U.S. Leadership in the Global Economy

In a December 1998 Wall Street Journal/ NBC News survey, 58 percent of Americans polled indicated that “foreign trade has been bad for the U.S. economy.1” Similar U.S. public opinion surveys in recent years register growing public apprehension over the current course of corporate-led economic globalization. Yet, expanding trade and overseas investment has been the Clinton administration’s central strategy both for job growth and for addressing a rapidly changing global economy. This fundamental divide between U.S. government policy and U.S. public opinion represents a monumental challenge for the crafters of U.S. foreign policy at the onset of a new century.

Especially over the past two decades, U.S. policy toward the global economy has been guided by a rigid free trade formula. The administrations of Reagan, Bush, and Clinton have pursued policies at home and abroad based on the premise that free markets will bring prosperity and democracy. Accordingly, in countries such as China and Nigeria, U.S. policy has focused more on liberalizing markets than on improving human rights or enhancing democracy.

The Clinton administration has been dogged in its pursuit of new free market institutions and rules precisely at a moment when the evidence is growing that such measures bring enormous gains to a highly visible minority but hurt the majority of people and the environment in both the United States and the rest of the world. Though the damages are currently greater in other countries than in the United States, as the U.S. trade deficit soars, manufacturing jobs are being purged, social services are cut, and quality of life is declining for many.2 Likewise, the global financial crisis that has brewed since mid-1997 has deepened U.S. public distrust of globalization policies.

The public rejection of free trade should not mask the discord among the dissenters around what should replace free trade. Conservative nationalists and small entrepreneurs favor protectionism. A growing alliance of labor, environmentalist, farm, and consumer activists prefer what they often call “fair” or “responsible” trade. Similarly, a rising number of North and South religious groups and development organizations call for fundamental debt reduction and a better deal for poor countries. These various groups unite in opposition to the dominant model of economic globalization but splinter in what they endorse.

Regardless of these differences, if the majority of the public is correct in its skepticism about the global economy, then the time is ripe for the U.S. government to change its global outlook. The United States would do well to adopt a “new internationalist” approach to the global economy, taking leadership in reshaping the rules of the world market to maximize the number of winners and to ensure that the global economy serves workers, communities, and the environment both at home and abroad. At the same time, U.S. policy toward the world market should protect standards and regulations designed to improve the quality of life at home while advancing food security, energy conservation, and other sustainability goals. This implies that certain aspects of the global economy should be halted (e.g., trade in hazardous products, arms to dictators, and goods like water that are part of the “global commons”) or curtailed (e.g., “hot money”). The new internationalism, then, aims to maintain and improve the quality of life in the United States while ensuring that the foreign projection of U.S. economic and political power also advances sustainable and equitable development abroad.

This approach diverts strongly from the options that the conventional globalization debate poses. Most corporate-led globalization proponents argue that the only alternative to globalization is destructive protectionism. Growing numbers of people are challenging this narrow range of choices. Unrestrained globalization and protectionism are by no means the only options. The twenty-first century requires new paths that encourage exchanges of goods, capital, and people that enhance the social and environmental common good and that discourage or stop those exchanges that undermine healthy communities, a clean environment, and dignified work. Fortunately, these new paths are being paved by thousands of organizations all around the world.

The Current Policy

Whenever the occasion arises, President Clinton and like-minded proponents of free trade in the think tank, business, and academic communities recite a now familiar litany: Thanks to several hundred market-opening trade agreements–including the rule-transforming North American Free Trade Agreement (NAFTA) and World Trade Organization (WTO)–U.S. exports have grown at breathtaking speed, as have U.S. jobs in export industries. And, while the rest of the world has been shaken by financial crisis, the U.S. economy in the waning years of the 20th century has remained the global bright spot of growth and stability.

Media magnate Mortimer Zuckerman trumpeted America’s success in a 1998 Foreign Affairs essay: “The American economy is in the eighth year of sustained growth which transcends the ‘German miracle’ and the ‘Japanese miracle’ of earlier decades. Everything that should be up is up–Gross Domestic Product (GDP), capital spending, incomes, the stock market, employment, exports, consumer and business confidence. Everything that should be down is down–unemployment, inflation, interest rates.”3 As fascinating and revealing as what Zuckerman includes in his measurements is what he omits: economic inequality and falling job security and benefits, weaker consumer protection, and environmental decay.

