The Dynamics of Globalization
excerpts from the book
Global Village or Global Pillage
Economic Reconstruction from the Bottom Up
by Jeremy Brecher and Tim Costello
South End Press, 1994
The Third World Alternative
One possible approach to global change was to update the system
of national and global regulation. In response to the increasingly
chaotic global economy of the 1970s, the Third World governments
of the South attempted to initiate such an alternative. Working
through the United Nations Conference on Trade and Development
(UNCTAD), they called for a "North-South Dialogue" to
develop a new International Economic Order" (NIEO). In place
of domination by Northern interests, they called for the regulation
of global market forces in the interest of the development process.
They advocated price and production policies and long-term sales
agreements designed to stabilize the prices of the commodities
they produced. They did not propose to replace capitalism, but
they did insist that the world economy be managed to support the
development and relative self-reliance of poorer countries.
In several rounds of North/South negotiations, the wealthy
nations of the North showed some willingness to discuss such new
arrangements. These discussions culminated in 1981 at a meeting
of 22 heads of government in Cancun, Mexico, where, as Chairman
of the South Commission Julius Nyerere recalls, 'Reagan said 'no'
and that was it. What was very revealing, and very depressing,
was that after Reagan said 'no,' the other leaders from the North
said that was the end.
The New Corporate Strategies
Corporations experienced the economic crisis that began in
the early 1970s as an intensification of international competition
and a fall in their profits. As Jacques de Larosiere, chairman
of the IMF, put it in 1984, there was a clear pattern of "substantial
and progressive long term decline in rates of return to capital"
Corporations increasingly saw the system of national economic
regulation and class compromise as a barrier to increasing their
profits. The solution increasingly came to be seen as cutting
labor and other costs. As de Larosiere delicately put it, there
was a need for "a gradual reduction in the rate of increase
in real wages over the medium term if we are to restore adequate
Faced with intensifying international competition, corporations
began experimenting with strategies to increase their profits
by reducing their labor and other costs. These strategies included
moving their operations to lower-cost locations; transforming
their own structures to operate in a highly competitive global
economy; challenging national policies that increased their costs;
and creating a new system of global economic governance which
supported their other strategies. In short, they initiated the
race to the bottom...
At the core of the new strategy was capital mobility-the ability
to move capital around the world. New transportation, communication,
and production technology helped make this possible, but the process
was largely driven by a wish to lower production costs. As economist
David Ranney writes, "There is a strong interconnection between
capital mobility and the cheapening of the costs of production."
Mobility offers the opportunity " to move to low cost areas"
and "pit the peoples of different nations against one another."
By using the threat of moving as a club, "corporations can
extract wage and work rule concessions from workers in their home
country." And mobility allows companies to challenge or escape
such claims on value as "health care, welfare, and subsidized
housing programs; worker and consumer safety standards; and environmental
The new capital mobility first became highly visible when
First World corporations began to move production "offshore"-primarily
to "export processing zones" (EPZs) in Third World countries.
These were generally in military dictatorships and authoritarian
"development states" with little pretense of democracy.
Some of these countries, notably the "Asian Tigers"
like Korea, parlayed their cheap labor and repressive social control
into rapid economic growth, becoming known as the "Newly
Industrialized Countries" (NICs). East, South, and Southeast
Asian countries experienced annual growth rates up to 37 percent
between 1985 and 1989; Southeast Asia alone received 48 percent
of all foreign direct investment going to developing countries.
The strategy of combining domestic repression with production
for the new global economy spread from the original Tigers to
many other countries, now including communist Vietnam and China.
Restructuring the Corporation
The large, vertically integrated mass production firms that
had dominated the world's markets for most of the 20th century
staggered in the face of the global economic crisis. They were
frequently portrayed as dinosaurs, doomed to die out in competition
with small, nimble competitors. But a recent study by economist
Bennett Harrison provides a very different and far more credible
interpretation of corporate restructuring.
According to Harrison, the "signal economic experience
of our era" is not "an explosion of individual entrepreneurship"
but rather "the creation by managers of boundary-spanning
networks of firms, linking together big and small companies operating
in different industries, regions, and even countries. Big firms
"create all manner of networks, alliances, short- and long-term
financial and technology deals - with one another, with governments
at all levels, and with legions of generally (although not invariably)
smaller firms who act as their suppliers and sub- contractors."
