The Global Alternative

By Jeff Faux, The American Prospect, Vol.12 No. 12, 2–16 July 2001

The economic orthodoxy that guides the management of the global economy has failed to deliver. During the past two decades of accelerated privatization, deregulation, and free trade, global growth has actually slowed. The countries (mostly Asian) that grew faster rejected the advice of the bankers, bureaucrats, consultants, and media pundits who constitute the Washington Consensus on such matters. At the same time, inequality both in developed and in developing countries has generally worsened and poverty is spreading. Even James Wolfensohn, president of the World Bank, has observed: “At the level of people, the system isn't working.”

Yet there remains a widespread impression that there is no other option—that capital markets are so sensitive, governments must bend to the political agenda of those who speak for the world's great financial institutions. From the boardrooms, protestors are dismissed as selfish protectionists or ignorant malcontents whose tantrums will only divert the world's poor from their primary task of selling their labor to the world's rich. “What,” the pundits ask those who dissent, “is your alternative?”

There is no way to roll back the tide of change in communication, transportation, and production technologies that is driving the world's economic integration. The question is not whether we integrate the world's economies but how. To this, there is certainly more than one possible answer.

Those who make up the global opposition to the Washington Consensus agenda have, in fact, generated a number of different answers. Taken together, their proposals suggest an alternative development path for the world economy that addresses the interests currently left out, such as workers' rights, sustainable development, and democratic accountability. The opposition proposals are the building blocks of a more social-democratic vision of the global economy—one in which the distribution of income, wealth, and political power is a direct concern of economic policy.

Politically, the proposals knit together the two main wings of the opposition. One wing, based in the advanced economies, is represented by the coalition of trade unionists, environmentalists, religious activists, students, and other civil-society groups that disrupted the Seattle meeting of the World Trade Organization (WTO) in late 1999 and, more recently, the meeting of Western Hemisphere trade ministers (the Summit of the Americas) in Quebec City.

The other wing is centered in the developing world, where the lives of the vast majority of people have become even more precarious because of harsh social policies demanded by first-world financiers as the price of their loans and aid. It includes peasants being forced from the land by corporate agriculture and mining, political leaders disempowered by rumors in faraway bond markets, civic organizations fighting for human rights and democracy, and trade unions struggling to give voice to workers. Though largely unreported in the U.S. media, their protests are widespread. Virtually every day somewhere in the third world, people are clubbed, rocks are thrown, and shots are fired in what Joseph Stiglitz, former chief economist at the World Bank, has termed “IMF riots.”

Despite their common adversary, the members of the opposition party have been divided on the issue of enforcing standards for labor and the environment. There is general agreement on the need for such rules. But many in the third world see the effort to enforce them with trade and financial sanctions as a vehicle for first-world protectionism. And they resent being manipulated by arrogant institutions in developed countries—especially the United States.

As one Asian economist observed: “The U.S. Treasury runs the International Monetary Fund, and for years urged them to make loans to dictators who squandered the proceeds and are now dead or retired in the south of France. Then the IMF tells us that the only way to pay their debts is to increase exports made with our cheap labor. When we do, U.S. unions complain that we are undercutting labor standards.”

First-world activists see their third-world equivalents as being too willing to align themselves with multinational capital in opposing social protections through trade and financial agreements. They are skeptical when those in the third world who claim to be supportive of human rights resist economic sanctions—which, in practical terms, are the only way to preserve those rights.

The emerging global social-democratic alternative involves a “grand bargain” between the two wings of the opposition: The developed world would get protection for its social standards, and the developing world would receive the flexibility and capital investment it needs for growth.

This global “New Deal” involves six major components.

Social Protections. Basic political and labor rights— including freedom of association, prohibition of forced labor and child labor, nondiscrimination, and the setting of minimum standards—would become part of trade agreements and investment policies. They would ultimately be enforceable by sanctions, similar to the way that investors' rights are protected. Rights would be distinguished from standards. (For example: All workers would have a right to a minimum wage, but the level of the wage would depend upon a country's income.)

Flexible Development. The one-size-fits-all policies of the international financial agencies have not only failed to produce faster growth; they allow the leaders of recipient countries to escape responsibility for their own policies by blaming all their problems on international bankers. Therefore, once human and political rights are ensured, countries should have the flexibility to choose their own development path, for which their leadership should be held accountable—both to their citizens and to foreign investors.

The Hope for Africa bill introduced in the U.S. House in 1999 by Congressman Jesse Jackson, Jr., illustrates this principle. It was an alternative to a business-sponsored bill that was supported by the Clinton administration and the Republicans and that based increased U.S. trade with sub- Saharan Africa on the recipient countries' willingness to cut corporate taxes, permit open foreign ownership of natural resources, slash domestic budgets, and privatize public assets. In contrast, Jackson's bill—which failed—would have conditioned increased trade on minimum labor standards and guaranteed that jobs created would go to African workers. The countries would have been free to pursue the development path that best fits their circumstances.

