In the wake of Seattle, defenders of the neoliberal model of development put forth what seemed to many a compelling new argument in favor of free trade. The Economist dramatically presented this argument–in an issue whose cover bore a picture of a starving Indian child–as follows: “It is as well to be clear about who would stand to lose most if globalization really were to be pushed sharply backward–or, indeed, simply if further liberalization fails to take place. It is the developing countries. In other words, the poor.” We asked four people born and raised in the Third World to respond to this argument: an academic, an activist, a poet and a trade union official. The last three pieces are edited versions of interviews conducted by Nation contributing editor Doug Henwood.
Ajit Singh, who graduated from Punjab University and obtained his PhD at the University of California, Berkeley, is professor of economics at Cambridge University. He has been a senior economic adviser to the governments of Mexico and Tanzania, and a consultant to UN organizations and the World Bank. His new book (co-edited with Candace Howes), Competitiveness Matters: Industry and Economic Performance in the US, is forthcoming from the University of Michigan Press.
Globalization hurts both rich and poor countries.
Academic and non-academic big guns have been wheeled out to suggest that economic globalization–which essentially means free trade and unfettered capital movements–is the only way of achieving fast material progress. The record of the advanced and developing countries under this regime, however, tells a rather different story. The economic performance of industrial countries under globalization in the eighties and nineties compares unfavorably with their record during the “golden age” of the fifties and the sixties, when most of them operated under the “illiberal” and “regulated” regime of the social-market economy at the national level and controlled capital movements at the international level. Consider:
§ GDP growth in the eighties and nineties in industrial countries has been considerably lower than that achieved in the fifties and sixties.
§ Economic growth has not only been lowered during the past two decades, it has also been more unstable, i.e., more subject to booms and busts.
§ Productivity growth in the globalization period has been half of what it was in the golden age.
§ Eight million were unemployed in the OECD countries in 1970. In 1994, there were 35 million unemployed, 10 percent of the labor force. A dramatic illustration is provided by the West German case. The average West German unemployment rate during the last decade of the golden age, 1964-1973, was, amazingly, only 1.1 percent per annum. The corresponding figure during the past ten years of globalization, 1990-1999, has been 9 percent per annum.
Proponents of globalization often suggest that the current mass unemployment in Western Europe is due largely to the inflexibility of the West European labor markets. These markets are contrasted with those of the United States, and it is argued that the superior US unemployment record in the recent period is due to its much more flexible labor markets.
A little reflection will show that the issue is more complex. To see this, consider, for example, labor markets and employment in West Germany and the United States. The former has a comparatively rigid labor market, but this is not only true today, it was true in the golden age. However, in the golden age West Germany managed to achieve full employment, while the United States did not. Moreover, the growth of real wages in West Germany in this earlier period was considerably faster than in the United States. The key to this puzzle lies in the fact that West Germany in that period was growing much faster than at either its current rate or that of the United States (whether now or in the earlier period).
Similarly, fast technological progress cannot be held responsible for the current European unemployment. There is indeed the revolutionary new information and communications technology (ICT) available, but its potential has not yet been realized, precisely because of the slow rate of economic advance in the globalization period. Had actual technological progress been faster, productivity growth should have increased and not decreased, as indicated above.
Turning to developing countries, several Asian countries have been outstandingly successful in terms of economic growth, rises in the standard of living and reduction in poverty during the past thirty years. However, contrary to neoliberal claims, countries like Japan and South Korea, during their periods of fast economic growth, did not operate under a regime of free trade and free capital movements but rather of managed trade and capital controls. Both Japan between 1950 and 1973 (when it was essentially a developing economy) and Korea in the seventies and eighties were definitely export-oriented economies. However, the important point is that although they were “open” to exports, they were not “open” to imports, i.e., they imposed fairly draconian selective-import controls. Both Japan and Korea actively discouraged foreign direct investment–while being fully open to foreign technology–and adopted a vigorous industrial policy rather than let unfettered market forces dictate the priorities and content of economic development.
When some of these highly successful East and Southeast Asian developing countries (e.g., Korea, Malaysia and Indonesia) liberalized external capital flows and undertook other far-reaching liberalization measures in the mid-nineties, they were soon plunged into huge financial crises, virtual meltdowns. Countries like China and India, which had retained considerable capital controls, were able to avoid the Asian crisis despite, in the Indian case, having “fundamentals” that were worse than those of the crisis-affected countries.
