For the next few weeks I will be posting chapters from my upcoming book, Economic Globalization for People of faith. I am in the midst of a rewriting of much of it, so comments are welcome.
Stan Duncan,
Chair of the Jubilee Justice Task Force____________________________________________________________
GLOBALIZATION: THE GREATEST STORY OVER SOLD
“I can calculate the movement of the stars, but not the madness of men.”
– Sir Isaac Newton, after losing a fortune in the South Sea bubble
“There are only two families in the world as my grandmother used to say: the haves and the have nots.”
—Sancho Panza, Don Quixote de la Mancha, Miguel de Cervantes (Human Development Report, UNDP, 2005)
I once knew a woman in one of my churches who had never been to college, had two dear little kids, and was not married. The father of her children (whom she never married) was in the family for a while, but when responsibilities of fatherhood got too large for him, he left. And because they were never married, he managed to avoid any child support or alimony payments. When I knew her she lived with her three children in a one room efficiency apartment and she “made ends meet” by working three paper routes and spending very little. One of the ways she survived was by relying heavily on places like Wal-mart for family clothes and household supplies.
Wal-Mart had been very good to her. She and her children lived on approximately $20,000 a year, which wasn’t much even then. But at Wal-Mart she was able to clothe all three of them, plus buy toys and much of her groceries, for under a hundred dollars. And she had been doing that for several years, ever since the father had left and they had fallen into their desperate situation.
One day, during our regular Wednesday morning Bible study, the subject of Wal-Mart came up. Someone in our group had seen a piece on TV about protests in Mexico over Wal-Mart’s plans for building a store on the site of one of the Aztec pyramids. I waxed for a moment about what little I knew about some of Wal-Mart’s unsavory practices overseas. How it tries to portray itself as a “buy American” company, yet its private label clothes are manufactured in at least 48 countries around the world. How it imports a whopping 10% of all of the clothing produced in China. And how working conditions in China are among the worst in the world. Most of China’s clothing is sewn by girls or young women (they are frequently fired at 25 for being too old), they often work seven days a week, often past midnight for 12 to 28 cents an hour, with no benefits. They are housed in crowded, dirty dormitories, 15 to a room, and fed a thin rice gruel.[1]
My friend was stunned. “But Wal-Mart is a good place,” she said. “I don’t know what I would do without Wal-Mart. I don’t know how I could survive without Wal-Mart. It can’t be bad.”
My friend’s situation captures one of the real dilemmas in the discussions about economic globalization: The present model of international trade which is practiced with a vengeance by the US and other wealthy countries clearly does harm to a great many people. Those who are trying to change it, whether through protests in the streets or letters to elected leaders, have every reason to do so. However, for others it just as clearly does good. Greater access to cheaper goods has been a tremendous benefit to families like my friend and her kids. And in many places around the globe, the growth in manufacturing and exports has created new jobs and helped lift many from poverty.
It is safe to say that “liberals” in the church tend to see mostly negatives in globalization and conservatives see mostly positives, but the reality is much more mixed. And in the end the percentages are not important. Even if the present rules for governing the global economy benefited ninety percent of the world and harmed only ten percent (and that would be a hard case to make), we should still be concerned. As Christians, our mandate is to stand with that ten percent. Christ calls us to feed the hungry and clothe the naked, whether their numbers are high or low, and we need to keep that in mind when we are discussing ways to “tweak” the system, change it, or blow it up altogether.
Definitions
A short definition of economic globalization is “The trans-national increase in trade and capital transfers across national boundaries.” That’s a mouthful, so let’s define our terms. First, “trade,” as most of us learned in our high school or college Economics 101 class, is simply the buying and selling of goods and services, in this case across national boundaries. To a greater or lesser degree, people have been doing this for thousands of years. Today’s international trade, however, is different from that of earlier ages, if for no other reason than its sheer size and impact on the nations involved, about which we will say more below.
The second item in our definition is “capital transfers,” something that is huge on the global scene, but beyond the scope of this book. Usually when we think of the global economy we think only of trade and “free trade” deals (NAFTA, CAFTA, WTO, etc.). But what few of us realize is that the transfer of “capital,” meaning financial trading and speculation on the value of money itself, is far larger. To get a sense of its size, in 2005 the annual world exports of goods and services were about $7 billion, while cross border transactions in money (“capital flows”) were about $1.5 trillion (that’s trillion, with twelve zeros). And the amount of money that is traded around is increasing at an amazing rate. From 1980 to 2000 capital transfers from country to country grew by more than 6,500 percent.[2] So, when we talk about the issues of trade and free trade treaties, (the central topics of this book) we need to remember that in reality the transfer of money across borders is far larger than the transfer of goods.
Because most of this book will be about the rules and impact of trade in commodities, here is a brief word on the importance of trading in money for all of us. A portion of the movement of money is for what is known as “foreign direct investment” (for example, when a corporation purchases shares in a foreign factory), but most of it is simply speculation on the value of money. Think, “gambling.” Some call it “Casino Capitalism.” Investors, speculators, Currency traders, literally bet on the rise (or fall) of the value of currency on the global markets, selling now when they think it is going to go down and buying when they think it will soon go up. This element in the global economy is seldom mentioned in the business pages of our local papers, but it is a phenomenon that has ballooned in recent decades as regulations on capital transfers have been reduced or eliminated all over the world and it is now is larger than all of the other international financial transactions combined. It was a contributing factor in the worsening of Argentina’s 1999-2002 recession, and the key factor in creating the horrendous collapse of many South East Asian economies in the late 1990s. The Asian countries had just restructured their economies in a number of ways to make themselves more attractive to western investors. They had, for example, eliminated restrictions on the flows of money in and out of their countries, they allowed high domestic interest rates (to make the return for foreign investors higher), and they pegged their currency to the US dollar (to assure foreign investors against risks).
In the short term, these measures resulted in an explosion of new money flowing into the countries, creating a sharp (but shallow) boom in economic growth. Even though large amounts of foreign capital were rushing in, a dangerously small amount of it ever made its way into the “real” economy, such as manufacturing or farming. Instead it went to high yield, high risk sectors like the stock market, consumer loans, and real estate. The economy looked good, but with so many of the controls and regulations on money flows eliminated, the boom was far more fragile than anybody thought. People were in effect betting on the growth of the growth, creating a “bubble.” Things appeared good, so they invested in appearances, making the appearances appear even better.
