The Flawed Debate

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

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Free Trade

The terms of the public debate on international economics have been set primarily by those who portray themselves as advocates of "free trade." These advocates include the overwhelming majority of economists, business leaders, politicians, and experts of all kinds whose quotes and sound-bites appear in the media. Their arguments have been crucial in justifying the New World Economy.

Free Trade and Globalization

Free traders argue that removing barriers to trade reduces economic inefficiency and thereby benefits all. They generally base their argument on the classic economic doctrine of "comparative advantage." If each nation specializes in those activities in which it is most productive, total wealth will be increased. Italy's climate is superior for producing wine and Jamaica's superior for producing sugar, both will be better off if they specialize where they have a "comparative advantage" and then trade the products. For Italy to try to produce sugar and Jamaica wine is simply inefficient and irrational.

This argument is used over and over to justify "free trade" agreements like NAFTA and GATT and to condemn government efforts to regulate trade. Yet it has become less and less relevant in the era of globalization.

As corporations have become global, goods and services are increasingly produced in "global networks" of large corporations and their dependent suppliers. The "United States" or 'Japanese" computers that "U.S." or "Japanese" companies "trade" are actually produced in dozens of countries by corporate networks that include companies in both the countries that are supposedly "trading" with each other. If a "U.S." company contracts with producers in Japan, Indonesia, Columbia, and China to make and assemble an athletic shoe, which it then sells in 100 countries, who is trading with whom? It has become misleading to portray national economies as separate units that produce goods and services and then trade them with each other.

Even the doctrine of "comparative advantage" itself is growing less and less relevant. Fewer and fewer products are subject to much "comparative advantage" in the sense of an inherent advantage for one country: General Motors or Toyota can set up essentially the same car factory with virtually the same productivity in the United States, Mexico, or China. Of course, it is possible to consider cheap labor, poor environmental protections, and low social costs as "comparative advantages." But if the search for "comparative advantage" leads production to move where such "advantages" are greatest, the result is not the benefit of all but rather a race to the bottom.

Free Trade or Freedom for Capital?

Classic free trade doctrine was about trade-goods and services produced in one country and exchanged for those from another. But a major part of the "trade debate" - and the bulk of the new "trade agreements" like NAFTA and GATT - are far less about reducing barriers to trade than about reducing barriers to the movement of capital. Yet freedom to move capital is constantly spoken of as a matter of freedom of "trade." In 1982, Harry J. Gray, then Chairman and CEO of United Technologies Corporation and one of the architects of the Corporate Agenda, gave a masterful example of this sleight-of-mouth "We need conditions that are conducive to expanded trade," he argued. Then he non sequitured to: "That means a worldwide business environment that's unfettered by government interference." GATT-ese accomplishes the same result by labeling regulations on investment as "Trade-Related Investment Measures" or "TRIMs. "

Free traders generally wrap their arguments in the language of "free market" economics-the doctrine that all governmental and social practices which "interfere" with free market exchange should be reduced to a minimum. They argue in effect that public policy and social practice should aim to maximize the production and consumption of exchangeable goods and services. They call for eliminating government activity that interferes with the profit-maximizing dynamic of the market.

Today's free traders promote this view on a global basis. They call for a world economy in which all forms of public regulation of private economic enterprise are severely restricted or even banned. They define such matters as environmental 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 "interference with free trade." Restrictions on such "interference" form a major part of so called "trade agreements" like NAFTA and GATT.

Defending Free Trade

Free traders follow three rather different approaches to reconciling their doctrine - rooted in the era of nation-based economies - with the realities of globalization.

One approach is simply to speak as if nothing has changed. For example, to support NAFTA and GATT the Clinton administration poured out reams of economic projections showing how much reductions in tariffs would increase U.S. trade, production, and jobs. They were largely silent about the thousands of pages in these agreements devoted to protecting capital mobility, limiting local, state, and national governments, and creating regional and global institutions of economic governance. The administration's constant theme has been "the United States can compete successfully in the global economy"-as if "the United States" were still an independent economic entity.