The Clinton policies represent a smooth continuation of his Republican predecessors and build upon the efforts of all post-World War II presidents to reduce trade barriers around the world. With the emergence of the governments of Ronald Reagan, Margaret Thatcher, and Helmut Kohl in the early 1980s, there was a growing consensus in rich-country governments and business circles that free trade, free investment, deregulation, and privatization were the best route to growth. At that time, most developing countries still favored a stronger state role in development, fearing that unfettered markets in a world of unequal nations would put them at a disadvantage.

Yet, by the late 1970s many developing countries had lost substantial leverage over their economic destiny as rapidly rising external debts to Western banks fell due at a moment of historically high interest rates and oil prices. Washington, working with Japan, Germany, the United Kingdom, and other rich governments, pressed developing countries into the free market paradigm as a condition for new loans and to ensure continuing payment of previous debts. The International Monetary Fund (IMF) was given the role of global policeman to enforce the free market policies, and the World Bank imposed similar reforms through its new policy-oriented “structural adjustment” loans. By the end of the 1990s, most developing countries outside the East Asian “tigers” had been obligated to liberalize trade and investment policies (although some–like Brazil, India, Saudi Arabia, and Iran–resisted in parts of their economies). In 1989, John Williamson (then of the pro-free trade Institute of International Economics) dubbed this move toward liberalization, deregulation, and privatization “the Washington Consensus,” and he elaborated 10 sets of policies around which he saw elite agreement.4

In the 1990s, the Clinton administration triggered an acceleration of corporate-led globalization in all three major arenas of global economic policymaking. In trade, the administration completed Republican projects with the passage of NAFTA in 1993 and the WTO in 1994. In investment, a flurry of negotiations was launched for a Multilateral Agreement on Investment (MAI) and for regional agreements along the NAFTA model. And in finance, the multilateral agencies, in tandem with the U.S. Treasury Department, pressed for financial liberalization in South Korea, Thailand, the Philippines, Mexico, Brazil, Russia, and elsewhere.

The acceleration of corporate-led globalization in the 1990s stems from a disproportionate (and growing) concentration of political power and influence in the hands of global corporations. Utilizing their trade associations, pressure groups, and thousands of well-paid lobbyists, corporations have been able to shape U.S. policy so they are the prime beneficiaries. On a global scale, U.S. firms in the 1990s tended to benefit more from the new rules than firms of other countries due to U.S. corporate dominance of so many sectors, from cigarettes to high technology to biotechnology. Some of the wealth amassed by globalization has trickled down to U.S. citizens through the steady growth of the economy, especially to the mounting number of Americans who have some investment in the stock market.

One of the most disturbing outcomes of this march toward ever greater global corporate mobility is that the power balance between corporations and workers has markedly shifted in favor of corporations. University of Massachusetts economist Arthur MacEwan explains: “The deregulation of the international economy has meant a much greater freedom for capital movement but not a much greater freedom for labor movement. Since ‘freedom’ means having alternatives, and having alternatives means having power, a system that enhances the freedom of capital relative to the freedom of labor means giving capital more power relative to labor. The fact, for example, that NAFTA allows firms to move essentially at will among the countries of North America, but provides no such option for labor, nor for the organizations of labor (unions), means that it is an agreement that enhances the power of capital relative to labor.”5

Winners and Losers under the Current Policy

Three leading think tanks, Brookings Institution, Progressive Policy Institute, and Twentieth Century Fund, began a 1998 book entitled Globaphobia as follows: “It is one of the paradoxes of the modern age. America has been leading the world to encourage more integration of national economies. Yet just as we appear to be succeeding, increasing numbers of Americans appear to be expressing growing doubts or worries about this process of ‘globalization’.”6 The goal of that book, as well as many other pro-free trade works in recent years, was “to demonstrate that the fear of globalization–or ‘globaphobia’–rests on very weak foundations.”7

Accordingly, the central question that should guide U.S. policy toward the global economy is: do the majority of people in the United States and abroad benefit or lose from the deregulated market approach to globalization?