Winners Compensating Losers. As long as workers who have to bear the costs of open markets expect that they will be abandoned by the society that profits at their expense, they will resist globalization. So developed countries, particularly the United States, need social policies that compensate those who must pay for the benefits of economic integration. Such policies would include increased public spending on health care for the uninsured, worker retraining, and community redevelopment, as well as more generous unemployment compensation and wage insurance to cushion the blow of moving to lower-paying jobs.

Regulated Finance. Volatile financial markets must be tamed. Since no system of global banking regulation is in sight, the simplest solution is a tax on international financial transactions, as proposed by Nobel Prize- winning economist James Tobin. The proceeds would be used for long-term investments in education and health care in poor countries. Such a tax, which has the virtue of being easily understood and can be administered with minimal bureaucratic discretion, is already supported by many influential people around the world. Several years ago, in fact, the government of Canada proposed a discussion of the Tobin tax for the agenda of the Group of Seven (the major economic powers) meeting in Halifax, but the U.S. Treasury quickly quashed the idea.

Coordinated Economic Policy. A fully functioning global economy—like a fully functioning national economy—needs central banking and countercyclical public budgets in order to maintain overall growth. But there will be neither a global central bank nor a global government budget for a long time, so these functions must be performed by the governments of the three largest economies—the United States, Europe, and Japan—acting together. Having pressured the world into a system of brutal competition, the major powers have a responsibility to maintain sufficient global demand with low interest rates and other macroeconomic policies.

Democratic Regionalism. One potential counterweight to global laissez-faire is the multinational regional economy, the most developed of which is the European Union. Unlike simple free-trade areas, the EU is a political economy with a strong constituency in support of a democratic social contract. It serves as a rough model for future regional groupings.

Can such a set of proposals unite the two wings of the opposition? One thing suggests that it might: “Alternatives for the Americas,” an 80-page work-in-progress being written by the Hemispheric Social Alliance—a group of labor, environmental, religious, and citizen activists from North and South America. The document codifies the first four of these principles into a comprehensive alternative to the investor-driven Free Trade Area Agreement of the Americas (FTAA). The “Alternatives” draft has become the working paper for discussion among the diverse groups opposed to the FTAA. It has been translated into Portuguese and Spanish by Brazilian and Mexican trade unions and has appeared on Web sites all over the Internet.

Unfortunately, there is no independent forum where proponents can press the institutions of global economic governance to take these ideas seriously. Demonstrators can temporarily obstruct the workings of the global institutions' managers. But there is no place to formally discuss the policies of agencies such as the IMF and the WTO—except the IMF and the WTO, which have no interest in alternatives to their own model. As a consequence, the leaders of the labor, environmentalist, and religious groups in opposition find themselves drawn into largely fruitless public dialogues. Meanwhile, the real work goes on in private negotiations in which the IMF and WTO parcel out rules to protect various business interests, whose headquarters may be located in a specific country but who recognize no nation-state as home.

For those searching for an alternative vision, it's a catch-22: A global social contract needs to be enforced by global institutions. But in the absence of global democracy, such institutions will be captured by multinational financial interests, which will prevent the brokering and enforcement of a global social contract. The opposition is thus constantly forced back into a defense of national sovereignty as the only available instrument for achieving social justice. Yet sovereignty is steadily eroding under the relentless pressure of global markets. Moreover, a nationalist politics undercuts the cross-border cooperation needed to balance the cross-border political reach of business and finance. Nationalism perpetuates the myth that national identity is the deciding factor in whether one wins or loses in the global economy. It obscures the common interests of workers in all countries when faced with the alliances of investors in rich and poor nations that now dominate the global marketplace.

International cooperation among those in the opposition is certainly growing. In some industries, coordinated labor campaigns have successfully challenged the freedom of multinational corporations to dictate terms to their workers. And a nimble, talented network of nongovernmental organizations (NGOs) has done remarkably well in mobilizing people and information for maximum media effect. But in a world of about 190 separate countries (most of which are desperate for investment) and more than six billion people (most of whom are poor), the development of a global political movement powerful enough to bring the investor class to the bargaining table is clearly a long way off.

Regionalism and Democracy

Nevertheless, it is not so difficult to imagine an effective cross-border politics among limited groups of countries in subglobal geographic regions. People who live in countries in the same region tend to have more in common with one another. Language barriers are not as great. Culture is similar. And trading relations are usually the strongest. From a development perspective, regional clusters of nations can provide the economies of scale so that small third-world countries can take advantage of new technologies. From a political perspective, a path to global integration built on expanding regional markets could provide a more accommodating arena for a socialdemocratic alternative.

Indeed, regionalism has long been a project of the mainstream left around the world. The European Union grew out of a French socialist's dream of burying Franco-German enmity. African regionalism was the vision of the late Julius Nyerere of Tanzania as a way of progressing beyond tribalism and colonialism. In Latin America, there is a history of efforts to bring together economies in the Southern Cone, in the Andes, and in Central America.