A second approach is not only to acknowledge but to celebrate the decline of the nation state and the rise of an unregulated New World Economy ruled mainly by markets. Walter Wriston, former chairman of Citicorp, compares the decisions made by currency traders at "200,000 monitors in trading rooms all over the world" to the democratic election of government officials. "Everyone is in control through a kind of global plebiscite on the monetary and fiscal policies of the governments." He acknowledges that, "Even though Americans have accepted the ballot box as the arbiter of who holds office, this new global vote on a nation's fiscal and monetary policies is profoundly disturbing to many." But Wriston sees the replacement of "the power and privilege of sovereignty" with market-based "discipline on the economic policies of imprudent governments" as positive. "The new system punishes bad monetary and fiscal policies almost immediately."

A third approach recognizes that a market needs rules and that a global economy in fact requires global governance. It therefore supports an activist role for institutions like the IMF, World Bank, and GATT. But it deceptively wraps this activist role under the label of "free trade." Much of what is advocated as "free trade" is in fact nothing but a false labeling of the Corporate Agenda-the establishment of global rules and governance structures, albeit totally anti-democratic ones.

The Downsides of Free Trade

"Free trade" in its various applications has contributed mightily to the "seven danger signals" described in Chapter One. It opens the starting gate to the race to the bottom. It dismantles the non-market structures that could counter the downward spiral. It countermands efforts to correct the polarization of rich and poor. It sanctifies the erosion of democratic governance. It argues for multifaceted "freedom" for global corporations. It legitimates unaccountable global institutions like the IMF, World Bank, and GATT as merely vehicles for enforcing "free trade." It promotes an uncontrolled economy which provokes its victims to see extremist nationalism as the only alternative.

Even in terms of the advantages usually claimed for it, a global free market is a questionable system. While in the short-term deregulation may increase competition, the long-term effect may well be to increase monopoly. Already, global deregulation under the banner of "free trade" is producing transnational mergers, joint ventures, and collusive arrangements between customers and suppliers, suggesting an emerging pattern of cartelization. No global anti-trust policy forestalls such a development.

Nor is the evidence clear that a global free market actually supports economic growth Worldwide economic growth averaged almost 5 percent per year in the era of "regulated capitalism" from 1948 to 1973. In the following fifteen years it averaged only half that-despite the revolution in technology and the globalization of the economy. In the years after 1989 global growth slowed to a trickle.

When public policy and social practice seek solely to maximize private profit in the market, they slight other values of great significance. These include:

* democratic decision-making

* environmental protection

* social caring

* equality

* human solidarity

* community stability

* individual and family security

* long-term public and private planning and investment

* dignity in the work process

* goods and services consumed collectively

* cultural diversity

Surely these are among the "broad human interests" that an economic system should seek to sustain.

Nationalism

If "free traders" advocate a global free market, "economic nationalists" advocate using the power of national government to strengthen the national economy in its competition with other national economies. Ways to do so range from activist trade policies to public investment to war.

Activist Trade Policies

For hundreds of years, governments have found ways to favor "their" producers against "foreign" ones. These include tariffs, import quotas, regulations, subsidies, and informal barriers of many kinds. Sometimes these methods are used to aid particular products or industries; other times they function across-the-board. While "free traders" rail against such measures as "protectionism," today every country engages in such protection to some degree.

The impact of globalization is often experienced as a threat of "foreign competition. " Economic nationalists often seek to use national trade policies to improve conditions for "domestic" producers relative to foreign ones. Tariffs, quotas, and similar measures are often the response to a flood of imports.

Economic nationalists also often focus on other countries' trade policies, complaining that they discriminate against imports. For much of the 20th century, this orientation led the United States to demand that other countries provide an "open door" for U.S. products. Today this orientation is expressed in demands to "get tough on trade" and in the "Super-301" trade law which allows U.S. tariffs to be raised in retaliation against alleged discrimination against U.S. products. Such measures from time to time lead to "trade wars" in which each country raises its barriers higher in retaliation against similar protectionist measures by the other.

Such policies have become more and more problematic in the era of globalization. An American" car is made of parts produced and assembled in dozens of countries; indeed, an "American" car may come off the same assembly line and include exactly the same parts as a "Japanese" car-except for the label. Furthermore, the global economy is now so integrated that nationalist policies are often self-defeating when the United States threatened to raise tariffs on Japanese computer parts, for example, many U.S. companies howled that they would become "less competitive" if they couldn't buy the inexpensive Japanese components.

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Globalization-from-Below

Public discussion of the global economy is often conducted as if the issue were a continuation of the classic controversies of "free trade" vs. "protectionism" or "internationalism" vs. "nationalism." It is as if the only choices were the present form of globalization or a return to nation-based economies.