Beginning in 1997, first in Thailand, then in other countries of south east Asia, investors and financial institutions began to realize that they, and the countries they had invested in, were dangerously over-extended and they began pulling their money back out again. As soon as the trend began it created a withdrawal frenzy, with each investor racing to pull its money out the fastest with the smallest loss, but in the process creating a cataclysmic currency crisis that essentially bankrupted the economies of south east Asia. Within months millions of people lost their jobs; tens of millions had drops in income. Factories closed. Wages were cut. Food riots broke out. The Indonesian government fell (which, by the way, was not a bad thing). The IMF rushed in with the largest financial bailout in history (with, of course, its usual business-friendly strings attached). This crisis ricocheted across the globe and shook the financial ground under countries as different and as far away as Brazil.
This story is important to keep in mind when we in this book (and others) speak of “economic globalization” mainly in terms of the rules of trade. It illustrates that the movement of money alone, and not just goods and services, can be a dramatic force in the global economy.
The last words in our definition are “trans-national” and the phrase “across national boundaries.” The world has always known some level of international trade. Phoenicia in the 12th century b.c.e. traded with Israel and other countries all over the Mediterranean Sea, perhaps even as far as Portugal and France.
Excursus: The Institutions Shaping Economic Globalization
There are three institutions that play a key role in shaping economic globalization:
· The World Bank provides governments with long-term, low-interest loans for economic-development projects. It also promotes foreign private investment, for example, investments by U.S. firms in developing countries.
· The International Monetary Fund (IMF) facilitates international trade and investment by promoting international monetary cooperation. While the World Bank makes long-term loans, traditionally the IMF makes short-term loans to aid countries facing financial difficulties.
· The World Trade Organization (WTO) makes the rules governing trade between countries, enforces these regulations, and adjudicates disputes between countries over trade and investment matters. It is the first international institution with authority to enforce a national government’s compliance with its rules.
In many ways the IMF and World Bank operate like other financial institutions—they make loans and expect repayment with interest. In addition these institutions also make grants (not to be paid back) to some low-income countries. Like other lenders, when considering a loan for a particular project, they first evaluate the proposed project and the potential borrower. Since World Bank and IMF borrowers are governments, this means they commonly assess the economic condition of countries. Before a loan is made the World Bank or IMF often requires changes in a country’s economic policies and conditions, for example, a reduction in government spending or opening to foreign investment. Since banks and multinational corporations often follow the lead of the IMF and World Bank in evaluating the economic health of a country, compliance with IMF or World Bank directives may be an unavoidable precondition for obtaining a loan from nearly any source. Consequently when these institutions instruct a country to make particular economic changes, most countries feel compelled to comply. Member countries vote on decisions made by these institutions, but each country does not have one vote. Rather, votes are proportional to the amount of money each member country has contributed. For example, the World Bank has 184 member countries. The U.S., as the world’s largest economy and largest contributor to the World Bank, also has the largest number of votes—16 percent of the total. By comparison, Germany, France, and the United Kingdom each have between four and five votes, while Japan has eight.
—Adapted from A Faithful Response: Calling for a More Just, Humane Direction for Economic Globalization,
a pronouncement adopted by the United Church
of Christ General Synod XXIV, 2003.
In fact even during the so-called “modern” era (roughly since European industrialization), our present burst of globalization is often spoken of as the second great wave, not the first. Look back a hundred years or so during the age of colonization of the global south by the north and you’ll see that in many ways the world was more tightly integrated than it is now. People could travel without a passport, the gold standard was an international currency, and technology (cars, trains, ships, and telephones) was making the world smaller at a pace that resembles today’s. An economist, named Norman Angell, wrote in 1911, that war had become impossible because economic integration meant that people were too economically dependent on each other to get bogged down in such old fashioned disputes. That was just a few short years before the worst, bloodiest war in generations. A contemporary version of this famously incorrect statement is from Thomas Friedman, one of the most articulate supporters of the present day version of globalization. In his 1999, The Lexus and the Olive Tree, he wrote what became known as the “Golden Arches Theory of Conflict Prevention”: “No two countries that both had McDonald’s had fought a war against each other since each got its McDonald’s.” The comment was meant to be tongue in cheek and to argue that the more economically integrated we are the less likely we are to go to war because of the damaging economic consequences of the conflict.[3] Critics have questioned his linking together trade and the absence of military conflict (I have a cat and an absence of elephants—but does one cause the other?), but we clearly know now that economic integration increases our vulnerability to crashes and increases their depths when they inevitably come.
But while in many ways we have always been economically integrated, the differences between early and modern “globalization” are so great as to almost constitute a different reality altogether. One difference is the sheer size of today’s trade. No matter how much trade and transportation took place between nations in our ancient past, there has been nothing in the history of the world that has come anywhere close to the explosion in economic growth that has taken place since 1950. Before that date, not even the most powerful nations grew at more than around 1-2 percent per year. But after that time a number of countries have doubled, tripled, and quadrupled that speed. Japan’s leap was from 1950 to 1973, Korea’s was from 1973 to 1990, and China’s was (is) from about 1990 to 2009 (when it began to slow with the global downturn). The most recent waive of economic integration began in the mid-seventies and continues into the rocky present. It was caused by what later became known as the international debt crisis, which will be the focus of a later chapter.
A second difference is the relatively small role being played by the individual nations themselves. It is impossible to over estimate how much we live today in an anti-government, pro-business, environment. Compared to that of our forebears, we live in an almost totally business oriented and business driven culture. So much so that many critics refer to our present international economic structure as “corporate globalization,” not “economic globalization.” It is a corporation-determined model, not a social, or governmental, or moral model. Moral questions of right and wrong and good and evil are defined and determined by whether they help or hurt the “business climate” of the wealthy classes of virtually all the nations of the earth. The governing bodies of individual countries (whether elected or not) play an increasingly weaker role in issues of trade and planning for growth, while independent, non-transparent, non-democratically ruled corporations play an increasingly powerful one. It has come to be almost an article of faith of both political parties in the US that huge, powerful, non-transparent, international corporate bureaucracies are better equipped to make economic decisions that effect human health and safety and the environment, than democratically elected and accountable national officials.
