New Internationalist

Globalization on the rocks

Issue 430

David Ransom argues that the shipwreck of the markets spells the end of one era, the start of another.

fernando moleves / panos
High spirits in hell: clubbing on a Wednesday night in Ciudad Juárez. fernando moleves / panos

In September 1993 Mexicans were, it was said in high places, about to be liberated from their historic destiny: ‘So far from God, so close to the United States.’ The solution was simply to merge with the US and Canada in the North American Free Trade Agreement (NAFTA), leaving the rest to take care of itself. Ciudad Juárez, across the Rio Grande from El Paso, Texas, was on the front line of this radical advance, and I went there to take a look.

On the outskirts of the city giant metal boxes were laid out across the desert – maquila factories, their workers huddled around them in dusty shacks, making anything from car parts to potato crisps for transnational corporations. Duty- and tax-free, all the finished goods were dispatched ‘just-in-time’ across the Rio Grande to the US. This was what corporate globalization already meant for many Mexicans, and NAFTA promised to make it so for many more.

However, no maquila would let me in to sense what this meaning might be. One evening I was in a bar with a spirited collective of prostitutes who offered to help. The very next day I was inside a maquila that assembled TVs for Philips. All the workers were young women, mutely tending to the production line and, it seemed to me – when I was allowed to talk with some of them during a meal break – on the verge of illness, hunger and despair.

Today, Ciudad Juárez must surely be hell. Hundreds of young women have been raped, murdered, disappeared, their tortured bodies tossed from time to time on to garbage tips in the desert. No-one is ever convicted of a crime. Young men in their thousands die horribly in open warfare over drugs. The city is said to have informed what might otherwise read like a wildly dystopian fantasy, Roberto Bolaño’s novel 2666. I failed to figure it out at the time, but I have since learned to fear for the fate of those remarkable young women, who gathered together to celebrate or resist only as prostitutes.1

And what of Mexico? Its economy promptly collapsed. Since 1994, half-a-million Mexicans have been leaving their country every year. As the world crisis struck, between April and June 2009 the economy shrank by more than 10 per cent; 700,000 jobs were lost between October 2008 and May 2009. By way of a remedy, President Felipe Calderón prescribed a two-per-cent tax on food and medicine, together with sharp hikes in the price of electricity, gas and water. ‘If we arrive at a point where poor families consume less water,’ he said, ‘…we are going to help these families save money.’2

Mexicans are not appreciably any nearer to God. Rather, observers seem to agree that they have suffered so harshly because of their extreme proximity to the US, and thence to the shipwreck of corporate globalization.

Fatal flaws

Huge transnational corporations promote international trade because they control most of it – local or ‘domestic’ trade is a riot of diversity by comparison. The ‘globalization’ of local economies enabled corporations to scour the world for the cheapest labour, the lowest costs, the most compliant governments.

However, and despite its gaudy fruits, the enterprise was fatally flawed from the start.

First, it off-loaded substantial real costs, like those of international transport, directly on to the ecosystem; indeed, the more it did so the more ‘efficient’ it appeared to be, squandering finite resources (including the ecosystem itself) at an increasingly reckless rate.

Second, by paying people less to produce more, corporate globalization left them without the means to acquire all the stuff they were producing. The result was an endemic crisis of ‘over-production’, ‘over-investment’ or ‘deflation’ – a ‘disease’ that struck Japan in the early 1990s and has yet to find a cure.3

Private financial markets are being repaid at a premium. These are the very same funds that were used to bail them out virtually for free

Third, by shifting production very rapidly to countries like China, it generated huge imbalances in world trade, since countries like the US or Britain had little to offer in exchange besides money they hadn’t actually earned.

Fourth, this left just one option, which was to borrow. Private banks were liberated quite literally to make their own money, to lend in as many multiples of their assets as they gambled they could get away with; thereby artificially inflating their assets and making of themselves the most lucrative transnational corporations of the lot, partly because they didn’t have to produce anything at all except money.

Finally, by suppressing both the free association of labour and government ‘interference’ (though not, of course, the elaborate enforcement of ‘market discipline’), the enterprise prefigured the eventual demise of democratic engagement of any kind. The wisdom of self-correcting markets alone would decide – and we were about to discover yet again how self-destructive that wisdom can be.

So corporate globalization in the ‘real’ world economy lay behind what appeared at first to be a strictly financial crisis. It was hooked on debt, a deadly vice which eventually crushes everything in its grip, to the point where no-one knows the value of anything. So it could be that, in August 2007, seemingly marginal ‘sub-prime’ people who started posting their house keys through the letterboxes of loan sharks across the US signalled the shipwreck of a misbegotten ‘global’ enterprise.

Shipwreck

You don’t hear so much about the wonders of corporate globalization now. During 2008 and 2009 world trade slumped for the first time in living memory, silencing the corporate mantra that it could only ever expand. General Motors, once the world’s biggest transnational corporation, is bankrupt. The incurable Japanese disease has become a pandemic. China is spending $500 billion just to sustain its choking domestic economy. Indeed, the whole wreck is kept afloat only by heresy – national government support.4 

However, the price being paid to financial markets is, by almost any measure, far too high. They are being repaid at a premium – yet these are the very same funds that were used (or printed) to bail them out virtually for free. No wonder they are irrationally exuberant again. Self-proclaimed ‘prisoners of the market’, even larger too-big-to-fail banks reward themselves lavishly once more, as if to flaunt their growing myopia.

