IN THE 1960s, U.S. CORPORAtions

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1 7 The ABCs of the Global Economy The Dollars and Sense Magazine Collective IN THE 1960s, U.S. CORPORAtions changed the way they went after profits in the international economy. Instead of producing goods in the U.S. to export, they moved more and more toward producing goods overseas to sell to consumers in those countries and at home. They had Dollars and Sense is a collectively produced and published magazine based in Cambridge, MA that provides progressive and accessible reporting on economics. The ABCs of the Global Economy, by The Dollars and Sense Magazine Collective, including Ellen Frank, Abby Scher, Alejandro Reuss, and Peter Dorman. From Dollars and Sense Magazine (Issue #228, March April, 2000). Reprinted with permission of Dollars and Sense. 740 Cambridge Street, Cambridge, MA 02141; (617) ; dollars@dollarsandsense.org; web: $18.95 per year (6 issues). done some of this in the 1950s, but really sped up the process in the 60s. Before the mid-1960s, free trade probably helped workers and consumers in the States while hurting workers in poorer countries. Exporters invested their profits at home in the United States, creating new jobs and boosting incomes. The AFL-CIO thought this was a good deal and backed free trade. But when corporations changed strategies, they changed the alliances. By the late 1960s, the AFL- CIO began opposing free trade as they watched jobs go overseas. But unionists did not see that they had to start building alliances internationally. The union federation continued to take money secretly from the U.S. government to help break up red unions abroad, not a good tactic for producing solidarity. It took until the 1990s for the AFL-CIO to reduce (though not eliminate) its alliance with the U.S. State Department. In the 1990s, unions also forged their alliance with the environmental movement to oppose free trade. But corporations were not standing still; in the 1980s and 1990s they were working to shift the architecture of international institutions created after World War II to work more effectively in the new global economy they were creating. More and more of their profits were coming from overseas by the 1990s, 30% of U.S. corporate profits came from their direct investments overseas, up from 13% in the 1960s. This includes money made from the operations of their subsidiaries abroad. But the share of corporate profits earned overseas is even higher than that because the 30% figure doesn t include the interest companies earn on money they loan abroad. And the financial sector is an increasingly important player in the global economy. Financial institutions and other global corporations without national ties now use governments to dissolve any national restraints on their activities. They are global, so they want Financial institutions and other global corporations without national ties now use governments to dissolve any national restraints on their activities. their government to be global too. And while trade used to be taken care of through its own organization (GATT) and money vaguely managed through another organization (the International Monetary Fund), the new World Trade Organization erases the divide between trade and investment in its efforts to deregulate investment worldwide. In helping design some of the global institutions after World War II, John Maynard Keynes assumed 300 The ABCs of the Global Economy

2 CORPORATIONS AND THE GLOBAL ECONOMY companies and economies would operate within national bounds, with the IMF and others regulating exchanges across those borders. The instability created by ruptured borders is made worse by the deregulation sought by corporations, and especially, the financial sector. The This is a worldhistorical moment in which it is possible to stop the corporate offensive. most powerful governments of the world seem oblivious to this threat in giving them what they want. This is a world-historical moment in which it is possible to stop the corporate offensive, a moment when the ruling partnership composed of the United States, Europe and to a lesser extent Japan is fracturing, as the European Union reaches its limit on the amount of deregulation it will take and Japan s economy is in turmoil. This may allow those opposing the ruling bloc Third World governments (which may be conservative), labor, and environmentalists worldwide to build alliances of convenience with sympathetic elements within the EU to guide the reshaping of the global institutions in a liberatory manner. What follows is a primer on [several of] the most important of those institutions... THE WORLD BANK AND INTERNATIONAL MONETARY FUND Where did they come from? The basic institutions of the postwar international capitalist economy were framed, in 1944, at an international conference in the town of Bretton Woods, New Hampshire. Among the institutions coming out of the conference were the World Bank and the International Monetary Fund (IMF). These two are often discussed together because they were founded together, because countries must be members of the IMF before they can become members of the World Bank, and because both practice what is known as structural adjustment (where borrower countries unable to obtain credit from other sources must change government policies before loans are released). At both the World Bank and IMF, the number of votes a country receives is based on how much capital it gives the institution, so rich countries like the United States enjoy disproportionate voting power. In both, five powerful countries (the United State Great Britain, France, Germany, and Japan) get to appoint their own representatives to the institution s executive board (with 19 other directors elected by the rest of the 150-odd member countries). The president of the World Bank is elected by the Board of Executive Directors, and traditionally nominated by the US representative. The managing director of the IMF, meanwhile, is traditionally a European. The governments of a few rich countries, obviously, call the shots in both institutions. Just after World War II, the World Bank mostly loaned money to Western European governments to help rebuild their countries. It was during the long tenure ( ) of former U.S. Defense Secretary Robert S. McNamara as president that the bank turned towards development loans to Third World countries. McNamara brought the same philosophy to development that he had used in war more is better. Ever since, the Bank s approach has drawn persistent criticism for favoring large, expensive projects regardless of their appropriateness to local conditions. Critics have argued that the Bank pays little heed to the social and environmental impact of the projects it finances, and that it often works through dictatorial elites that channel benefits to themselves rather than those who need them (and leave the poor to foot the bill later). The most important function of the IMF is as a lender of last resort to member countries that cannot borrow money from other sources. The loans are usually given to prevent a country from defaulting on Funds are available from the IMF, on the condition that the country implement what is formally known as a structural adjustment program (SAP), but more often referred to as an austerity plan. previous loans from private banks. Funds are available from the IMF, on the condition that the country implement what is formally known as a structural adjustment program (SAP), but more often referred to as an austerity plan. Typically, a government is told to eliminate price controls or subsidies, devalue its currency or eliminate labor regulations like minimum wage laws all actions whose costs are born by the working class and the poor whose incomes are cut. The conditions imposed by the IMF and the World Bank, which places similar conditions on structural adjustment loans, are motivated by an extraordinary devotion to The ABCs of the Global Economy 301