“[T]he world’s corporate and political leadership is undertaking a restructuring of global politics and economics that may prove as historically significant as any event since the Industrial Revolution. This restructuring is happening at tremendous speed, with little public disclosure of the profound consequences affecting democracy, human welfare, local economies, and the natural world.” — The International Forum on Globalization |
In this unusually business-friendly age, it is less and less likely that one country will arrange trade deals with another, and more and more likely that two (or more) corporations will arrange the deals and then go to their respective countries’ governments to have them pass the laws to make the deals legal. It is also increasingly likely that the corporation itself will be stateless and not have a “home” country at all. A modern trans-national corporation may have offices and production facilities in a dozen countries and swear allegiance to none. For example, most of us would think of “Fresh Del Monte Produce” as a venerable old US company. However, today’s Fresh Del Monte grows its produce in twelve countries, processes them in eight, and is owned by a middle easterner named Mohammad Abu-Ghazaleh, who doesn’t live anywhere near the US. It does maintain an office in Coral Gables, Florida, but it is incorporated in the Grand Cayman Islands to avoid paying US taxes.[4] So what exactly is the “nationality” of this company? To whose laws is it accountable? And does it matter?
Trend Micro, producer of computer protection programs, is similar. It keeps its main virus response center in the Philippines (with six other labs scattered from the Far East to Munich). Its “official” financial headquarters are in Tokyo. Its product development is in Taiwan. And its major source of sales is in the United States. So, what nationality is this company?
The numerous financial crises of 2008 further dispersed ownership. During the October global bank failures and bailouts, Banco Santander of Spain, bought out America’s Sovereign Bankcorp, Japan’s Mitsubishi bank bought a major portion of Morgan Stanley, and three separate groups—Qatar, the Olayan family of Saudi Arabia, and Israel’s Koor Industries—came together to purchase a controlling interest in Credit Suisse of Sweden.
I recently purchased a new condominium arranged by a mortgage company in Weymouth, Massachusetts, who immediately sold the loan to a holding company in Florida, who then sold it to another in Ohio, who packaged it with dozens of other loans and sold it on the international market. Now, my loan is “serviced” by an entirely unrelated company and God only knows where the original loan is. Chances are that a portion of it was purchased by the financial center of Iceland (which went bankrupt last year) and used as leverage for a loan from the Royal Bank of Scotland, to invest in a securities firm in Thailand that insures subprime loans in southern California. So, when the US federal government made the unwise decision in September, 2008, to spend hundreds of billions of dollars to buy up bad home loans and insure them, it got immediately slapped in the face with reality: To whom does it make out the check?
One of the most visible ways that the trans-national nature of the modern corporation touches the lives of Americans is in the rise of “outsourcing,” the sending of jobs to low-income countries to save money on healthcare, safety, labor, and taxes. It is an ongoing extension of the statelessness of the global market. A generation ago “outsourcing” of a sort occurred mainly to blue collar workers in textile and manufacturing jobs as plants in the northeastern US “Rust Belt” closed to move to poor rural communities in the southeast. Then, beginning about twenty to twenty-five years ago those jobs began to be outsourced beyond our borders, mainly to poor communities in northern Mexico, and later still, all over the globe.
Today, with the global rise in such things as college degrees and technology, the job losses due to outsourcing have moved up the economic ladder and are now affecting a wide array of mid-level professional jobs. Business Week journalist, Kathleen Madigan, has written that today over thirty percent of American private sector jobs are at risk of being shipped overseas. “And that doesn’t count back-office functions such as accounts payable, marketing and sales, and human resources that exist in U.S.-grounded industries such as retailing, health care, and recreation. All of them could be shipped overseas in the name of cost-cutting.”[5] Nearly everyone either feels personally that his or her job is precarious and exportable or knows someone whose is.
Not only are modern corporations stateless, but because of that they answer to no one, and they have economies larger and more powerful than many of the countries which host them. If we think of the gross sales of a corporation as roughly the equivalent of the Gross Domestic Product (GDP) of a country, then among the world’s 100 largest “economies,” 51 of them are actually private businesses. The combined sales of the world’s top 200 corporations are equal to 28 percent of the total GDP for the whole world.[6] Corporations make their own trade policy; they effectively set domestic policy, and (though are loathe to admit it) they buy and sell votes of politicians to do their will. It’s interesting to note that while the Republicans controlled Congress, donations from multi-national corporations poured into the re-election campaigns of Republican legislators. But following the return to Democratic control in 2006, the money made a rapid shift to Democrats. Corporations do not support a particular party. They support whatever will increase their income. They are secret societies, non-democratic in governing structure, and prefer non-democratic countries in which to do business.[7] Their above-the-law nature is an ongoing concern of many people of faith, consumer advocates, and human rights organizations, but in the corporate, governmental, and media communities their size and influence is consistently portrayed as a benign blessing that blesses us with a bounty of goods (that is, until their CEOs go to jail in scandals, but then only temporarily).
It is difficult for most of us in Middle America to grasp the magnitude of the power that major corporations have over the lives of innocent people in poverty stricken countries. One good example is a coffee purchasing arrangement between the giant Swiss corporation, Nestle, and the countries of Mexico and Vietnam. When most of us think of Nestlé we probably think of chocolate. If you are “of a certain age,” you will remember their old jingle of the sixties, singing the letters out loud, “N-E-S-T-L-E-S… Nestlé makes the very best…Chocolate.” But today it is also the largest buyer of coffee in the world, especially for its instant brand, Nescafé (now “Nescafé Taster’s Choice”). In the late 1990s, Nestlé told its Mexican coffee suppliers that it was moving its accounts to Vietnam where it could save money because labor was cheaper. Prices paid to Mexican farmers were already rock bottom, so initially Mexico decided to accept the loss. In anticipation of the new contracts and huge sales, Vietnam responded by putting millions into retooling its coffee plantations and they increased production that year by 55,000 tons. Eventually, however, Mexico blinked and agreed to lower its prices (one more time) to coffee growers, so Nestlé pulled back on its Vietnam deal and purchased only 4,500 tons of Vietnamese coffee and otherwise remained in Mexico. So, the end result was that Mexican farmers lost because of one more cut in prices, Vietnamese farmers lost because of over-production which drove down their profits, and Nestlé made a killing.[8]
The “Washington Consensus”
Over the years the present reigning model of economic globalization has acquired a variety of names: “Thatcherism” (after British Prime Minister, Margaret Thatcher), “Reaganomics” (after President Ronald Reagan), “Friedmanism” (after University of Chicago economist and radical free market guru, Milton Friedman), “Neo-liberalism,” and recently, the “Washington Consensus.” That name emerged in the late 1980s when a Washington think-tank economist named John Williamson, published an article for his colleagues that attempted to pull together a consensus of agreed-upon policy prescriptions of economic technocrats based in Washington, DC. He called it (unsurprisingly) the “Washington Consensus.” His term (though not necessarily its specific contents) took on a life of its own and became short-hand for the radical vision of a deregulated and privatized free market that is now worshiped as divine truth by the major economic and media powers of the world. They speak of it as though it is the only model for global economic growth and world health that God could or would have ever created. To be fair, the fact that the Washington Consensus prescriptions actually failed in dozens of countries and created enormous poverty and suffering, and that they exacerbated a number of financial crises, has begun to wear on some of the proponents of the Consensus dogma. But for the most part it’s vision still reigns as the primary path to the Kingdom for most government officials, international financial institutions, and mainstream media.
