The Race to the Bottom
excerpted 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 New World Economy
This system of nation-based economies is rapidly evolving
toward a global economy. Computer, communication and transportation
technologies have lessened distance as a barrier, making possible
the coordination of production and commerce on a global scale.
Lowered tariffs have reduced national frontiers as barriers to
commerce, facilitating transnational production and distribution.
Corporations are globalizing not only to reduce production costs,
but also to expand markets, evade taxes, acquire knowledge and
resources, and protect themselves against currency fluctuations
and other risks. As Robert B. Reich, now US. Secretary of Labor,
wrote in 1991, "As almost every factor of production - money,
technology, factories, and equipment-moves effortlessly across
borders, the very idea of an American economy is becoming meaningless,
as are the notions of an American corporation, American capital,
American products, and American technology. A similar transformation
is affecting every other nation."
Three hundred companies now own an estimated one-quarter of
the productive assets of the world. Of the top 100 economies in
the world, 47 are corporations each with more wealth than 130
countries. Their interests are global as The New York Times noted
in 1989, "Many American companies are shedding the banner
of national identity and proclaiming themselves to be global enterprises
whose fortunes are no longer so dependent on the economy of the
Capital and financial markets have become global and the foreign
exchange market processes approximately $1 trillion per day. Since
1983, global foreign direct investment has grown at an average
of 29 percent a year, three times faster than the growth of export
trade and four times the growth of world output. According to
one expert on world monetary systems, "Some individual currency
speculators have as much money as some small countries.''
In a competitive market, sales generally go to the competitor
who offers the lowest price. As a result, prices tend toward the
level of the lowest cost producer. When this tendency lowers the
price of goods and services through the improved efficiency touted
by the advocates of free-market forces, the effect may be benign.
But when corporations and governments lower costs by reducing
environmental protection, wages, salaries, health care, and education,
the result can be malignant-a "downward leveling" of
environmental, labor, and social conditions.
Farmers, workers, consumers, and citizens threatened by downward
leveling have long organized themselves locally and nationally
to resist malignant effects of competition. They have encouraged
governments to adopt environmental, labor, and social policies
that block downward leveling. But corporations can now outflank
the controls governments and organized citizens once placed on
them by relocating their facilities around the world.
In the Third World the trends are similar but more severe.
Almost one-third of the population of the developing countries,
1.3 billion people, live in absolute poverty-too poor to provide
the minimum diet required for full human functioning. It is often
argued that foreign investment will raise wages in poor countries.
But a review of U.S. corporate behavior abroad by the Boston Globe
found that "rather than raising standards of living, American
firms are more likely to be paying no better than local minimum
wages." A study sponsored by the International Labor Organization
found that in Indonesia-now a favorite spot for companies like
Nike and Reebok - 88 percent of women earning the Indonesian minimum
wage were malnourished.
What about the "success stories" of the New World
Economy-the "Newly Industrialized Countries" [NlCs],
such as the East Asian "Tigers"? They have seen great
economic growth, largely based on the exploitation of labor and
the unsustainable destruction of the environment. The benefits
have often, though not always, been restricted to a small elite.
But even these countries are far from immune to the race to the
bottom. T.C. Lee, a banker at Citibank in Taipei, noted that in
Taiwan, "there are lots of labor-intensive industries garments,
shoes, toys. All of them started to look outside to invest. They
started to relocate initially to Thailand, Indonesia, Malaysia,
and in the last two years, China, to enjoy cheap labor, cheap
land, cheap living costs." Michael M.C. Lin, president of
a conglomerate corporation in Taiwan, built a furniture factory
in China. "Labor costs were the most important thing for
us," he said.
The race to the bottom is contributing to environmental destruction
worldwide. Global corporations' oil refineries, steel mills, chemical
plants, and other factories, now located all over the world, are
the main source of greenhouse gases, ozone-depleting chemicals,
and toxic pollutants. Their packaging is a major source of solid
waste. Overfishing of the world's waters, overcutting of forests,
and the destructive use of land result both from the search for
higher corporate profits and the increase in poverty, which leads
to desperate overharvesting of natural resources.