The position of most globalization supporters is that consumers everywhere gain from the liberalization of trade and investment, and that most workers gain as well. Yet in the battles over NAFTA and the WTO, growing numbers of groups have challenged these assertions from two quite diverse quarters. The nationalist right–led by Pat Buchanan in the United States and his counterparts elsewhere and supported by small business–argues that most small entrepreneurs and workers are hurt by globalization, and that sovereignty and culture are undermined. These forces have kindled populist passions with the argument that protectionism leads to prosperity. By the late 1990s, roughly 60-70 Republican members of Congress belonged to this camp.

A second group–comprising unions, environmentalists, small farmers, and citizen leaders such as Jesse Jackson and Ralph Nader–argues that free trade undermines workers, the environment, farmers, and sovereignty and thus deepens inequality. In the United States, this view is shared by most Democratic members of Congress, led by David Bonior and Richard Gephardt, with their call for “fair trade.” Portions of this left coalition did, at times, intersperse their internationalist posture with more nationalist arguments about the safety of imported foods and the dangers of Mexican truck drivers on U.S. roads.

Both sets of critics have amassed strong evidence that the policies of the elite consensus have benefited a small number of highly mobile corporations and hurt most workers, consumers, the environment, and equality:

Inequality

United Nations studies show that, with a handful of exceptions, growing inequality has accompanied trade and investment liberalization over the past 15 years in most countries. Likewise, researchers at the Institute for Policy Studies have noted a growing divide between the wealth of the world’s billionaires and the world’s poorest since the early 1990s. In the most recent year for which data are available, the combined wealth of the world’s 447 billionaires is greater than the income of the poorest half of the world’s people.8 Growing inequality, globalization opponents argue, is a direct outgrowth of the rising disparity in power between corporations and workers. The growing imbalance is a result of the ability of globalized corporations to threaten and shift operations to a location with lower wages or standards . This mobility allows corporate managers to bargain down wages and working conditions, thus exacerbating income inequality.

Environment

Many developing countries, from Chile and Brazil to the Philippines and Indonesia, have been endowed with abundant natural resources. In these and many other countries, the elite consensus emphasis on leading “development” with exports has translated into some combination of tearing down forests, overfishing, rapid depletion of minerals, and poisoning land with agrochemicals. The long-term costs of this brand of growth are not factored into the various measures of success, yet the next generations in these countries will spend much of their energy coping with erosion, depleted fishing banks, and increasingly unproductive soil. This is not to suggest that these countries were pursuing environmentally sustainable policies before the pressure for increased trade and investment liberalization. But liberalization has accelerated the plunder of resources in many countries.

In the United States, mobile corporations can increasingly use the threat of moving production elsewhere to water down U.S. environmental regulations. For example, an official of Boise Cascade, a timber giant that had already moved some of its mills from the United States to Mexico, boldly stated in the congressional debate over logging rights that: “The number of timber sales granted by the government will determine our decision to move south.”9 This kind of intimidation helped the logging industry pressure Congress into passing a law in 1995 to allow increased logging and to suspend environmental protections in national forests.

Northern environmentalists also express concern about the rising power of the World Trade Organization (WTO), which gives nations the power to challenge perceived barriers to trade and investment, including health, safety, and environmental laws. Since the United States and other Northern nations have relatively strong environmental regulations, the WTO represents a largely negative forum where other nations challenge those laws as unfair trade practices. Among the more controversial of the 125-plus WTO rulings thus far are the following:

The first WTO ruling involved a challenge by the Venezuelan and Brazilian governments on behalf of their oil industries against the United States. They charged that an Environmental Protection Agency (EPA) regulation governing the cleanliness of gasoline discriminated against oil imports into the United States. The WTO ruled against the United States and, in 1996, the Clinton administration agreed to abide by the ruling rather than face trade sanctions.