Today few people continue to call it by that name and for a number of political and economic leaders, many of its prescriptions are no longer in vogue. Because punishing Consensus rules were tied to so many loans from the IMF many middle income countries have pushed themselves to pay off existing loans and then back out of the international loan system altogether. There is even talk among countries of the global south of creating a more humane version of the IMF that stresses people and the environment over northern corporate interests.
The term’s fall from grace probably began with the incredibly painful southeast Asian economic meltdown, caused in large part by their slavish adherence to Washington Consensus policies. The IMF (and other financial institutions) had pushed the Asian countries to lower their controls on the flow of capital in and out of their countries, and when they complied, that action contributed to their downfall. When the crisis hit, the IMF conditioned its “aid” on policies that worsened the crisis. They demanded that the governments raise taxes, lower social spending, sell off national assets, and open up financial markets to even further speculation. The crisis ballooned under this advice, causing incredible suffering. Martin Wolf writing in the Financial Times, described the IMF's policy prescriptions as “little more scientific than for a doctor to bleed his patients.” It is estimated that in 1997 over $100 billion left the economies of Indonesia, Philippines, Thailand, Malaysia, and South Korea, crippling their economies and driving tens of millions of people into poverty.
Even the IMF, the most strident of any of these institutions, began to soften its prescriptions after that and to at least talk a different way about enforcing its requirements. However, many analysts have described the newly reformed IMF as “Washington Consensus lite.” For example, even though it changed the name of its harsh “Structural Adjustment Programs” to the “Poverty Reduction and Growth Facility,” for the most part it still pushes the same gut wrenching policies. In 2002 the IMF released new guidelines for the way it would impose debt relief conditions on poor countries. The language appeared to signal a change of heart toward more humane requirements, but in reality little changed. A report from Eurodad, the European Network on Debt and Development, found that, from 2002 to 2007, IMF conditions neither changed in number or in kind. “During the first two years after the Guidelines were approved,” they wrote, “the Fund attached an average of 12 conditions per loan granted to a poor country. After the 2005 review, our research found that the number of conditions increased to an average of 13 conditions per loan.” [9]
Williamson himself complained some years after his initial article that over-zealous promoters in some of these financial institutions—those with a near-radical ideological economic agenda—had taken over his term and contorted it into it a much more harmful and punishing model than he himself had intended. He described their version of his program as “laissez-faire Reaganomics—let’s bash the state, the markets will resolve everything.”[10]
These policy prescriptions (coming mainly from the US Treasury, the IMF and World Bank, but agreed to by many others) have frequently been described by both supporters and critics alike as harsh and painful. The difference being that supporters say that they will eventually produce great benefits and critics are not that certain. Today, after thirty years of forcing these prescriptions on poor and developing countries, there is increasing evidence (some of which we will discuss in more detail later) that those countries who followed the rules closely grew little or not at all and those who ignored them, or adapted them to their local situations, grew a lot.
Globalization’s Theological Values
Before looking at the consensus prescriptions themselves, it is helpful for people of faith to note that Williamson’s original list was based on an underlying philosophy that was not—unless lobbied to be so—concerned with historic issues of the church, such as poverty, the environment, human rights, or even democracy. Williamson later commented specifically on the omission of poverty alleviation, saying that he intentionally avoided any reference to it in his original list because such issues were simply not discussed in the political culture of the Reagan Administration and the list could not have represented a “consensus” of views had he attempted to include it.[11] Perhaps one of the things that people of faith need to add to their list of activist goals for the twenty-first century is encouraging our nation’s leaders to return hunger, poverty, human rights, and the environment to the top of our foreign policy agenda.
For many, the “consensus” rules became so revered that they have occasionally been spoken of as though they had become a religious faith. The principles of free markets, deregulation, privatization, and lowering of tariffs took on an aura of a religion. These principles are occasionally referred to as “Market Fundamentalism,” and the religious sound to that title is no accident. George Soros, a financier who made billions in global transactions and is now one of its harshest critics, calls the consensus and radical unfettered free trade in general the “dominant belief in our society today.” He says that it is a slavish trust in, and loyalty to, the “magic of the marketplace,” and is driven by a “human emptiness” that cannot be filled by more and more goods and services. “Unsure of what they stand for,” Soros says, “people increasingly rely on money as the criterion of value…The cult of success has replaced a belief in principles. Society has lost its anchor.”[12] Bill Moyers, on the PBS program, Now, described it as “the ruling religion of America…Its god is profit. Its heaven is the corporate board room. Its hell is regulation. Its Bible is the Wall Street Journal. Its choir of angels is the corporate media. You’ve got a religion in this country of free markets that is established in the political culture as well.”[13] Management guru, Peter Drucker, says that “it idolizes economics as the be-all and end-all of life.”[14]
Pronouncements from many religious organizations have described globalization in similar religious categories. A resolution in my own denomination’s national gathering, known as a “General Synod,” also called it “a form of idolatry.” The resolution noted that in the hearts of some of its adherents, modern globalization “has developed its own totalizing, systemic view of the world, with clear definitions of good and bad, articles of faith, rituals of worship, and standards for salvation.” [15]
Seeing globalization as an “idol” is helpful because something becomes an idol when it demands worship in the form of absolute trust and loyalty. We trust it as something that gives our lives meaning and value and then we are loyal to its cause. When we trust and receive meaning from the God above all gods, then our loyalty is to the cause of reconciling the alienated and healing the broken of the planet. When our trust is in an economic system that preaches individual gain and individual competition, then our loyalty is to a cause of self interest and greed. There are many who have become so immersed in the belief system of free trade that they no longer think of it as one system among others, but as the structure of life itself, the structure of life as God intended it. Milton Friedman, the patron saint of many of the more extreme adherents of the free market used to say that markets themselves can never fail. They are absolute. They can be trusted to (eventually) always do the right thing in an almost morally intentional way. In his obituary, fellow economist, Paul Krugman, paraphrased his thinking as having two points: “that markets always work and that only markets work.”[16] That description represents an absolute faith in a market system and an unwarranted belief that it can never fail. When something in the economy does fail, Friedman would say, it is because of the humans who did not trust the system enough. Human failure (“sin”?) in free markets is what causes suffering around the globe, not the absolute, all wise, all powerful market.