3 CHAPTER VII the free-market model. As Colin Stoneman, an expert on Zimbabwe, put it, the World Bank s prescriptions for that country during the 1980s were exactly those which someone with no knowledge of Zimbabwe, but familiarity with the World Bank, would have predicted. The IMF and World Bank wield power disproportionate to the size of the loans they give out because private lenders take their lead in deciding which countries are credit-worthy. Both institutions have taken advantage of this leverage, and of debt crises in Latin America, Africa, and now Asia, to impose their cookie-cutter model (against varying levels of resistance from governments and peoples) on poor countries around the world. richest countries met secretly at the Organization for Economic Cooperation and Development Typically, a government is told to eliminate price controls or subsidies, devalue its currency or eliminate labor regulations like minimum wage laws all actions whose costs are born by the working class and the poor whose incomes are cut. (OECD) in Paris in 1997 and tried to hammer out a bill of rights for international investors, the Multilateral Agreement on Investment (MAI). When protests against the MAI broke out in the streets and the halls of govemments alike in 1998 and 1999, scuttling the agreement in that form, the corporations turned to the World Trade Organization to achieve their goal... THE MULTILATERAL AGREEMENT ON INVESTMENT (MAI), TRADE RELATED INVESTMENT MEASURES (TRIMS), AND THE INTERNATIONAL MOVEMENT OF CAPITAL Where did they come from? You re probably not the sort of person who would own a chemical plant or luxury hotel, but imagine you were. Imagine you built a chemical plant or luxury hotel in a foreign country, only to see a labor-friendly government take power and threaten your profits. This is the scenario which makes the CEOs of footloose global corporations wake up in the middle of the night in a cold sweat. To avert such threats, ministers of the It is sometimes said that the widening chasm between the rich and poor is due to the fact that capital is so easily shifted around the globe while labor, [while workers who are] bound to family and place, are not. But there is nothing natural in this. Human beings, after all, have wandered the earth for millennia. What are they up to? Both the MAI and Trade Related Investment Measures (or TRIMs, the name of the WTO version) would force governments to compensate companies for any losses (or reductions in profits) they might suffer because of changes in public policy. Governments would be compelled to tax, regulate, and subsidize foreign businesses exactly as they do local businesses. Policies designed to protect fledgling national industries (a staple of industrial development strategies from the United States and Germany in the 19th century to Japan and Korea in the 20th) would be ruled out. TRIMs would also be a crowning blow to the control of governments over the movement of capital into or out of their countries. Until fairly recently, most governments imposed controls on the buying and selling of their currencies for purposes other than trade. Known as capital controls, these curbs significantly impeded the mobility of capital. By simply outlawing conversion, governments could trap investors into keeping their holdings in the local currency. But since the 1980s, the IMF and the U.S. Treasury have pressured governments to lift these controls so that international companies can more easily move money around the globe. Corporations and wealthy individuals can now credibly threaten to pull liquid capital out of any country whose policies displease them. Malaysia successfully imposed controls during the Asian crisis of 1997 and 1998, spurring broad interest among developing countries. The United States wants to establish a new international discussion group the Group of 20 (G-20), consisting of ministers from 20 developing countries handpicked by the U.S. to consider reforms. Meanwhile, it continues to push for the MAI-style liberation of capital from any control whatsoever. 302 The ABCs of the Global Economy