But the locus of ultimate power and control "remains concentrated
within the largest institutions: multinational corporations, key
government agencies, big banks and fiduciaries, research hospitals,
and the major universities with dose ties to business." Harrison
describes this "emerging paradigm of networked production"
as concentration of control combined with decentralization of
production.' Businesses which are unable or unwilling to globalize
are at a great disadvantage, since "The more the economy
is globalized, the more it is accessible only to companies with
a global reach."
Large corporations once had promoted nationally regulated
capitalism, but in the context of deepening crisis they began
to see it as an obstacle to their emerging strategies. Corporate
leaders and the think tanks and economists associated with them
evolved a new public policy agenda designed to overcome this obstacle.
This Corporate Agenda appeared under a variety of labels, including
monetarism, deregulation, laissez-faire, neo-liberalism, and supply-side
Economic policymakers deliberately encouraged downward leveling.
They used high unemployment to fight inflation. They cut wages,
public services, and environmental protection to reduce businesses'
production costs. Unemployment and falling real wages led to declining
consumer demand for products worldwide, and policymakers no longer
tried to counter this effect with Keynesian policies. The "class
compromise" which had given labor and other non-elite groups
a voice in the economic policies of many countries was renounced,
and unions and other popular forces were marginalized in the political
process and in some countries repressed.
Those whose voices were allowed to be heard in policy debates
formed a dominant consensus around a simple but dubious formula:
Each country should reduce costs for labor and government in order
to become "more competitive" in the global economy.
All will benefit because goods and services will be provided by
those whose "comparative advantage" enables them to
produce more cheaply.
In the United States, a political base for the Corporate Agenda
was created by means of an alliance, consummated within the Republican
Party, between large corporations and right-wing formerly fringe
elements expressing racial, gender, and religious resentment against
the social changes of the 1960s and 1970s.'9 While the Corporate
Agenda was already affecting public policy in the last two years
of the Carter Administration, it began to be fully implemented
with the election in 1980 of Ronald Reagan.
As the economic crisis deepened, there gradually evolved what
David Ranney has called a "supra-national policy arena"
which included new organizations like the Group of Seven industrial
nations (G7) and NAFTA and new roles for established international
organizations like the KU, IMF, World Bank, and GATT.
The policies adopted by these international institutions allowed
corporations to lower their costs in several ways. They reduced
consumer, environmental, health, labor, and other standards. They
reduced business taxes. They facilitated the move to lower wage
areas and the threat of such movement. And they encouraged the
expansion of markets and the "economies of scale" provided
by larger-scale production.
The IMF and World Bank. The Bretton Woods Agreement established
the World Bank to help rebuild Europe and the IMF to maintain
fixed exchange rates for currencies, but over time their functions
changed radically. Starting in the 1950s, the World Bank became
a major funder of development projects in the Third World. After
1972, fixed exchange rates were abolished, but the IMF took on
much of the management of the exploding international debt crisis.
As the debt of Third World countries soared, the IMF and World
Bank began to require debtor countries to accept structural adjustment
programs as conditions for new loans. These conditions "neatly
coincide with the agenda of mobile capital and the cheapening
of the costs of production" for global corporations by:
* radically reducing government spending, in order to control
inflation and reduce the demand for capital inflows from abroad,
a measure that in practice translated into cutting spending in
health, education, and welfare)
* cutting wages or severely constraining their rise to reduce
inflation and make exports more competitive;
* liberalizing imports to make local industry more efficient
and instituting incentives for producing for export markets, which
were seen both as a source of much-needed foreign exchange and
as a more dynamic source of growth than the domestic market;
* removing restrictions on foreign investment in industry
and financial services to make the local production of goods and
delivery of services more efficient, owing to the presence of
* devaluing the local currency relative to hard currency like
the dollar in order to make exports more competitive; and
.privatizing state enterprises and embarking on radical deregulation
in order to promote allocation of resources by the market instead
of by government decree.
Most Third World governments abandoned the pursuit of a more
just international economic order and instead acceded to virtually
any conditions in exchange for loan renewals. Their austerity
plans in turn reduced markets for industrial products from developed
countries. Similar "shock therapy" plans were imposed
on the ax-communist countries as a precondition for loans and
In 1994, a group of international bankers, former top financial
officials, and monetary experts from the world's richest countries,
headed by former U.S. Federal Reserve Board Chairman Paul Volcker,
circulated a proposal to give the IMF "a central role in
coordinating economic policies and in developing and implementing
monetary reforms." They argued that "there has been
no reliable long-term global approach to coordinating policy,
stabilizing market expectations, and preventing extreme volatility
and misalignments among key currencies." They proposed several
immediate measures, to be followed by "a more formal system
for managing exchange rates." According to Kenneth H. Bacon
of the Wall Street Journal, "The Volcker commission's plan
would, in effect, require countries to relinquish some of their
economic sovereignty." Powerful interests began lining up
both in support and in opposition to the plan.