A new perspective, rooted in the realities of globalization, transcends these formulations. It might be called a democratic or people's internationalism or-as we will call it here-"globalization-from-below."

In contrast to nationalist approaches, globalization-from-below recognizes the need for transnational rules and institutions which may limit national sovereignty.

But globalization-from-below advocates far different functions for such institutions than do free traders or the Corporate Agenda. Globalization-from-below opposes global rules designed to force downward leveling, but supports global rules that, for example, protect labor and environmental rights and standards.

Globalization-from below starts from the fundamental premise of democracy, that people should be able to make the decisions that affect their lives. It therefore argues in sharp contrast to the Corporate Agenda-that global institutions must be democratic, transparent, accountable, and accessible to the public.

In many cases, the new international rules needed to block downward and promote upward leveling would greatly strengthen the ability of nations to govern themselves. For example, "globalization-from-below" alternatives to NAFTA and GATT have emphasized the right of countries to food security and the ending of World Bank and IMF dictation of national policies through structural adjustment programs.

In other cases, upward leveling requires international rules that empower people at the grassroots level-even if this limits aspects of national sovereignty. The movement for international labor rights, for example, advocates regulation at regional and global levels that would interfere with an absolutist definition of "national sovereignty" by requiring the meeting of certain minimum standards-but in a way that increases the ability of workers to organize themselves.

Globalization-from-below, in contrast to today's globalization-from-above, does not imply a global centralization of power. As one advocate put it,

" One of the cornerstones of U.S. democracy was the practice of citizens working with public officials at local, state, and national levels to enact regulations and subsidies and incentives that protect the public welfare, health and safety, and environment...We are for new forms of internationalism, but forms which reinforce the right of localities, states, and nations to set their own high standards."

Globalization-from-below implies not global centralization but rather a multilevel system of democratic governance. Globalization-from-below also rejects the effort of corporations to play non-elite groups in different countries off against each other. It sees the upward leveling of the conditions of those at the bottom as a common interest of all who are not in a position to exploit cheap labor, environmental and social costs. The ability of people in each country to organize and raise their standards is beneficial to people in other countries.

Finally, globalization-from-below believes that, if corporations are going to cooperate worldwide to pursue their interests, ordinary people also need to do so. The advocates of globalization-from-below have put a strong emphasis on building cooperation among popular organizations and movements across national borders.

Globalization-from-Below in the NAFTA Debate

The NAFTA debate saw for the first time the emergence of globalization-from-below perspectives in the U.S. political arena. Its advocates focused on the effects of capital mobility in fomenting a "race to the bottom." They encouraged upward leveling of labor and environmental conditions in Mexico. And they formed alliances with citizens' organizations in Mexico and Canada.

A broad anti-NAFTA coalition neither attacked Mexicans nor called for protection of U.S. markets against Mexican products. Rather, it emphasized the need to raise labor, social, and environmental conditions to prevent jobs from moving wherever such standards were lowest. It portrayed the issue not as a struggle of the U.S. versus Mexico but rather one of workers and citizens of both countries resisting a plan by corporations to play them off against each other.

Sections of this coalition went further. They engaged in extensive networking with citizen groups in Mexico and Canada. They organized active support for Mexican workers. And they engaged in a tri-national citizen's dialogue to produce an alternative to NAFTA called A Just and Sustainable Trade and Development Initiative for North America.

The Wider Context

Like free trade doctrine, globalization-from-below recognizes the potential benefits of transnational economic ties. But like protectionism, it also recognizes their potential downsides. Like the Corporate Agenda, it recognizes the need for global rules to govern the global economy-but it advocates a very different set of rules and a different, more democratic way of making and implementing them. Like internationalism, it recognizes the need for global cooperation rather than economic war of nation against nation. But like nationalism, it sees present forms of globalization as a threat to democratic self-rule.

Economic globalization-from-below is part of a broad movement with implications far beyond the economic sphere. In the words of Richard Falk, globalization-from-below consists of "an array of transnational social forces animated by environmental concerns, human rights, hostility to patriarchy, and a vision of human community based on the unity of diverse cultures seeking an end to poverty, oppression, humiliation, and collective violence." Globalization-from-below is an expression of the spirit of "democracy without frontiers," mounting a challenge to "the homogenizing tendencies of globalization-from-above."

Global Village or Global Pillage