No-one will openly admit to knowing quite how much bad debt has been dumped on the public and remains to be redeemed. The same venal ‘credit-rating’ and accounting corporations that authorized the shipwreck still presume to discipline the financial behaviour of governments. By their measure, the governments of some 16 countries, including Ireland, Iceland, Greece, Estonia and Hungary, are already bankrupt; many others have effectively been so for years, and most of the remainder will doubtless become so soon enough. If the wreck is ever refloated, who then will save the banks from themselves and everyone else from the banks?

The salvage operation relies on the willingness or ability of citizens to pay higher taxes for worse public services, when a whole generation – in the Minority World, at least – has been led to believe that the opposite is possible. History suggests that without democratic consent the result will be despotic extortion, and if you really want to know how that feels, just ask almost anyone in the Majority World.

What governments should have done, of course, was to tell the private banks go hang, cast off the ship of fools and taken on the job themselves, because they were having to do it anyway. Then, instead of pouring public treasure into the gaping hold of private financial markets, they could have supported more directly the people who need it most in the ‘real’ economy, whose interests they claim to serve. They should have recognized the truth: that the creation of money remains what it always was – not a private function but a public utility.5

Unholy Trinity

Still tasked with maintaining the world’s economic ‘architecture’, however, is the ‘Unholy Trinity’ of the International Monetary Fund (IMF), World Trade Organization (WTO) and World Bank. Over the years this magazine, among many other critics, has consistently spelled out their structural flaws – not least their dedication to the service of private financial interests.6 All that need be added now is that, since the structure has collapsed, the Unholy Trinity has plainly fallen down on the job; only this time on its own terms as well.

Urgent international tasks therefore remain undone. For example, the IMF promoted regressive, indirect taxation (like value added taxes) on the relatively poor majority. The claim always was that progressive, direct taxation on the wealthy is a futile gesture, a relic of class envy or war, because they have relatively little wealth overall and therefore never produce much tax. As corporate globalization accelerated and inequality spiralled, this ridiculous claim pointed only to each national tax base. It studiously avoided fingering the enormous sums dodging between ‘tax-efficient’ havens and fiddles, which was why national regimes never produced much tax from real wealth.

Taxing wealth is now essential, and not just on moral or political principle. The alternative, which is to raise regressive taxes and dismantle public services, would simply be to intensify ‘over-production’, exacerbate the Japanese disease, court democratic disgrace and promote despotic extortion.

If the wreck is ever refloated, who then will save the banks from themselves and everyone else from the banks?

Wild speculation clearly hastened the shipwreck. An entirely conventional corrective would have been to tax it. Even the tiniest percentage tax on speculative currency or similar transactions would act as a ‘disincentive’ and raise plenty of resources for the UN Millennium Development Goals by the target date of 2015, which is currently receding over an infinite horizon. That, in turn, would do more to cure the Japanese disease than any other single measure, by putting at least some cash into the hands of people who need it most – and would therefore use it best – provided only that they could lay their hands on it at all.

The IMF could have helped with both of these urgent tasks, which at some point have to be orchestrated internationally. France’s Nicolas Sarkozy and Britain’s Gordon Brown have referred them to the IMF for consideration. But don’t bet on a positive outcome anytime soon. No-one in the IMF (or the US Treasury) has ever even thought like this, and anyway they’re far too busy trying to refloat the shipwreck.

Much the same applies to the WTO. Its Doha ‘Development’ Round of trade liberalization – corporate globalization gone mad, by any other name – is stalled. Quite by chance, this is just as well for financial markets, since a completed Doha Round would have banned governments from bailing them out. There is no sign, however, of a rethink. If there were, it would be wondering how best to make international trade less despotic and more sustainable. It would be asking why two decades of ‘corporate responsibility’ – to whom? – have produced nothing of the sort.

As for the World Bank, the terrible legacy of ‘Third World’ debt persists. It rests on the notion of ‘moral hazard’ advanced by private banks. ‘Forgiveness’, they insist, encourages the same sin to be repeated. The sin is evidently rather less moral than hazardous, since it is repeated without remorse whenever private banks require access to public funds and functions.

Democratic revival

A requiem for unprincipled corporate globalization and its Unholy Trinity, a welcome to the world for what might be styled democratic deglobalization, can offer no guarantees. Democracy is no more of a miracle than self-correcting markets. The shipwreck is so complete that it has discouraged faith in governments as well, and in the monochrome, corporate-sponsored machinery that sustains most of them in power.

Quite when people will decide to take a firmer democratic grip remains to be seen. Richard Swift detects some early signs in Egypt and Latin America (see page 18). The reasoning of much wiser economists, like Jayati Ghosh in India (see page 14), should encourage them. Democratic deglobalization has been proposed for some time now by Walden Bello and his colleagues in the Majority World (see page 8). The sooner everyone sets out on the transition to a post-carbon economy the better, as the people Rowenna Davis talked to in Britain (see page 10) have done already.

Corporate globalization can then be overtaken by a renewed sense of public purpose and solidarity, a new internationalism reaching well beyond the dismal, poisonous horizons of high finance. And if the choice turns out to be between democratic consent or despotic extortion, which will you choose? After all, only democratic consent offers any choice at all.

  1. For a fuller account of Mexico in 1993 see www.newint.org/issue251/title251.htm
  2. Todd Miller, ‘Mexico: is a social explosion in the wings?’, https://nacla.org/node/6141
  3. See, for example, Graham Turner, No Way to Run an Economy, Pluto Press, London, 2009.
  4. One of the sharpest analyses of the crisis so far can be found in Trade and Development Report 2009, UNCTAD.
  5. For a lucid explanation of these complex issues, see Peter Stalker, No Nonsense Guide to Global Finance, New Internationalist Publications, Oxford, 2009.
  6. The most recent can be found at www.newint.org/issue365/index.htm

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