The World Trade Organization. GATT was formed in 1948. In
various rounds of negotiations, it established rules governing
tariffs, quotas, and other measures that countries use to protect
a particular industry or sector. Early in 1994, more than 100
member countries, accounting for four-fifths of world trade, signed
an agreement to transform GATT into a World Trade Organization
(WTO). If ratified by their governments, this agreement will create
a powerful center of global economic governance.
The WTO is the product of GATT's "Uruguay Round,"
which began in Punte del Este, Uruguay in 1986. The United States
put forward proposals to radically expand GATT's mission and power,
in effect making it a vehicle for global enforcement of the Corporate
Agenda. The expanded GATT program would pre-empt democratic self-government
at local, national, regional, and global levels by defining such
matters as environmental and consumer protection, labor law, worker
health and safety protection, food security policies, national
industrial planning, plant closing legislation, and restrictions
on foreign ownership of industries as "non-tariff barriers
to trade." It redefines "free trade" to mean the
right of companies to go wherever they want and do whatever they
want with as little interference as possible from anyone. Such
"freedom" for corporations means restricting the freedom
of governments and citizens. The WTO represents, in effect, a
daring global coup d'etat.
GATT in many ways offered an ideal vehicle to implement the
Corporate Agenda. It was dominated by the major trading countries,
who often cut deals in private "green room" caucuses
and then imposed them on a "take-it-or-leave-it" basis.
It was not officially part of the United Nations and therefore
was insulated from pressures that might be brought to bear by
the poorer but more numerous countries of the South. Its activities
were conducted largely in secret. Its mission was restricted to
reducing "barriers to trade." And it wielded the powerful
weapon of trade sanctions to enforce its decisions.
The WTO involves a transformation of GATT's governance structure.
While GATT was a contract among countries whose rules any country
could veto or opt out of, the WTO will be a "legal personality"
like the United Nations or World Bank. Its rules will be binding
on all members.
At the core of WTO power will be "dispute resolution
panels." Any WTO member country can challenge the domestic
laws of any other member as violations of WTO rules. The charges
will be heard before secret panels of three "trade experts"
with no right of citizens or their organizations to testify or
even to observe. A panel's decision will be automatically adopted
within a fixed number of days unless every WTO member-including
the initial complainant-votes to reverse it. If a country's laws
are found to violate WTO rules, the laws must be eliminated. If
they aren't, trade sanctions will be imposed automatically unless
every member country votes against them. The trade panels will
in effect have dictatorial powers over governments. (In May, 1994
the European Union circulated a list of the U.S. laws it wanted
to challenge under the WTO, which included the Marine Mammal Protection
Act, the Nuclear Non-Proliferation Act, food safety laws, California's
Safe Drinking Water and Toxic Enforcement Act, and many others.)
The range of economic activity covered will also be enormously
expanded. While GATT has primarily regulated trade in goods, WTO
rules will cover agriculture, services, investment, and "intellectual
property rights." They will apply to state and local governments-and
any state or local law will be subject to challenge if it is more
restrictive than national law. The WTO will establish ceilings
for environmental, food, and safety standards; national standards
will be subject to challenge if they are higher than the WTO standards
but, incredibly enough, not if they are lower.
The WTO will also intensify the gap between global rich and
poor. According to an OECD/World Bank study, the industrialized
countries will receive 70 percent of the additional income resulting
from increased trade; at the opposite pole, Africa by 2002 will
lose $2.6 billion. "free trade" rhetoric notwithstanding,
little was done to open developed country markets to developing
country products. The WTO can be expected to work hand-in-hand
with the IMF and World Bank to impose the Corporate Agenda on
The treaty establishing the WTO, while portrayed as a vehicle
for eliminating regulation, runs to more than 22,000 pages and
weighs 395 pounds. As Ralph Nader put it, these texts "formalize
a world economic government dominated by giant corporations, without
a correlative democratic rule of law to hold this economic government
Regional Institutions. The era of globalization has also seen
a proliferation of regional "free trade" agreements
and institutions. These institutions generally incorporate large
elements of the Corporate Agenda. At the same time, they have
the potential to serve as regional blocs should the global economy
break down into hostile, competing regions.
In the wake of World War II, the countries of Western Europe
created institutions for regional economic and political cooperation
which eventually evolved from the European Economic Community
(EEC) to the European Community (EC) to the European Union (EU).
