The Party of Davos | The Nation


The Party of Davos

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Consistent with a deal among the rich and powerful, NAFTA made the distribution of income, wealth and political power more unequal throughout the continent. In all three countries, wages in manufacturing fell behind productivity increases, shifting income from labor to capital. Ordinary Mexicans especially went through the economic wringer--to which the willingness of hundreds of thousands of them to risk their lives each year crossing the border continues to be tragic testimony.

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Jeff Faux
Jeff Faux is the founder and now Distinguished Fellow at the Economic Policy Institute. His latest book is The...

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Mexico's troubles illustrate the destructive effects of NAFTA's neoliberal economics.

On the other hand, opportunities blossomed for the rich and powerful in all three nations. American and Canadian investors got access to cheaper labor and privatized Mexican companies, while Mexican oligarchs got to broker the deals. One example was the way NAFTA was used to open up Mexico's banking system to foreign ownership, profiting elites on both sides of the border.

The governments of Carlos Salinas and his successor, Ernesto Zedillo--hailed in Washington as great free-market reformers--privatized government-owned banks, turning them over to business cronies, and, through NAFTA, revoked the legal ban on foreign ownership. When the banks started to fail, they were given huge government subsidies to make them attractive to transnational buyers. At the same time, the "reform" government was slashing subsidies to the poor for food and medicine.

Banamex, the country's second-largest bank, was bought by a Mexican syndicate, owned by Salinas pal Roberto Hernandez Rodriguez, for $3.2 billion and when, thanks to NAFTA, foreigners were allowed to own Mexican banks, it was resold to Citigroup for $12.5 billion. Robert Rubin negotiated the deal for Citigroup, where he had gone after leaving the Treasury Department. The Mexican government's welfare program for Citigroup and other foreign investors continues: In 2003 government subsidies to private banks (more than 85 percent of them now owned by foreigners) were almost three times those spent on roads, schools and other infrastructure.

NAFTA was only the beginning. The Clinton/Republican alliance then pushed through the WTO agreement and the subsequent deal with China that traded off more US industrial jobs in exchange for protections for US investors in that huge Asian market. Not only has this produced a massive trade deficit with China and further downward pressure on US wages, it has also sent some 250,000 jobs from Mexico to China. The ubiquitous Citigroup, with banking operations in 100 countries, is now busy building its Chinese banking empire--with Chinese partners.

That well-connected people who move in and out of government and business act in ways that benefit their class and take advantage of their contacts to further their own interests is neither illegal nor new. That's the way class privilege works. Thus, it is unlikely that Dick Cheney ever ordered anyone at the Pentagon to give a huge sole-source contract to Halliburton. He did not have to. Procurement officers already knew the relationship between the company and the Vice President. And Cheney's promotion of more funds for the military and for the war in Iraq in particular was bound to benefit the world to which he belonged--his circle of rich and powerful people who would always be there for him and his projects.

There are of course important differences between the ways the elites of the different parties promote the Davos agenda. The preferred instruments of Rubin Democrats are the economic levers of the US Treasury, the IMF, the World Bank and other international financial institutions. Rumsfeld/Cheney Republicans prefer the Defense and Energy departments. The Rubin mode is certainly less lethal and probably more effective. Still, Davos relies on the Pentagon to protect its class privileges with a worldwide web of military bases, training schools and the always-present threat to send in the Marines. It's worth remembering that virtually the only section of Saddam Hussein's law still untouched by the US occupation is its oppressive labor code.

But the twin pillars of the US superpower--the Pentagon and Wall Street--are slipping into their own crises and soon may not be able to provide the military and economic muscle for the Davos agenda.

The crisis on the military side involves blowback from the overreach in Iraq. Bush, Cheney and Rumsfeld--despite their thick transnational corporate connections--have created a disaster for Davos. The war has unleashed an army of enemies of Western modernization that is making global corporations nervous. Two years ago the wiser heads at Davos were appalled at Cheney's delusional report on the Bush Administration's progress in turning the Middle East into a shopping mall--however much they might have sympathized with the objective. Today the mess in Iraq has revealed to Davos both the incompetence of the American governing class and the unwillingness of the American electorate to make the sacrifices necessary to act as security police for the world's rich and powerful.

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