Attempts at regional integration of less-developed countries have failed more often than not, in part because ruling economic oligarchs and their foreign-investor allies are threatened by the bidding up of wages and costs that comes from a more diverse economy. Thus, the United Fruit Company—and, therefore, the U.S. State Department—was unenthusiastic about the regional integration of the Central American economies because it would have created competition for labor and weakened the politically conservative oligarchs that run those countries.

On the other hand, the European Union illustrates the greater potential for sustained economic integration when policy is focused on the development of a diverse domestic market. The extent of social protection in Europe and the rich debate over the restructuring of a continent-wide social contract reflect a comprehensive notion of economic integration as a tool for political and social development. Ironically, the European Union was inspired by U.S. economic history, which can be read as a process of regional integration supported by a federal constitution that nurtured (not without struggle) the growth of trade unions, civil rights, and a modest welfare state.

This more comprehensive approach stands in stark contrast to the North American Free Trade Agreement (NAFTA), which the U.S. government is now holding up as the model for development in all of the Western Hemisphere. In NAFTA, development is narrowly defined as an expansion of the volume of goods and money that flow across the border. Accordingly, the arrangement gives extraordinary protections to investors but leaves labor, the environment, and consumers to the mercies of the deregulated markets. As a result the benefits have largely gone to capital, while labor has borne the cost of dislocation, increased insecurity, and an overwhelmed public infrastructure on both sides of the border.

Whether NAFTA was worth this cost is a subject of partisan debate in each nation. But one thing is certain: NAFTA is incomplete. Deliberately so, of course; had its promoters revealed NAFTA for what it was—the first step toward economic and political integration of the three nations—it would have been soundly rejected in each country. Be that as it may, there is no going back. Supporters of the Washington Consensus are already pushing to consolidate their agenda for the North American economy, with proposals to adopt the U.S. dollar as currency in Mexico and Canada, as well as an updated version of the infamous bracero system in which the U.S. government would provide American employers with Mexican workers whose docility is guaranteed by the threat to ship them back home.

Mexico's new president, Vicente Fox, has explicitly called for the transformation of NAFTA into a wider continental agreement. He wants to open up the border to more immigration and to receive aid for schools, roads, and infrastructure from the United States and Canada similar to the “social cohesion” funds that the richer countries of western Europe provide to Spain, Portugal, Ireland, and Greece to help them grow faster.

These initiatives provide an opening for a trinational coalition of progressives to offer its own continental grand bargain that reflects the interests of working people in all three countries. In such an arrangement, the United States and Canada would agree to make capital available for sustained public investments and Mexico would agree to the enforcement of labor and environmental standards, which would rise as the country's income grows. [See Jeff Faux, “Time for a New Deal with Mexico,” The American Prospect, October 23, 2000.]

The seeds of a framework for such a bargain are already embedded in NAFTA's various side agreements on labor, the environment, and infrastructure needs. These provisions were just political fig leaves that gave cover to the Democratic members of Congress who voted for NAFTA. Not surprisingly, they have been largely ineffectual. Still, their very existence acknowledges the principle that social goals have a place in trade and investment agreements. They could provide a foundation upon which a trinational political movement could build a new continental deal.

Debating and working out compromises with wide political appeal in all three countries are not beyond the technical capacities of the various labor groups and NGOs that are even now working together across borders on ways to reform NAFTA. The question is how to gain a serious, democratic political forum. The answer, at least in part, may lie in having the legislatures—which are responsive to grass-roots pressure—play a larger role in shaping the continent's economic future.

Thus far, the function of the legislatures in the development of NAFTA has been to react—to ratify or not to ratify the agreement made by the foreign-trade-and-finance-ministry apparatus of the executive branches. This reflects the traditional view that international economic agreements are a function of foreign policy. It is at the heart of the argument to give President George W. Bush the “fast-track” negotiating authority that was taken away from Bill Clinton in the negative reaction to NAFTA.

The argument might have made sense when such agreements were an extension of foreign policy—when markets were bound by national borders and negotiators promoted clearly defined national interests. But the emergence of a global marketplace has altered those conditions. In the case of the North American single market, issues such as Mexico's enforcement of labor laws, Canada's environmental standards, and U.S. immigration policy are becoming the domestic concerns of a continental economy.

Of course, we have no North American legislature. Realizing that and already being organized on a continental basis, the banking and transnational business groups have been busy connecting conservative legislators in all three countries. It is time to build a parallel progressive presence on these issues. In each country, legislators—working with the cross-border coalitions of labor groups and other NGOs—could introduce similar proposals on aspects of the grand bargain. It would be a beginning in the essential process of building a continental constituency for progressive NAFTA reform—and just as important, democratizing the process of making continental economic policy.

The advantages of starting a visible and transparent political debate over North American integration would spill beyond the continent. In light of the influence of the United States, it would give hope to many people around the world who are struggling with the consequences of a mismanaged global market—a sense that even here, in the heart of the Washington Consensus, an emerging alternative vision foreshadows a globalization that works for everyone.