The “Rules” of Economic Globalization: Where Everybody but the Majority Wins
So what are some of the creedal “beliefs” behind the “religion” of globalization? Williamson’s original list had eight (later ten, then twenty) policy prescriptions, some of which would be considered mainstream by most economists and barely controversial. For example, some were designed to keep down inflation (which is bad because it depresses investment and growth) by limiting the size of the fiscal deficit as a share of the GDP, or limiting the growth of money, or having a realistic foreign exchange rate. Another was a requirement that a country not run too large of a current account balance as a share of its GDP. A country—like people—can’t for long spend more than it takes in. In the colloquial words of Jim Weaver, a UCC pastor and economist at American University, you need to “cut your cloak to fit your cloth.”[17] Most of these suggestions were relatively non-controversial. (In fact some are such good advice that one wonders why our own federal government does not follow them.)
However, there are other global economic “rules” [18] in the consensus that seemed to have been driven more by a theological ideology (“bash the state” is the chief moral “good” of humankind) than by empirical evidence or standard economics. And these are the rules on the list that are of most concern to people of faith, development specialists, and justice activists in general.
One of these is the “requirement” that a country open up its economy by eliminating quotas and tariffs and local subsidies so that their local fledgling businesses can compete on what was euphemistically called an “even playing field” against huge, often subsidized, multinational corporations. That description sounds biased, but I believe it is what happens in practice. It’s an odd fact of international trade deals that poor developing countries are often required to lift their subsidies long before the wealthy developed countries are asked to do so. Mexico, for example, followed that pattern with the signing of the North American Free Trade Agreement (NAFTA) and (among other things) within just a few years its one-thousand-year-old history and culture of corn production was in ruins. Hard working indigenous farmers found that with their own subsidies eliminated they could not compete with highly subsidized US agribusiness farmers, who now dominate their market.[19] According to a study of the effects of NAFTA on Mexico, “two million campesinos were forced off their land in the first two years of NAFTA alone… Accelerated imports of cheap corn made Mexico dependent on US agribusiness for one-fourth of its consumption of basic grains. But these cheaper imports did not reverse the decline in per capita food consumption as incomes fell after an estimated one million workers lost their jobs in 1995.”[20]
In India, the removal of quotas on imported, subsidized commodities and the removal of domestic subsidies for local commodities has had an even more tragic result. For the last ten to fifteen years, in the south central region of India there has been an epidemic of farmers committing suicide. Each day the papers carry grizzly news stories of farmers who have lost money on their crops year after year after year until finally, in that very traditional, honor-shame society, they have taken their own lives rather than face the shame of utter ruin. Usually by eating their pesticides, sometimes falling on their hoe, sometimes worse. It’s an epidemic that has been growing for years now, and its toll is measured in the tens of thousands.[21]
Of course, there are a lot of causes for growing poverty in Mexico, India, and elsewhere, and not all of the reasons relate to you and me, but this one does. Our country and many countries in northern Europe, following the free market principles in the Washington Consensus and advocates like Milton Friedman, have been strongly pushing India and other developing countries to drop their tariffs on imported goods and lower their subsidies for local farmers, while at the same time we have been increasing the subsidies we pay to our own farmers. The 2008 US farm bill is a good example. Even after tremendous work by non-profit organizations such as Bread for the World and Church World Service, and thousands of letters generated by local church activists, the US Congress still increased the majority of big financial subsidies on the commodities that have been undercutting the prices of poor farmers around the world for decades. It’s also hard to deny the connection between these huge subsidies and huge campaign contributions that our national politicians (of both parties) receive from the big agri-business conglomerates. The vast majority of subsidies go to the wealthiest 10 percent of Americans, who are also the most important donors to reelection campaigns. The Presbyterian Church (USA) released a report following the 2004 election that found agribusiness donations to Congress at $52,593,698, the second highest after health institutions. By comparison, total donations from environmental protection organizations came in distantly at around $2,000,000.[22]
Precise numbers of how much the US pays for subsidies are hard to come by, but in 2005, during World Trade Organization negotiations, the US offered to lower its overall subsidies to only $22 billion! That’s a lot of money still and, as it turns out, in the end the US failed to keep that promise. The US and other wealthy countries argue that subsidies are needed to protect our own poor farmers from the “dumping” of cheap products from poor countries grown by farmers who can undercut us because they only make a dollar a day. But in actual practice our subsidies do the opposite. They are “free” money that encourages producing more than what the market could naturally absorb. They create an incentive for our farmers to over-produce a handful of select crops—mainly wheat, corn, rice, and soybeans—and then allows us to “dump” them on the world market at prices that can’t be matched even by starving farmers in India, Africa, and Latin America. Following a simple “supply and demand” principle, our over-production puts more products on the market, which then depresses world prices, which out-competes the prices of poor-country famers, which then lowers their incomes. If they sell their crops at all they have to sell them at a price under our subsidized price. Ultimately, then, our subsidized over production is one of the contributing factors in the poverty of millions of farm families who are unable to compete with us.
