End of the Global Gilded Age

By Jeremy Brecher and Tim Costello, ZNet Commentary, 28 November 2001

While America's politicians and media focus on terrorism and counter-terrorism, the global gilded age is coming to an end. While advocates of globalization gloat that September 11 has silenced the critics of globalization, the emerging global recession will soon put the deep flaws of the global economy back at the center of the global agenda.

The Organization for Economic Cooperation and Development reported that the global economy shrank last quarter for the first time in 20 years. J.P. Morgan Chase & Co forecast that global economic growth for this year and next will be the lowest in 20 years—barely 1%.

In the US, the gross domestic product dropped by four-tenths of a percent in the second quarter—well before the September 11 attacks—and no doubt has continued to fall. 415,000 people lost their jobs in September.

The riotous progress of economic globalization has gone into reverse. Growth in global trade fell from 13% in 2000 to only 1% in 2001. Stunningly, cross-border investment has dropped by half.

Argentina has gone into de-facto default—the largest default of sovereign debt in history. (Perhaps they should try a conversion to Islam, or a relocation of the country to the Afghan border, to persuade the US and the IMF to bail them out like Turkey and Pakistan.)

Economists at J.P. Morgan project declines in Japan, Singapore, Malaysia, Thailand, and Taiwan. The unemployment rate in Japan is the highest since the end of World War II. Prices of natural resource commodities, on which developing countries depend, are off 40%.

Mexico's economic growth has fallen from nearly 7% last year to close to zero — including a loss of 150,000 jobs in the NAFTA-spawned maquiladoras on the US Mexican border.

The German economy, which represents one-third of the euro zone, is now shrinking. Overall growth for the euro zone is projected at 1.3% for this year and next.

The glittering promises of globalization are turning to ashes all over the world. According to WTO head Mike Moore, “Jobs have been shed everywhere. There's not a minister of finance, a mayor or a governor of a province anywhere that is not facing declining revenues.”

The same is true in spades for the ordinary folks around the world who are losing those jobs and suffering the effects of the cutbacks in government services.

The emerging recession is marked by “overinvestment” in industry, leading to overproduction, intense global competition, falling prices, plummeting profits, and consequent downsizings, layoffs, and bankruptcies.

That in turn is leading to a downward spiral of reduced consumer demand, falling government revenues, and public sector cutbacks. Government deficits at local, state/provincial, and national levels are reaching crisis proportions both in the rich countries of Europe and North America and in the Third World.

The global economy is now facing the unfamiliar prospect of deflation. Deflation is already occurring in Japan, and an index that projects future price levels in the US is predicting the same for the US.

“Today, inflation pressures are at their lowest levels in a generation because of the first synchronous global recession since 1973-75. Historically, such deflation has often resulted in a downward spiral, as investors stop investing and consumers stop buying in the expectation that prices will fall even lower.

“Contagion”—the global linkage of such downward spirals—is as much an aspect of globalization as the global currency market or the World Trade Organization. European economies, for example, were widely expected to be less affected by the downturn in the US, because the US is only one of their major markets—but they are being severely hurt by the decline in Latin American and Asian markets that are in turn being hurt by the US bust.

Interestingly, the countries that are doing best are the ex-Communist countries like China, Russia, and parts of Eastern Europe that are not fully integrated into the global economy. But even they are being seriously affected.

Besides linking economies, globalization and neo-liberalism have dismantled non-market counter-forces and institutions that have limited economic downturns in the post-World War II era. Counter-cyclical programs like unemployment compensation have been decimated in the US.

Even developed nations have largely lost their capacity to impose effective capital controls on their currencies, so that stimulating one country's economy often leads to capital flight rather than job creation. The effort to coordinate growth policies in the major capitalist countries has been largely abandoned.

And the original policies of the International Monetary Fund, designed to allow countries to correct currency imbalances without driving their economies into recession, have been replaced by near-universal requirements for “structural adjustment” austerity.

In the face of the current downturn, policymakers have cut interest rates and are beginning to forsake neo-liberal principles and promote government budget deficits to stimulate the economy.

(Of course some of those proposals—notably those of the Bush Administration and the Republican Party in the US are nothing more than giveaways to businesses and wealthy individuals that will not increase their incentive to invest.)

But the big lesson of the past twenty years is that such national policies, by themselves, have become less and less effective in a global economy. Countering this recession is likely to require a substantial dismantling of the neo-liberal edifice.

During the global financial crisis of the late 1990s there was a lively discussion of a “new architecture for the global economy.” The establishment quickly abandoned that discussion when the US bubble seemed to restore globalization's manic growth. Today there is a stunning silence in the establishment—whether economists, policymakers, or pundits—about what to do to prevent a global crash and to restore economic growth.

The problem is that any serious fix for the emerging economic downturn will have to address the basic problems that have been raised by the critics of globalization. And for that reason, the critique of globalization will soon return to the top of the global agenda.