Equally significant, the Latin American countries that have obediently followed the Washington consensus since the late eighties, and liberalized their trading and external capital regimes accordingly, have not fared well either. In the nineties they have been subject to “contagion” and fallouts from a series of severe financial crises, such as the Mexican crisis of 1994-95 and the Brazilian crisis of 1999. Their long-term rate of economic growth under this regime has been only about 3 percent per annum, compared with almost 6 percent per annum in their dirigiste period of 1950 to 1980.
Thus economic globalization has been suboptimal from the perspective of both developing and advanced economies. The only important gainers are the multinationals and the big financial institutions, which wish to have unrestrained freedom to move capital and goods anywhere and everywhere on the planet, irrespective of its consequences for the people. Both rich and poor countries would be considerably better off under a cooperative regime of managed trade, controlled capital movements and a social-market economy than under free trade, unfettered capital movements and market supremacy.
The arguments in favor of such a policy can be summarized as follows:
§ The achievement of full employment with steady productivity growth and modestly rising real wages requires a trend increase in long-term economic growth both in the North and the South.
§ The main constraints on fast economic growth in both the North and the South do not lie on the supply side but very much on the demand side. In relation to supply, not only do there exist vast un- and underemployed human resources (i.e., people) but there is also the huge unrealized potential of the ICT revolution.
§ However, such potential growth can only be realized in practice if there is a trend increase in the rate of growth of real world demand. This requires at the international level a coordinated expansion by industrial countries and the introduction of special and differential treatment for developing countries in a number of key spheres.
A global Keynesian regime of managed world trade and controlled global capital movements, together with genuine international cooperation as well as more harmonious relations between employers, employees and governments nationally, is more likely to deliver both fast and high-quality growth than the current globalization regime. Thus there is not only an alternative path to globalization for the world to follow but it is also a better choice. The main obstacles to economic progress lie today in the coordination failures that prevent the attainment of the required rate of growth of real aggregate demand; such coordination failures are ubiquitous in a free-market economy. In order for the trend rate of growth of real-world demand to be compatible with production possibilities on the supply side, institutional renewal at both the national and international levels is required to resolve these coordination problems on a sustained, long-term basis.
Dennis Brutus is a South African poet and activist who speaks frequently on debt and development issues. He teaches at the University of Pittsburgh.
If you look at the agenda of the WTO in Seattle and what it was hoping to accomplish, it was really an expansion of its current program–penetration of the developing nations, further expansion of corporate power there and continued and accelerated exploitation of those regions. So, contrary to the claim that the poor lost out in the failure of the talks, I would say that we saved the developing world from being even more exploited than it is at the present time. Our position from the South is: We’re going to restart; we’ve got to rethink and above all try to change the relationship between the South and the developed countries of the North.
When some unions in the North protest the WTO, it’s because they see themselves and their rights under attack. But on the whole, I think, more and more–and this was demonstrated in Seattle–we have trade unions and workers working with students and community activists and talking about a more equitable relationship, not only in the developed countries but in the developing countries as well.
When the countries of the North say through the WTO, “We want to take down the trade barriers so that we can enter with our investment, with free movement in and out,” they are the beneficiaries. They may claim that the countries of the South are going to benefit–and there may even be superficial benefits, and certainly if there is an elite in a country willing to cooperate there will be a piece of the action for them. But for the mass of the people the situation does not improve. And the medicine that is being offered is going to make the patient worse, not better.
I want to give you an example. All over Africa, and I’m thinking particularly of places like Zimbabwe and Zambia, there was a pretty good indigenous publishing industry in terms of publishing for schools and colleges–textbooks and readers and so on. And often these were paid for by government purchases or government subsidies. But you had a reasonably good educational-publishing situation. Then, the British and American publishing firms move in with a glossy product–more attractive, more expensive to produce, but they can sell it cheaply in competition with the local product–and they succeed in wiping out the local product. So, number one, of course, the product disappears, the local industry disappears; and two, when they now have a monopoly on the market, they can also dictate the price of the product, and they can, in fact, make it so expensive that it becomes inaccessible for most of the people in that community.
As we said in Seattle, no new round, we want the turnaround.