A second “rule” is for a country to “liberalize” (open up) its financial markets and eliminate controls on capital flows. This is similar to the requirement that countries lift the tariffs and other controls on the flow of commodities into the country. It is an article of faith among globalism’s supporters that lifting regulations on money in and out of a country will increase foreign direct investment, promote economic growth, and lift the poor from their poverty. A number recent of studies have shown, however, that the evidence is spotty on whether “liberalizing” and deregulating money contributes significantly to economic growth, but the evidence is ample that it actually causes harm to the poor.[23] One way that works is like this: a deregulated environment in which fortunes are made and lost gambling on the value of exchange rates creates a more volatile, unstable economy. When the inevitable crisis occurs, the government will inevitably step in to bail out a financial institution that was damaged in a transaction (think of the savings and loan scandals in this country, and the Penn Square scandals of a generation ago). That bail-out in a poor country is inevitably paid for by cutting back on public expenditures, typically for health care or education, which means it mainly harms the poor.[24] In addition, high-income people have always had much better access than poor people to such things as “capital flight,” with which to protect their money, thus creating an unequal distribution of suffering during a crisis.[25] When the economy turns downward, the wealthy and well connected (almost always the same people) can invest their money in external banks where the interest rates are still high. Poor people have no such resource.
Incidentally, following the deregulation of controls on the flow of capital that took place in the 1980s, capital flight by the wealthy became a major drain on the economies of developing countries. What the IMF economists said at the time was that lifting controls and regulations on the movement of capital would indeed result in the wealthy more easily sending their money abroad, but that it was necessary evil for the long-term health of the global economy, and that it would be a one-time-only occurrence. Both claims have been found to be false. According to a report by the European Network on Debt and Development (EURODAD) after this type of economic restructuring took place, developing countries lost roughly 8 times as much in capital flight as they received in foreign aid, and the trend continues every year. In fact, poor and developing countries still lose between $500 billion to $800 billion annually. Not much by standards of, say, the war in Iraq, but huge in terms of the needs of poor developing countries. At the UN’s 2002 “Financing for Development” Summit, the developed countries responded to this issue by pledging to work towards “an enabling domestic environment” for “mobilizing domestic resources, increasing productivity” and “reducing capital flight.” And in 2005 they once again condemned the curse of capital flight and urged the UN to “support efforts to reduce capital flight and (increase) measures to curb the illicit transfer of funds.” So far, however, none of that has happened.[26]
A third “rule” in the Washington Consensus list of prescriptions for globalization is that to compete in the global economy, a state must privatize all of its public assets. Again, many might agree that some state enterprises in some countries are bloated and should be streamlined or sold to save money and to make them more competitive. But underlying the ideology of “market fundamentalism,” seems to be a distaste for any government of any kind. The movement’s intellectual mentor, Milton Friedman, has gone so far as to call for the end of all government programs (except the military and police), including Medicare, Social Security, national postal service, minimum wage, national parks, public education, and even water.[27] Williamson says that those with the “bash the state” mentality believe that by attacking the very structures of government itself, they are doing something noble. They believe they are, in his words, “storming the citadels of Statism.”[28] Things like national sovereignty, democracy, and government are seen as simply evil on their face, while free markets and corporation-led globalization are seen as totally good. Joseph Stiglitz, past Chief Economist for the World Bank, says that “in this model there is no need for government—that is, free, unfettered, ‘liberal’ markets work perfectly.”[29] Unsurprisingly, the results of this policy of selling off public assets were mixed. In countries where there were already solid financial institutions, sound information access, and complex markets in place, it had some level of success. In poor undeveloped countries where none of these existed, the results were massive layoffs, sharp rises in prices of staples, and over-all horrific suffering.
While it is true that governmental structures in many poor countries are often top heavy and overly regulated, the theology of “market fundamentalism” says they must privatize radically and rapidly, a so-called “Shock Doctrine,” which is more than a little dangerous in the real world. The consequences have often been horror stories of too-rapid sell-offs at bargain basement prices, without putting in place the human protections from the inevitable damage (the robber baron take-over of Russia is the most extreme example, but there are others). The purveyors of globalization’s rules seem unconcerned or unaware of the potential damage. Canadian journalist, Naomi Klein, tells a story of a time in 1994, when Jeffrey Sachs, an economic advisor to Boris Yeltsin, addressed an international conference on the future of post-Soviet Union Russia. In the audience were distinguished economists and finance ministers from all over the world and their task was to hammer out the posture of their countries and the international financial institutions toward this new, but giant, nation. All who were present, including Sachs, were neoliberal, free market adherents, who believed strongly that Russia must rapidly sell off all of its national assets in order to join the ranks of the capitalist countries of the world. Sachs had just seen some success from giving similar advice to Poland and was prepared to try it again. However, he had also recently returned from Russia where he had seen how precarious their society was and he was concerned. He told them that in order for Shock Therapy to work, there had to first be an international infusion of aid, along the lines of the “Marshal Plan,” which went to rebuild Germany and Japan following World War II. He said that only hundreds of billions of dollars would forestall an economic nightmare that might engulf the entire nation. That much aid seems high, he said, but would not be much if spread out among a number of countries, and the benefit would most likely be a rising star economy along the lines of what happened to Germany and Japan. On the other hand, he said, without such aid to cushion the blow and protect workers and food production during the transition, the results would be catastrophic. He mentioned the possibility of a Hitler-like despot coming to power, civil war, mass starvation, and remilitarization. He finished his speech, received an applause, and sat down. And then the conference went on for four more days and not one speaker, or one workshop, ever again mentioned the possibility of financial aid to “cushion the blow” of privatization in Russia. The grim reality he discovered was that in this distinguished and influential community, the idea of protecting a nation from starvation or despotism was on nobody’s mind, on nobody’s heart. Helping markets function efficiently was their concern (something that could happen if a few “oligarchs” took over everything), preventing a humanitarian disaster was not.[30]
In the first five years following the rapid sell-off of the state enterprises, more than 80 percent of Russia’s farms went bankrupt, roughly seventy thousand state factories closed. Before shock therapy, 2 million people in the Russian portion of the USSR were living in poverty, after it the number rose to 74 million. By 1996 almost 37 million people had fallen to the level of desperate poverty. Not a shining legacy of how such an accepted, promoted economic theory is supposed to come out in practice.[31]
Joseph Stiglitz, who is himself a moderate on these issues and who was once a part of the World Bank decision-making apparatus, argues that large-scale privatization can be a good thing when done as a part of a comprehensive set of reforms which include creating new jobs for the laid-off government workers and new regulations on the management of the newly privatized companies. Otherwise, he says, what is created with the new firm are massive layoffs, a rise in fees and a decline in services, the kinds of things that did in fact happen in the case of Russia.[32] He says that the problem is that international financial institutions like the IMF (and occasionally the World Bank[33]) focus their advice solely on saving money with which to balance the national “check book,” while they should (and we also should) be looking at the overall results, which include unemployment, alienation, anxiety, increased street crime, and family violence.