The 7,000 Philippine islands, for example, were "lavishly
endowed with rainforests, fish, fertile low-lands, and extensive
mineral deposits" as recently as World War II. Today, "there
are few places you can go in the Philippines without meeting some
sort of ecological disaster." In one part of Mindanao, "the
forests were thick, and the people few. Now, thanks to the greed
of the big commercial logging companies and the need of the small
agriculturalists (who move into the forests only after the loggers
have built roads and chopped down the biggest trees), the mountains
are almost bare." The proportion of the Philippines that
is forested has decreased from 35 percent to 20 percent-less than
half the amount needed to maintain a stable ecosystem-just since
Casual evidence from virtually every country confirms the
deterioration of living standards and the widening inequality
of the last decade.'' Africa's GNP fell by an average of 2.2 percent
per year in the 1980s.54 In African countries with IMF-World Bank
programs, spending on health decreased by 50 percent and on education
by 25 percent during the 1980s. A United Nations advisory group
reported that throughout Africa, "health systems are collapsing
for lack of medicines, schools have no books, and universities
suffer from a debilitating lack of library and laboratory facilities."
In rich and poor countries alike, economic insecurity, disruption,
and poverty have undermined human relationships, traditional lifeways,
and social values. A California lawyer recently wrote,
" I am a criminal defense lawyer, not an economist, but
I wish to reinject into the discussion what strikes me as self-evident
The lack of decent-paying work for our unskilled and semi-skilled
workforce is a major cause of United States crime and social decay.
The bulk of my clientele falls into the chronically unemployed
and the newly laid off or chronically under-employed. The gainfully
employed mostly do not commit crimes. The remaining, and growing,
portion, who are not securely employed or decently paid need solid
factory jobs to work their way out of poverty, and those jobs
don't exist anymore. Why? Because they've been moved...Now we
cannot employ all our people at a living wage, and as a result,
our nation is suffering a catastrophic decline in living standards
with an unraveling of our social fabric. "
The loss of democratic control is even greater in Third World
debtor countries that have been subjected to structural adjustment
programs. A recent series in The New York Times describes the
World Bank and IMF as "the overlords of Africa." "For
more than a decade the economies of Africa have been caught in
a relentless downward spiral" As a result, African countries
are finding themselves "more than ever under the thumb of
outside powers." The IMF and the World Bank are "the
purveyors of the new orthodoxy. They come in to bail out a country
that is bankrupt. They do so by drawing up a 'structural adjustment
program,' a tight package of economic prescriptions designed to
bring about free market enterprise and minimum governmental interference."
The Times concludes that through these programs, "the IMF
and the bank now effectively oversee and supervise the economies
of some 30 countries in sub-Saharan Africa."
Uncontrolled Global Corporations
Global corporations have become the world's most powerful
economic actors, yet there are no international equivalents to
the anti-trust, consumer protection, and other laws that provide
a degree of corporate accountability at the national level. International
capital mobility eliminates the long-term stake corporations once
had in the well-being of their home nations. As Cyrill Siewert,
a chief financial officer of Colgate-Palmolive, put it, '`The
United States does not have an automatic call on our resources.
There is no mind-set that puts this country first." The Bank
of Commerce and Credit International scandals reveal just how
much "freedom" global corporations have to engage in
anti-social, not to say downright criminal, activity.
Unaccountable Global Institutions
The loss of national economic control has been accompanied
by a growing concentration of power without accountability in
international institutions like the IMF, the World Bank, and GATT.
For poor countries, foreign control has been formalized in structural
adjustment programs, but IMF decisions and GATT rules affect all
countries. The decisions of these institutions also have an enormous
impact on the global ecology-many environmentally destructive
mega-projects in the Third World are financed by the World Bank'
and GATT rules have been used to challenge such environmental
measures as US. laws protecting dolphins. Yet these institutions
represent a sphere of decision-making largely beyond the influence
of citizens and citizen movements in poor and rich countries alike.
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Village or Global Pillage