Shopping Till We Drop
The core contradiction in the global economy--enduring overcapacity and inadequate demand--is usually obscured by the more visible dramas of financial crisis because it is located in the globalizing production system, the long-distance networks of factories and firms that produce the goods and services flowing in global trade. Corporate insecurity--the fear of falling behind, the need to keep driving down costs, including labor costs--is what generates globalization's greatest contradiction. Alongside energetic expansion and innovation, the system generates vast and growing overcapacity across most industrial sectors, from chemicals to airliners. My favorite example is the auto industry, which in the spring of 1998 had the global capacity to produce 80 million vehicles for a market that would buy fewer than 60 million. This excess sounds irrational (as it is), considering that the multinationals are esteemed for sophisticated strategic management. Yet each corporation decides (perhaps correctly) that it has no choice but to disperse and expand production for survival--moves that seem smart and necessary in their own terms but that collectively deepen the imbalances of overcapacity and quicken the chase for new markets. So we witness the recurring episodes of giddy overinvestment by firms, investors and developing nations, followed by financial breakdown. Then the process regains momentum and repeats itself somewhere else.
The overcapacity is further deepened by the "Washington consensus" enforced by international lending institutions. The doctrine pushes more and more countries to pursue the export model of development pioneered by Japan, except without any of Japan's equalizing features--the social guarantees, full employment and minimized income inequality--or the protective measures that insulated its infant domestic industries from foreign competitors. The global system instead encourages countries to ignore or actively suppress labor rights and regularly opposes public-sector investment as a wasteful impediment to growth. Unlike developing Japan, South Korea or Taiwan, which shielded their producers, the new exporting nations are told they must keep their borders and financial systems wide open to foreign interests--that is, hostage to the global system--so they are unlikely to achieve the earlier success of Japan or the "tigers." The plain fact is that too many poor nations are now betting their futures on export-led growth--too many for most of them to succeed. These pro-capital, wage-retarding policies contribute substantially to insufficient demand worldwide, the flip side of overcapacity or overinvestment. One can now appreciate why the US market is so essential: If America taps out, who will buy all this stuff? The immediate pain would probably be felt most severely in poorer countries, which would lose their meager shares in global trade.
Actually, the remedy does exist for the United States to correct its lopsided trade flows swiftly and defuse the potential for global crisis, but it's not a measure Washington is likely to employ, given its pretensions as pre-eminent promoter of free-market dogma. The international rules of trade recognize the right of any nation that's sinking into a debt trap to impose emergency import limits to stop the financial drain (this is not regarded as protectionist unless it targets individual countries or products). Article 12 of the original GATT agreement of 1948 still authorizes this step to stanch the bleeding, but in fifty years it has seldom been used. Developing countries in trouble typically have found themselves unable to use the measure, since it would ignite retaliation from investors and trading partners. However, because it is the largest market, the customer everyone needs, the United States would be in a very different position, with enormous leverage. Yet the United States may also be past the point where it can introduce such a wake-up call. The political shock to an already fragile system might itself produce panic and crash.
What US authorities can and should do--but undoubtedly won't--is face up to the worsening condition with a frank, public recognition that compels their foreign counterparts to do the same. The mere mention of Article 12 by Washington would make for a sobering moment. If trading partners were faced with the threat, they could in theory work out an agreement for gradually correcting the US trade imbalances. The bulk of the problem, after all, is concentrated in a handful of trading partners: Japan, China, Canada, Mexico and Western Europe generate more than 80 percent of the deficit. More likely, these nations would stall, convinced that the United States was bluffing, as usual. Then Washington would have to work out, unilaterally, a step-by-step schedule for raising the bar--slowly curbing its import volumes so that others would have time to adjust and pick up the slack in demand.
Here at home, the imperative facing the United States is to discard the open-armed cold war economics, cut the losses and redefine the national interest in more pragmatic terms. This will require deep changes in domestic life, as the nation attempts to shift from high to low consumption, from low to high savings policies. That transition is sure to be most unpopular in shopping-mall America and, given the gross inequality in incomes, will feel like stagnation or worse for the many families already deeply indebted. Thus an aggressive politics devoted to equality and to restoring public aid and equity will become even more essential, as will a new environmentalism that directly attacks the wastefulness embedded in modern production and consumption. There is plenty to go around in America, and there would be even more if we didn't throw so much away.
The US government must also begin to re-examine its obligations to the multinationals, like Boeing and General Electric, that call themselves "global firms" but rely on America and its taxpayers as home base. The multinationals typically plant a foot in one country, then export components to another location in the production chain, then do final assembly somewhere else and sell the product in many other places (or perhaps only in the United States). If GE is telling its jet-engine suppliers to move to low-wage Mexico, as it is, why should US taxpayers provide so many forms of subsidy to this company? Reducing the large abstractions of globalization to such hard-nosed particulars will get their attention and also clarify the relationship. The national interest should not be defined as enhancing returns for shareholders, with no obligations to broader values.
Indeed, the same principle ought to apply everywhere in the global production system, for poor nations as well as rich. The reforms that impose national and community obligations on companies will not halt the processes of integration or trade, but they will change the choices for company managers in very positive ways. As standards are imposed on their behavior, the multinationals will be compelled to give more scrupulous and long-term consideration to where they invest their capital. Globalization may slow overall, but it can also become a deeper, more permanent creation.