Njoki Njoroge Njehu
Njoki Njoroge Njehu is director of the US 50 Years Is Enough campaign (www.50years.org), a coalition of 208 organizations dedicated to the transformation of the World Bank and the International Monetary Fund, and one of the main organizers of the April protests. Originally from Kenya, she is now based in Washington, DC.
The Economist assumes that the developing countries were not well represented in Seattle. That is not true. I personally was in Seattle and had frequent contact with people from the developing world.
The concerns about the role of the WTO are particularly profound for developing countries. Of course people in poor countries want a living wage. And they don’t want to get sick from pollution. They deserve and desire the same kinds of protections that more “enlightened” workers in the North desire. The problem has been that developing countries have been convinced that the only way they can compete is by accepting low wages, poor environmental protection, few labor rights and no chances for independent organizing. We’ve been convinced that this is what we deserve within the current global economy.
The trade ministers do not speak for the people. They speak for themselves, for an elite. They have benefited from joint ventures with Northern multinational corporations, from the privatization of state-owned enterprises. The majority of ordinary people do not benefit. In our countries, the health systems and the school systems have been devastated. But a few years ago, when President Moi of Kenya got sick, he didn’t have to go to the local hospital–he flew to South Africa for treatment. When the government ministers’ kids need an education, they send them to the North. They have a way out. The majority of the people in our countries don’t.
Northern unions, environmentalists and NGOs have to learn the real meaning of solidarity. They really need to understand that. The HOPE for Africa Act, which Representative Jesse Jackson Jr. introduced last year, had a very interesting provision. It would give US citizens standing in federal court to sue US corporations that were violating US standards on environment and labor rights in other countries. So, for instance, it would make it possible for people in this country who have been working on the Ogoni case in Nigeria to sue Shell Oil for the violation of environmental, labor and human rights in the Niger Delta.
The real story is that the interests of the workers are common. People must understand that their interests are not with capital, with multinational corporations. If people understood, that would make a big difference. Now it seems that people everywhere are fighting for their jobs.
There’s a film called From the Mountains to the Maquiladoras, which shows women from Tennessee going to Mexico to see where their jobs went when their plant was closed. They were angry that people in Mexico had taken their jobs. So they boarded a bus and rode down to Mexico. There’s a poignant moment where one of the women is standing in front of the Mexican factory, with its very green lawn and with sprinklers going–and in the other corner of that shot, you see the shacks where the workers live, shacks next to open sewers. These shacks were made from the cardboard boxes that had been used to ship the factory equipment from Tennessee to Mexico. And the woman starts crying. She realizes that she did not lose her job to these Mexican workers; she lost her job because her employers were greedy. She realizes that her interests are not personal, that they shouldn’t be about just her job–but that she should be in solidarity with these Mexican workers. That kind of people-to-people connection is what we need more of. We saw some of that in Seattle. But I think we all have a very long way to go in understanding one another, in trusting one another.
Of course, there’s a long history of the labor movement in this country being on the wrong side–siding with the US government in many, many places, helping it with its covert and dirty work. So there needs to be a lot of healing, a lot of learning. We need to have the workers of the world unite. Not a new idea, but I think an idea that speaks to the heart of what we need to see happening.
G. Rajasekaran is secretary general of the Malaysian Trades Union Congress.
I don’t think the WTO should be abolished. But reformed, yes. Our approach is, yes, we support free trade. We support certain objectives of the WTO. But make sure it benefits the vast majority, meaning the working people.
Core labor standards are not about wages but about prohibiting child labor or forced labor, like using prisoners to carry out production work. We are not a rich country, but we feel that having core labor standards will benefit the poor countries.
I see ourselves as allies with all workers of the world. If there is competition, it should not be unfair competition like putting children to work at one-third of an adult’s wages. This is unfair competition, which is not right, and it also is not benefiting consumers. You know, some US companies contract out and produce branded products in Third World countries. But the people who have gotten the jobs do not benefit; they’re just working for meals. And the companies bring the products back and sell them at the same price in their own country.
In the past two years we have been invited to participate in some of the consultation processes at the World Bank as well as the IMF. We believe that when they lay down conditions, they seem to be talking only about corporations and businesses and tax systems and so forth. But they should also look at ways in which they can achieve the goal they say they are interested in: how to eradicate poverty all over the world.