In 1998, the WTO ordered the United States to lift a ban on shrimp imports from nations that do not adequately protect sea turtles. In the United States, the shrimp industry is required to use devices on its nets to prevent drownings of endangered sea turtles. Thailand, Malaysia, India, and Pakistan had complained that the U.S. ban unfairly discriminated against their shrimp industry.

Workers

Factories have sprung up in southern China, Indonesia, Brazil, Malaysia, and dozens of other countries. Indeed, an average of more than one factory each day has been opening along Mexico’s 2,000-mile border with the United States since the advent of NAFTA in 1994. Yet, workers in most of the third world’s new global factories are denied basic rights to organize and strike. And in the United States, companies use the threat of moving production to China or Mexico to bargain down wages and benefits.

What about the quantity of jobs? Globally, there is a severe crisis of unemployment and underemployment; in its World Employment Report 1998-99, the International Labor Organization estimated that 25-30% of the world’s workers were underemployed and about 140 million workers were fully unemployed. In the United States, despite low overall unemployment, liberalized trade also claims victims. Free trade advocates often boast about jobs created by U.S. exports while ignoring the jobs lost to increased imports. But if consumers switch from a U.S.-made product to one made elsewhere, this does result in lost U.S. jobs and, often, to poorer quality jobs in the United States. This trend has become a major concern as the U.S. trade deficit has grown for six consecutive years. Moreover, though U.S. jobs in export industries tend to pay better than the average U.S. job, so do industries that face intense import competition, where jobs are currently being lost. This is because both import and export jobs are concentrated in manufacturing, while more U.S. jobs overall are in the lower-paying service sector. When the Washington-based Economic Policy Institute compared U.S. industries where exports and imports were growing most rapidly, they found that wages were higher in the import-competing industries than in the export sectors.10

Free trade backers often shrug off complaints of lost U.S. jobs, citing the overall low U.S. unemployment rate. Yet, the U.S. Labor Department reports that only about 35 percent of dislocated workers find new jobs that pay as well or better than their old ones. Many of the fastest growing job categories are the less desirable ones; indeed Labor Department projections indicate that the fastest growing U.S. job category is cashiers, who made $6.58/hour on average in 1996. Institute for Policy Studies’ monitoring of U.S. workers who lost jobs due to NAFTA-related trade and investment dislocations also indicates that a disproportionate number of U.S. workers hurt by trade and investment are people of color, women, or located in rural areas.11

Consumers

Although globalization boosters will often admit that free trade and investment can have a negative impact on inequality, the environment, and workers, they invariably argue that these impacts are greatly offset by the overwhelmingly positive impact of global markets on consumers. The Globaphobia authors put it this way: “Consumers benefit from trade not only because imported goods can be (and often are) cheaper than their domestically produced counterparts, but also because the competition provided by imports, or the mere threat of imports, keeps domestic producers from charging excessive prices.”12

Yet, how many consumers are really benefiting? There is no question that globalization has expanded the variety of goods available in the marketplace. It is also true that roughly a third of U.S. imports come from poorer countries, where workers earn a fraction of U.S. wages. Hence, these goods often enter the United States at prices far below the price of U.S.-made goods.

Yet, a key question is how frequently these firms sell cheaper goods to consumers at lower prices instead of selling them at normal or even higher prices to keep the benefits of trade for themselves. Evidence suggests that in sectors of the economy where small producers predominate, such as clothing, consumers often find that increased trade lowers prices. Many firms in certain other sectors, such as steel and computers, have also kept prices low. However, in sectors where a handful of large global firms dominate–such as autos, grains, pharmaceuticals, and chemicals–increased trade often does not lower prices.