Another highly publicized example of a disaster of privatization was when the World Bank pressured the government of Bolivia to sell off the public water system in the northern city of Cochabamba, to a consortium of utility and engineering firms led by the California engineering giant, Bechtel. Owner, Riley Bechtel, you may recall, was appointed to President Bush’s Export Council, which advises the president on how to create markets for American companies overseas. The Bechtel company itself later received one of the largest no-bid contracts in history to help reconstruct war-damaged Iraq. Immediately after it took over the water system in Cochabamba, the price of water rose 35 percent, up to about $20 a month. That may seem small to us, but most of Cochabamba made about $100 a month, and $20 was more than they paid for food. Soon protests broke out. Over 1,000 heavily armed police were called in. they fired into the crowds. Many were injured, some died.[34]
The good news in the Bolivian story is that at the end of the conflict, the government fell and an indigenous president was elected for the first time in over a hundred years. Something akin to democracy may be rising out of the tragedy in that country. But why does it have to come to that? Why is it that the “elected” officials of so many countries feel more beholden to the World Bank and corporations like Bechtel than they are to their own people?
A final and closely related rule in the Washington Consensus was deregulation of trade and finance. We’ve already spoken of both of these earlier, but they are clear indicators of the overall stance of the presently worshiped model of globalization and where people of faith might stand in contrast. On the one hand, those who promote neoliberal, free trade, globalization often argue that deregulation, like the other rules in the “consensus,” is not only good for business, but will eventually be good for the poor as well, on the other, many of them also admit that the benefits to the poor must necessarily lag fairly far behind the benefits to the rich. Eventually, they say, one of these days, the poor will (might) begin to realize some of the benefits that we presently are giving almost exclusively to the rich.
To this, progressives in the church and elsewhere could make two arguments. First, this is a modern day “economic eschatology,” that is, it argues that the condition of the present is suffering, but when the kingdom finally arrives all people will eventually be fed. However, as followers of the one who fed the multitudes and had compassion on the harassed and helpless, how can we in good conscience support an intentional condition of misery that will necessarily occur between now and then? Even if it could be proven that over-feeding the wealthy would eventually feed the poor as well, how can we look in comfort at what globalization does to the poor now while waiting for the benefits to trickle down?
The second response is that there is ample evidence that this claim, that the poor will eventually receive benefits, simply isn’t true. One 2003 study, using data from the World Bank, the IMF and the UN, looked explicitly at the impact of deregulation of trade and financial markets on the poor. They found that while it usually benefited trade, it seldom benefited the poor. The authors tested the impact of increased deregulation on the incomes of poor people and found that “global deregulation of trade and capital markets does hurt the poor [and that] trade flows, in more regulated environments, may be good for growth and, by extension, for the poor in the long-run.”[35] That is, trade itself isn’t bad, but in order for it to trickle down to the poor, the government needs to regulate the environment to distribute the benefits to the lower income brackets of society. Otherwise trade will create a two-tiered society of fabulously rich and desperately poor. In addition they found that “income inequality between and within countries” went up as countries deregulated their economies. They noted that “in 1980, median income in the richest 10 percent of countries was 77 times greater than in the poorest 10 percent; by 1999, that gap had grown to 122 times. Inequality has also increased within a vast majority of countries.” [36]
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Excursus on “Neo-liberalism”
We’ve talked a lot about the present model of economic globalization and other terms used to describe it, including “free markets,” the “Washington Consensus” and others. One of the most often used terms used among activists and the global south is “Neo-liberalism.” It can be very confusing, especially if you try to understand it by identifying it with the word “liberal” as used in the US. They are related, but not the same. However, understanding Neo-liberalism’s own meaning and history can help us gain a better picture of what the modern global economy looks like.
First, one must distinguish Neo-liberalism from its more familiar cousins, social, political, or religious liberalism. They are linguistically related but in practice quite different. In a bit of an oversimplification, one could say that liberalism in general refers to being free of conservative constraints on behavior or beliefs. With political or social liberalism, one thinks of civil or human rights movements, which sought to free African Americans or people in other cultures from “conservative” bonds of oppression. In biblical liberalism, one thinks of people being freed from the constraints of “conservative” biblical interpretation. And so on.
Economic liberalism arose in Europe in the 18th Century with the publication of Adam Smith’s ground-breaking work, The Wealth of Nations. In it he presented a “liberal” view which opposed government constraints in all economic affairs: in manufacturing, commerce, tariffs, and so on. This was an early form of what is now called “free trade.” Economic liberalism prevailed in most developed countries of the west for most of the 1800s and 1900s, until the Great Depression and World War II. Following those upheavals, many began to believe that at least a portion of the world’s economic and military miseries were caused or influenced by their alienating, isolating, “liberal” capitalist, economic theories. Led by British economist John Maynard Keynes, the developed countries of the world began to exercise more control over their economies and became more of a force for economic growth. In essence, Keynes said that one of the keys to the growth of a capitalist society was full employment, and that could only happen if governments intervened by spending money, adjusting interest rates, regulating currency transactions (that is, the speculative gambling on the rise and fall of the value of money). President Roosevelt accepted this basic philosophy and based much of the “New Deal” on it. The importance of this idea for the future of the American psyche in the mid to late decades of the 20th Century cannot be over stated. It enhanced, if not created, a widely held belief that America consisted of one people, who supported one another, rich and poor, and that it was the role of the government to help that vision by redistributing wealth for the benefit of the “common good” of all. There were, of course, many who disagreed with this economic philosophy (which came to be known as “Keynesianism”) but it came to be the generally held notion of the US as a whole for the next twenty-five years.
By the beginning of the 1970s, corporate profits were getting smaller and business deals were getting more cutthroat. We will talk later about how at this point many US banks began going overseas to poor countries of the global south looking for investment opportunities, and how that effected the beginnings of the present debt situation. But for now, it is important only to know that the crisis also inspired corporate leaders to begin lobbying to revive the old model of economic liberalism, the hands off approach of government to the economy. “Deregulation” became the emerging term for the ideal economic model. In the eighties, with the rise of the administrations of Ronald Reagan in the US, Margaret Thatcher of Great Britain, and Helmut Kohl in West Germany, the move to decrease the role of governments and increase those of markets gained strong allies. It was a return to the “liberal” hands off, deregulated, economic model, but now with the prefix, “neo” (meaning “new”) applied to the term. Even though it hearkens back to an older pre-depression era economic liberalism, it is also very new (or “neo”) in that it projects that older vision onto the world on a grand scale. In addition to constraining governments and freeing markets, there are new wrinkles such as cutting taxes for the wealthy and cutting social programs for the poor. And it has become the only model of development recognized by most of the political and business classes in the US and the global north.
