a 2001 report by Weller, Scott, and Hersh, median income in the richest countries (top 10 percent) was 77 times greater than the median income in the poorest (bottom 10 percent). By 1999 the gap had grown to 122 times. The numbers of poor had grown from 1987 to 1998. The world’s poorest people lived on 72 cents a day in 1980 and 78 cents in 1999. They concluded that “…the empirical evidence suggest that reductions in poverty and income inequality remain elusive in most parts of the world, and, moreover, that greater integration of deregulated trade and capital flows over the last two decades has likely undermined efforts to raise living standards for the world’s poor” (Weller, Scott, and Hersch, 1).
The International Labor Organization (1999) presented data on stagnation and regression of working class life in Latin America. Virtually no employment growth in the higher wage manufacturing sector occurred between 1990 and 1998 while 85 percent of the new jobs were in the informal sector (informal sector jobs were estimated to constitute 59 percent of non-farm jobs), involving tiny businesses, personal services, and illegal activities. Work in the informal sector was low paid, had no labor protections or benefits. Of course, informal sector workers had no option of joining a labor union.
Meanwhile unemployment rates in the formal sector in Latin America grew in the decade from about 6 percent in 1990 to 8 percent in 1998. Youth and women unemployment in most countries was double or triple the official unemployment rates. Economic desperation existed in the countryside as well as the cities. Massive rural to urban migration continued. In 1980, 66 percent of the labor force lived in cities and by 1998 the total reached 76 percent.
In addition, the ILO reported that workers’ buying power in Latin America dropped. A 1980 minimum wage salary could purchase 27 percent more than a 1998 minimum wage salary. The average income of informal sector workers declined by one percent in the 1990s. In a press release, the ILO indicated that “…while overall poverty levels remained constant or decreased in most countries due to lower inflation and higher output growth, impoverished families continue to suffer disproportionately from the paucity of income opportunities and growing deterioration in the quality of employment (ILO Press Releases, 823/99,2).
In a New York Times article about conditions in Latin America, Larry Rohter wrote: “Almost without exception, economic growth in the region has either slowed or stalled altogether. Unemployment, crime and social violence are growing, as is popular frustration with a nominally democratic political system that has left many of the 350 million people in South America feeling that they are trapped in an endless cycle of stagnation, corruption, and incompetent rule” (April 13, 2002,1).
Finally, trade, one measure of globalization and the spread of the neo-liberal policy agenda, is celebrated by supporters of “free trade” as a vehicle to overcome income and wealth inequality and the lifting of workers from poverty and misery. In a series of impact assessments prepared by Economic Policy Institute researchers, EPI concludes that NAFTA has been a failure. Between 1994 and 2000, 766,000 U.S. jobs were lost due to NAFTA (Scott, 2001). The consequences of such a quantity of jobs lost to lower wage Mexico have included a continuing shift from higher wage manufacturing jobs to low wage service jobs, declining real wages in the mid-1990s and since the beginning of the 21st century, and declining union effectiveness due to reduced membership and continuous threats to move production and service to Mexico.
Paradoxically, the researchers found that Mexico, now exporting more products to the U.S., has not benefited from the capital flight and increased trade. Declining U.S. production jobs meant growth in Mexican employment, primarily in deregulated areas such as the maquiladora zone along the U.S./Mexican border. These low wage jobs by U.S. and Canadian standards were not sufficiently robust to lift workers out of the category of the working poor. Further, with the concentration of new manufacturing in geographically isolated areas, the earnings of workers did not significantly infuse the national economy. Finally, the 80 percent of the working age population of Mexico did not benefit from the new jobs, experiencing stagnating or declining wages.
The EPI reported that while Canada had experienced increased investment and trade since NAFTA, per capita income there had declined and income inequality had risen. Full time employment had declined over the seven years and the basic social safety nets, including national health care, had deteriorated.
EPI concluded that the modest economic recovery experienced in the U.S. and the region in the late 1990s (and since reversed) was not fueled by the predicted increases in trade, job creation, and investment. Rather, they claimed, economic growth was stimulated by expanded domestic consumer credit, brisk buying by U.S. consumers, and financial speculation and growth in the stock market. EPI warned that the Canadian, Mexican and U.S economies depended on U.S. consumers spending more than they earned. “As the air seeps out of that bubble, the cost of those nations’ reliance on the U.S. consumer market is becoming apparent.” The economies of the NAFTA countries in the new century confirmed the EPI projection.
Reviewing the theory and practice of neo-liberal globalization leads to several conclusions. First, globalization has not brought the happy dawn of a new era of bliss to humankind. Any clear-headed assessment of the evidence indicates that in many ways the vast majority of people are leading lives of desperation. Indeed, advances in science, technology, and in public policy have impacted positively on health, education, communication, and transportation. However, at the same time, for the vast majority of the globe income, wealth, and political inequality have grown and the absolute numbers of people living in poverty have stayed the same or worsened.
Second, there is a connection between the downhill slide of humankind in economic, political, cultural and social terms and global public policies. Not only has the neo-liberal policy agenda not worked, but it has exacerbated human misery.
Third, globalization and its impacts are inextricably bound to the historic drive for profit, the very life-blood of the capitalist mode of production. Capitalism is a system that requires growth to survive-investments, production, trade, consumption, and new investments.
Fourth, the full flowering of the process of globalization and its policy agenda, neo-liberalism, was directly related to the collapse of the Cold War international system. The demise of a bloc of states animated by a different vision of economic and social organization, the Socialist Bloc, meant the end to organized resistance to global capitalist penetration.
Fifth, this system of globalization and neo-liberalism, the latest phase of capitalism, has had negative consequences for workers in the capitalist core, in the United States for one, and in the periphery, in Mexico, for example.
Sixth, the process of accumulation spearheaded by the drive for profits encounters a fundamental contradiction. The capitalist system is built on the purchasing of labor power for a wage that does not, indeed cannot given the pressure for profits, equal the value of products produced. Therefore, overproduction and under-consumption are recurring features of the system. Under the conditions of overproduction and under-consumption, rates of profit are subject to decline. With the pressures of competition, declining rates of profit force employers to cut wages or to move production to countries where labor costs are much reduced. Thus the process of globalization inevitably reduces the well-being of workers.
Seventh, economic crisis becomes political crisis when workers and their allies rise up in opposition to their circumstances. Progressive forces are, on the one hand, in disarray and, on the other hand, constructing new global movements against neo-liberal globalization, environmental devastation, war, and worker and other human rights.
Points of contestation include struggles against the imposition of neo-liberalism by states (national campaigns) and global institutions (anti-globalization campaigns). There is no question that both states and transnational institutions are “enforcers” of the new economic policies, whether they use economic or military means. Local living wage campaigns or global campaigns for debt cancellation should be seen as part of the same struggle to overturn the late capitalist order based and its international component, neo-liberal globalization.
Bibliography
Alexander, Nancy C. Financial Times, March 1, 1999.
Greider, William. One World Ready or Not, Simon and Schuster, 1997.
International Labor Organization. ILO Press Release, 1999, 823, 1999.
Payer, Cheryl. The Debt Trap, Monthly Review, 1975.
Rohter, Larry. “A Vicious Cycle: Failures and Instability,” New York Times, April 13, 2002.
Scott, Robert E. “NAFTA’s Hidden Costs,” Briefing Paper, Economic Policy Institute, April, 2001, epinet.org.
Weller, Christian E., Robert E. Scott, and Adam S. Hersh, “The Unreliable Record of Liberalized Trade,” Economic Policy Institute.
TOWARDS A GLOBAL RULING