In the United States, for example, General Motors decided to expand production of its “Suburban” sports utility vehicle in 1994. Instead of investing in its Suburban plant in Janesville, Wisconsin, or adding capacity at another U.S. plant, the company built a new facility in Silao, Mexico, to produce for the U.S. market. By 1996, GM was producing almost as many Suburbans in Mexico as in Wisconsin. In the process, General Motors’ wage bill plummeted, since its Mexican workers made $1.54/hour versus the $18.96/hour paid to GM’s U.S. workers (in 1996). Yet, the price of Suburbans bought in the United States jumped from an average of $22,750 in 1994 to $27,250 in 1996.13

This debate over winners and losers is one of the most important empirical policy issues of our time. In addition to the factors of equality, workers, the environment, and consumers, there are likewise debates over the impact of globalization policies on food security and safety, culture, and the viability of communities. Clearly, the argument here is that the number of losers is substantial and that the gap between the winners and losers is growing. And that is certainly the perception of the majority of Americans.

The New Majority to Slow Down and Reshape Globalization

In the last two years, the debate over U.S. policy toward the global economy has expanded from an almost exclusive focus on trade and investment policy to increasing concerns about short-term finance. As the recent global financial crisis spread, the longstanding elite argument that free markets lead to development began unraveling.

At the onset of a new century, the Washington Consensus is now severely discredited and threatened by two dynamics. First, free trade and investment policies have generated widespread human suffering and environmental degradation, which, in turn, have spawned an increasingly effective citizen backlash in both Northern and Southern nations since the early 1990s. Second, deregulated finance flows have engendered extreme volatility in the financial markets of numerous developing and newly industrialized nations–such as Indonesia and South Korea–and have precipitated severe economic downturns.

Although outside criticism of the elite consensus has been growing throughout the 1990s, the consensus among governments, economists, and multilateral institutions held quite firm until the Asian financial crisis spread globally in 1998.14 The roots of the crisis lie in the World Bank, the IMF, and the U.S. Treasury pressuring governments around the globe during the 1990s to open their stock markets and financial markets to short-term investments from the West. Quick injections of capital from mutual funds, pension funds, and other sources did propel growth in the 1990s, but they also encouraged bad lending and bad investing. Between 1990 and 1996, the volume of private financial flows entering poorer nations skyrocketed from $44 billion/year to $244 billion.15 Roughly half of this was long-term direct investment, but most of the rest was footloose, moving from country to country at the tap of a computer keyboard.

When Western investors got spooked in Thailand, Indonesia, and several other countries in mid-1997, the “hot money” panicked and left much faster than it had arrived. Big-time currency speculators deepened the crisis by betting against the currencies of the crisis nations. Currencies and stock markets from Korea to Brazil nose-dived, and as these nations stopped buying everything from oil to wheat, prices of these products plummeted as well. As the financial crises have spread from foreign exchange accounts at central banks to the industrial centers of the Indonesian, Russian, and other affected countries, there has been widespread pain, dislocation, death, and environmental ruin. The International Confederation of Free Trade Unions predicted that more than 27 million people would be unemployed in the five worst-hit Asian nations (Philippines, Indonesia, Malaysia, Thailand, and Korea) by the end of 1999.16

Fiddling while Asia burns, U.S. Treasury Secretary Larry Summers–continuing his predecessor Robert Rubin’s approach–proclaims the lofty rhetoric of constructing “a new global financial architecture” while continuing to advocate mere cosmetic changes, like increasing information disclosure and flow among nations. Yet, since real economies have collapsed, two sets of elite actors have broken away from the status quo positions of the IMF and the U.S. Treasury Department.

One faction supports free markets for trade, but not with respect to short-term capital. This group is led by such prestigious free-trade economists as Jagdish Bhagwati of Columbia University, Paul Krugman of MIT, Jeffrey Sachs of Harvard, and World Bank chief economist Joseph Stiglitz. Bhagwati argues that capital markets are by their nature unstable and require controls. Krugman has outlined the case for exchange controls as a response to crisis. Henry Kissinger, with his focus on promoting long-term over speculative investment, also falls within this group.17 As dramatic as some of these proposals are and as heated as the debate may sound, overall the group largely seeks to restore the consensus by allowing national exchange and/or capital controls under certain circumstances.

Not surprisingly, these critics also tend to disagree with portions of IMF structural adjustment programs. Prominent economists such as Jeffrey Sachs, one of the architects of the U.S.-promoted economic restructuring in Russia, have faulted the IMF for recessionary policies in Asia that turned a liquidity crisis into a financial panic and triggered economic collapse in a growing list of nations. They press for a major revision of IMF policies in favor of openness and creating more space for different policy responses to meet the needs of the moment.