4 CORPORATIONS AND THE GLOBAL ECONOMY It is sometimes said that the widening chasm between the rich and poor is due to the fact that capital is so easily shifted around the globe [while workers who are] bound to family and place, are not. But there is nothing natural in this. Human beings, after all, have wandered the earth for millennia traversing oceans and continents, in search of food, land, and adventure whereas a factory, shipyard, or office building, once built, is almost impossible to move in a cost effective way. Even liquid capital (money) is less mobile than it seems. To be sure, a Mexican can fill a suitcase with pesos, hop a plane and fly to California, but once she disembarks, who s to say what the pesos will be worth, or whether they ll be worth anything at all? For most of this century, however, capitalist governments have curbed labor s natural mobility through passports, migration laws, border checkpoints, and armed border patrols, while capital has been rendered movable by treaties and laws that harmonize the treatment of wealth around the world. The past two decades especially have seen a vast expansion in the legal rights of capital across borders. In other words, labor fights with the cuffs on, while capital takes the gloves off. THE WORLD TRADE ORGANIZATION (WTO) Where did it come from? Since the 1950s, government officials from around the world have met irregularly to hammer out the rules of a global trading system. Known as the General Agreements on Trade and Tariffs (GATT), these negotiations covered, in excruciating detail, such matters as what level of taxation Japan would impose on foreign rice, how many American automobiles Brazil would allow into its market, and how large a subsidy France could give its vineyards. Every clause was carefully crafted, with constant input from business representatives who hoped to profit from expanded international trade. The GATT process however, was slow, cumbersome and difficult to monitor. As corporations expanded more rapidly into global markets they pushed governments to create a more powerful and permanent international body that could speed up trade negotiations as well as oversee and enforce provisions of the GATT. The result is World Trade Organization, formed out of the ashes of GATT in What is it up to? The WTO functions as a sort of international court for adjudicating trade disputes. Each of its 135 member countries has one representative, who participates in negotiatiations over trade rules. The heart of the WTO, however, is not its delegates, but its dispute resolution system. With the establishment of the WTO, corporations now have a place to to complain when they want trade barriers or domestic regulations that limit their freedom to buy and sell overturned. Though corporations have no standing in the WTO the organization is, officially, open only to its member countries the numerous advisory bodies that provide technical expertise to delegates are overflowing with corporate representation. The delegates themselves are drawn from trade ministries and confer regularly with the corporate lobbyists and advisors who swarm the streets and offices of Geneva, where the organization is headquartered. As a result, the WTO has become, as an anonymous delegate told the Financial Times, a place where governments can collude against their citizens. Lori Wallach and Michelle Sforza, in their new book The WTO: Five Years of Reasons to Resist Corporate Globalization, point out that large corporations are essentially renting governments to bring cases before the WTO, and in this way, to win in the WTO battles they have lost in the political arena at home. Large shrimping corporations, for example, got India to dispute the U.S. ban on shrimp catches that were not sea-turtle safe. Once such a case is raised, the resolution process violates most democratic notions of due process and openness. Cases are heard before a tribunal of trade experts, generally lawyers, who, under WTO rules, are required to make their ruling with a presumption in favor of free trade. The WTO puts the burden squarely on governments to justify any restriction of what it considers the natural order of things. There Large corporations are essentially renting governments to bring cases before the WTO, and in this way, to win in the WTO battles they have lost in the political arena at home. are no amicus briefs (statements of legal opinion filed with a court by outside parties), no observers, and no public record of the deliberations. The WTO s rule is not restricted to such matters as tariff barriers. When the organization was formed, environmental and labor groups warned that the WTO would soon be The ABCs of the Global Economy 303

5 CHAPTER VII rendering decisions on essential matters of public policy. This has proven absolute correct. Currently, the WTO is considering whether selective purchasing laws like a Massachusetts law barring state agencies and local governments from buying products made in Burma and intended to withdraw an economic lifeline to that country s dictatorship are a violation of free trade. It is feared that the WTO will rule out these kinds of political motives from government policy making. The organization has already ruled against Europe for banning hormone-treated beef and against Japan for prohibiting pesticide-laden apples. At stake is a fundamental issue of popular sovereignty the rights of The WTO puts the burden squarely on governments to justify any restriction of what it considers the natural order of things. There are no amicus briefs (statements of legal opinion filed with a court by outside parties), no observers, and no public record of the deliverations. the people to regulate economic life, whether at the level of the city, state, or nation. Certainly, the current structure of institutions like the WTO allows for little if any expression of the popular will. Can a city, state, or country insist that goods sold in its markets meet labor and environmental standards determined in a democratic forum by its citizens? What if the U.S., for example, insisted that clothing manufactured for the Gap by child laborers not be permitted for sale here? The U.S. does not allow businesses operating within its borders to produce goods with child labor, so why should we allow those same businesses Disney, Gap, or Walmart to produce their goods with child labor in Haiti and sell the goods here? 304 The ABCs of the Global Economy