[1] “Wal-Mart and Sweatshops,” http://www.nlcnet.org, 10/22/02.
[2] Doug Henwood, “The Americanization of Global Finance,” NACLA Report on the Americas, Vol. XXXIII, No 1, pp. 13-20. Gerd Häusler, “the Globalization of Finance,” Finance & Development, March 2002, Volume 39, Number 1.
[3] In the 2000 paperback edition, he writes, “I was both amazed and amused by how much the Golden Arches Theory had gotten around and how intensely certain people wanted to prove it wrong. They were mostly realists and out-of-work Cold Warriors who insisted that politics, and the never-ending struggle between nation-states, were the immutable defining feature of international affairs, and they were professionally and psychologically threatened by the idea that globalization and economic integration might actually influence geopolitics in some very new and fundamental ways.” The Lexus and the Olive Tree (New York: Anchor Books, pb. 2000), p. 251.
[4] Anthony Depalma and Diana B. Henriques, “Lawsuit Says Del Monte Sale Was Rigged,” The New York Times, December 19, 2002.
[5] Kathleen Madigan, “Outsourcing Jobs: Is It Bad?” BusinessWeek, August 25, 2003.
[6] The Top 200: The Rise of Corporate Global Power, Sarah Anderson and John Cavanagh, (Washington, DC: Institute for Policy Studies, 2000), p. 2.
[7] “Globalization Survey Reveals U.S. Corporations Prefer Dictatorships,” R.C. Longworth, International Herald Tribune, November 19, 1999.
[8] Gerard Greenfield, “Vietnam and the World Coffee Crisis: Local Coffee Riots in a Global Context,” SAND IN THE WHEELS (n°121), ATTAC, March 27, 2002.
[9] Nuria Molina and Javier Pereira, Critical Conditions: The IMF maintains its grip on low-income governments (EURODAD: April 2008), P. 4.
[10] John Williamson, “What Should the World Bank Think about the Washington Consensus?” World Bank Research Observer, v15 no2 (Ag 2000) p. 4.
[11] John Williamson, Ibid., p. 251-64.
[12] Quoted in Wayne Elwood, No-Nonsense Guide to Globalization (Ontario: New Internationalist Publications, Ltd, 2001), p. 17.
[13] Now. Public Broadcasting System. Interview with author and economist Thomas Frank. Broadcast February 1, 2002.
[14] Peter Drucker, Managing the Next Century (New York: Truman Talley Books/St. Martin’s Press, 2002, 149-50. Cited in Robert White, biblical Economics: Economic Myths versus Biblical Values (Lanham, MD: University Press of America, 2006), p. 4.
[15] “Calling for a More Just, Humane Direction for Economic Globalization” (GS 23, 2001).
[16] http://www.nybooks.com/articles/19857
[17] Description from an unpublished speech at Brandeis University, October 2002.
[18] Words like “rules” and “requirements” are occasionally placed in quotes because, while the wealthy countries and financial institutions would argue that they are merely prudent fiscal policies suggestions, they certainly feel like requirements from the perspective of the poor countries who have had the rules forced upon them.
[19] Tim Weiner, “Corn Growing In Mexico ‘Has Basically Collapsed’ As U.S. Imports Flood Country,” The New York Times, March 8, 2002.
[20] The Other Side of Mexico #69, Sept.-Oct. 2000, cited in Economic Justice Report, “Towards an Economy of Hope: Proclaiming Jubilee!” Volume XII, No. 1, April 2001.
[21] Bhuwan Thapaliya, “India’s Dilemma: Farmer’s rising suicide rate” Global Politician, December 9, 2007, http://www.globalpolitician.com/23847-india.
[22] Food, Agriculture, and Democratic Participation, Presbyterian Church in the USA, 2005.
[23] See for example, Alexander Cobham, “Capital Account Liberalisation and Poverty,” Working Paper Number 70, Finance and Trade Policy Research Centre (April 2001). “While the growth benefits of liberalisation are far from clear for poorer countries, there may be significant costs in poverty terms.”
[24] See Cobham above and also Mark Weisbrot and Dean Baker “The Relative Impact of Trade Liberalization on Developing Countries” (Washington: Center for Economic and Policy Research, June 12, 2002).
[25] Christian E. Weller, and Adam Hersh, “The Long And Short Of It: Global Liberalization, Poverty And Inequality” (Economic Policy Institute, June 2003).
[26] “Capital flight, tax havens and development finance” (EURODAD, 2006), http://www.eurodad.org/debt/?id=2190.
[27] Milton Friedman, Public Schools: Make Them Private, Cato Institute (Briefing Paper No. 23, June 23, 1995). Also see Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism (New York: Henry Holt and Company, 2007), p. 69.
[28] John Williamson, “What Should the World Bank Think about the Washington Consensus?” World Bank Research Observer, v15 no2 (Ag 2000) p. 4.
[29] Joseph Stiglitz, Globalization and its Discontents (New York: Norton, 2002), p. 72.
[30] Klein, Shock Doctrine, p. 300.
[32] Stiglitz, Op. Cit., pp. 54-59.
[33] Tellingly, this past chief economist for the World Bank criticizes the work of the IMF far more frequently than he does the World Bank.
[34] William Finnegan, “Leasing the Rain: The world is running out of fresh water, and the fight to control it has begun,” The New Yorker (August 8, 2002). “Bolivia: The Water War Widens,” Jim Schultz, NACLA: Report on the Americas, Vol. XXXVI, No. 4, January/February, 2003, pp. 34-35. See also Wallace H. Ryan Kuroiwa, “Privatizing Water: Profits Over People,” in Privatization: A Challenge to the Common Good (Cleveland: United Church of Christ, Justice and Witness Ministries, 2003), pp. 4-5.
[35] Weller and Hersh, Op. Cit., p. 2
[36] Ibid., p. 4. Emphasis added.