The other set of dissidents argues for the abolition of the IMF. They view the problem as IMF interference in markets by bailing out investors, an activity that eliminates the discipline of risk in private markets (a phenomenon this faction calls “moral hazard”). This camp is led by such long-time free trade institutions as the Heritage Foundation and the Cato Institute (whose concern about publicly funded aid institutions in nothing new) as well as some free market economists, like Milton Friedman of the University of Chicago. The group’s ranks have recently swelled with such well-known and vocal converts as Citibank’s Walter Wriston, former Secretary of State George Shultz, and former Treasury Secretary William E. Simon.18

These two main offshoots of dissent within the consensus have been bolstered by new center-left governments in many European countries, who are also raising their voices to question parts of the consensus. For example, the French government helped stall efforts to further liberalize investment flows. Voices in the Canadian parliament (with counterparts in Europe) are exploring an international tax on foreign currency transactions to discourage the overwhelming majority of transactions, whose intent is purely speculative. Most Western European governments support at least limited versions of capital controls, and many press for explicit management of exchange rates.

Most of these elite dissenters share a strategic goal: to salvage the overall free market thrust of the Washington Consensus by modifying earlier positions in favor of unregulated capital flows. And although the debate is heated between these groups and the IMF/Treasury pillar, the arguments are largely over revisions to the consensus.

Still, the language some use in their critiques is raising questions about the wisdom of the theoretical foundations of the Washington Consensus and about the narrow interests that it serves. Free trade champion Bhagwati–echoing President Eisenhower, who warned of the military-industrial complex–has decried free capital mobility across borders as the work of the “Wall Street-Treasury complex.” By this he means the powerful men who move from Wall Street financial firms to the highest echelons of U.S. government and back, and who, in Bhagwati’s words, form a clique that is “unable to look much beyond the interest of Wall Street, which it equates with the good of the world.”19

In addition to these internal critics, however, the Washington Consensus faces continued attack from the same groups that led the opposition to its free trade agenda, as anti-free trade coalitions of all political stripes have expanded their critiques to encompass financial flows. These groups point out that the financial crisis has exacerbated the social and environmental crises endemic to the elite consensus.

On the environmental front, the more progressive critics are sounding the alarm that among the nations worst hit by the financial contagion are four of the six “emerging market” countries with the largest remaining tracts of forest: Brazil, Russia, Indonesia, and Mexico. With their economies now deeply integrated into the international market, all four feel pressure to increase their foreign exchange reserves by exporting timber resources. In 1998, this author witnessed first hand the environmental effects of the crisis in the Philippines; the pressure to increase export earnings prompted the government to rush through a series of investment projects that threaten vast environmental damage. These and related concerns helped propel elements of the progressive coalition in at least 15 countries to obstruct the elite consensus attempt to standardize liberalized foreign investment rules across the globe in the proposed “Multilateral Agreement on Investment.”

On the economic front, although the opposition of the political right and left to the corporate-driven global economy arises from different visions of alternatives to the Washington Consensus, the two strange bedfellows have, on key occasions, joined forces to block further momentum of the free trade agenda. Evidence of the success of this joint tactical alliance is seen in the congressional defeats of “fast track” trade authority and in public opinion polls revealing that the U.S. public is opposed to fast track and NAFTA by roughly a two-to-one margin.