Their goals included preserving peace and democracy as well as
reducing barriers to trade.
The EU represents a so-far unique experiment in transnational
governance whose future direction remains unclear. In the era
of regulated capitalism, the EU took on many of the regulatory
functions of a government. It provided extensive support for economic
development in poorer regions and initiated a "social charter"-not
accepted by the United Kingdom-to protect labor and other rights
and standards. In response to the emerging Corporate Agenda, however,
the EU has increasingly become a vehicle for forcing national
governments to admit all imports that meet EU standards, even
if they don't meet higher national standards.
In 1990, US. President George Bush and Mexican President Carlos
Salinas decided to launch negotiations for a Mexican-U.S. Free
Trade Agreement. The initiative came from the Mexican elite, which
had unsuccessfully sought help from Europe in meeting their deep
economic crisis and finally had turned reluctantly to the United
States. Canada, fearing exclusion from the proposed free trade
zone, asked to join the negotiations for what was thereafter dubbed
the North American Free Trade Agreement
The Corporate Agenda had already been affecting economic relations
between the United States and Mexico. Over the course of the 1980s,
Mexico had cut its tariffs from 100 percent or more to less than
10 percent, and over 1,700 US. (and a growing number of Japanese)
companies had established plants employing nearly half-a-million
workers in Mexican free trade zones known as "maquiladoras."
NAFTA's 2,000 pages of details represented in large part a "wish
list" eliminating inconveniences faced by U.S. businesses
that wanted to operate in Mexico. Despite massive opposition in
the United States and Canada and more veiled criticism in Mexico,
NAFTA went into effect January 1, 1994. Other countries, notably
Chile, may enter negotiations to join the agreement
Other regional trade institutions are proliferating. Asia
has the Association of Southeast Asian Nations (ASEAN) and the
Bangkok Agreement. The Pacific has the Asia Pacific Economic Cooperation
(APEC). Latin America has the Central American Common Market (CACM),
the Andean Common Market (ANCOM), the Southern Cone Common Market
(MERCOSUR), and several others. Europe, Africa, the Middle East,
and Oceania provide at least a dozen more. These organizations,
which generally operate in accordance with the rules of GATT,
are creating what has been called "layered governance"
in the global economy.
The New Global Governance
Globalization is bringing out some of the contradictions that
have marked the nation-state system from its beginnings. Even
the regulated democratic national welfare state never adequately
addressed the inherent unreality of absolute state sovereignty
and independence. Nationalist theories notwithstanding, the world
was not made up of distinct peoples living in contiguous territories;
more powerful states dominated less powerful ones; the world was
too interdependent for even powerful states to truly determine
what happened within the territories they governed; markets and
businesses operated internationally and did not necessarily have
the same interests as "their" states and peoples. The
concept of absolute national sovereignty, which continues to be
the basis of most international law, regularly comes into conflict
with such principles as universal human rights and the obligations
of states under the UN Charter.
National governments have ceded much of their power to a "New
Institutional Trinity"-the IMF, World Bank, and GATT/WTO.
These agencies increasingly set the rules within which individual
nations must operate, and they increasingly cooperate in pursuit
of the same objectives-objectives generally indistinguishable
from the Corporate Agenda.
Rather than eliminate national governments, this new system
of global economic governance adds another institutional layer-one
that will at times conflict with national governments and may
sometimes have to bow to them. It lacks the police and military
organizations for dominion at home and war abroad that have characterized
states from their origin. But its ability to impose its rules
on its subordinate parts has nonetheless proved increasingly effective.
Just as the states of early modern Europe often served and
were supported by the emerging class of capitalists, this new
system of global economic governance serves and is supported by
the emerging global corporations. Like the absolute monarchs of
yore, the IMF, World Bank, and GATT/WTO have little formal accountability
to anyone except themselves, but they understand that in reality
their power derives from their alliance with a powerful class.
The functions they perform are more limited than those of conventional
government - limited to the functions that accord with the Corporate
Agenda. Just as the absolute monarchs defined themselves as performing
God's will on earth, so the new system of economic governance
defines itself as a tool carrying out the work of the "invisible
hand" of the market.
Like the absolutist states of the past, this new system of
global governance is not based on the consent of the governed.
It has no institutional mechanism to hold it accountable to those
its decisions affect. No doubt for this reason, it also fails
to perform those functions of modern governments that benefit
ordinary people. It should come as no surprise that, like the
monarchies of the past, this emerging system of undemocratic power
is calling forth revolts.
Village or Global Pillage