In addition to the acrimonious public debate over free trade, citizen groups in both the North and South have exposed the adverse development impacts of the World Bank and the IMF, the two institutions that most zealously enforce Washington Consensus policies. After two decades of prodding the World Bank to address the impact of its policies on the environment, women, the poor, and workers, several hundred nongovernmental groups convinced World Bank President James Wolfensohn to carry out a multicountry comprehensive review of the bank’s policies. Labeled the Structural Adjustment Policy Review Initiative (SAPRI), the effort has helped to document the abuses of the structural adjustment, free market model.20

A New Alternative

Many free trade proponents begin their critique of opposition views with a ringing condemnation of the alternative: protectionism. The Globaphobia book of Brookings, the Progressive Policy Institute, and the Twentieth Century Fund is typical; it suggests that “protectionist remedies” are the only alternatives posed by critics.21

Again, the public is more sophisticated. In a November 1996 poll by BankBoston, only 23% of Americans labeled themselves “protectionists,” and only 25% accepted the label “free traders.” More people–45%–called themselves “fair traders.” And in that poll, 73% said that “labor and environmental issues should be negotiated as part of trade agreements.”22

With the crumbling of the elite consensus and widespread popular discontent, there is a vibrant debate over what the U.S. posture toward the global economy should be. Many positions advanced are far from protectionist. Ironically, one of the elite critics, World Bank chief economist Joseph Stiglitz, has attempted to steer the debate in a broader direction, even as his institution operationally remains more cautious. Stiglitz encourages the development of a post-Washington Consensus that moves beyond the narrow goal of economic growth to the more expansive goals of sustainable, equitable, and democratic development, but his institution, the World Bank, has yet to move in this direction.

In the United States, as in other Northern and Southern forums, unions, environmental groups, farmer organizations, and others are sketching the outlines of a new U.S. role in the global economy. Central to these efforts is the reorientation of U.S. policy away from the Wall Street-Treasury complex toward a broader definition of national interest. Mindful of the needs of U.S. workers, consumers, farmers, and others at home, this redefined vision recognizes that the greatest threats to the security of all of us are the wealth disparity, erosion of labor standards, and environmental degradation around the world–bred by corporate-led globalization.

Although critics both North and South share many concerns about the direction and impact of economic globalization, there are oftentimes sharp differences about the remedies. Within the South, both among citizen groups and governments, there is deep concern, for example, that Northern governments, environmental groups, and labor activists may use noneconomic standards to maintain an unequal playing field in international trade, to restrict Southern exports, and to protect jobs in the North.

A broader internationalist agenda requires a varied approach to globalization. Some aspects should be stopped, including trade in such harmful products as arms, toxic wastes, and drugs. Other aspects should be curtailed, such as speculative capital flows and agreements that give new rights to corporations without commensurate responsibilities. And some facets of globalization should be reshaped, such as antitrust laws, enforceable corporate codes of conduct, and tougher enforcement of internationally recognized labor and environmental rights.

A broader agenda also requires a thorough rethinking of U.S. policy in the realms of trade, investment, and finance. With respect to trade, the goal should be to craft a policy that helps U.S. workers and communities while advancing the rights and health of workers and communities abroad. There will be tensions as jobs shift both within countries and across borders. But if the United States and other countries managed trade relations to advance certain common principles, then trade and investment could better serve viable communities, a healthy environment, and dignified work. When feasible, managed trade should grant consumers choices that offer good quality and low prices, but not at the expense of the other goals of viable economies.

Managed trade should allow countries to protect their citizens against products manufactured by abusing workers or the environment in other countries. Concretely, it could be argued that the best part of the $57-billion 1998 U.S. trade deficit with China is rooted in the denial of Chinese workers’ basic rights to organize and strike and in the violation of core environmental standards. Hence, the U.S. should encourage China and other trading partners to respect core labor rights, and Washington should attempt to establish international trading rules that incorporate labor, environmental, and human rights standards.

As the United States and other countries shift toward more managed trade, the management could focus on:

  • promoting food safety and food security in order to protect farmers and peasants;
  • protecting sectors deemed vital to each country’s development strategy, its environment, and its people;
  • providing safeguards when currency fluctuations undermine otherwise competitive industries; and
  • providing safeguards that allow countries to react with tariffs and quotas when domestic industries experience destabilizing fluctuations or when overall trade deficits become unsustainable.

These policies fall under the overall rubric of a “new internationalism,” because the overarching goal is not to favor workers or communities in one country over another but rather to strengthen the role of all governments in protecting worker, community, and environmental improvement over narrow corporate interests. U.S. policy should not seek preferential treatment for U.S. workers or U.S. industries, except when there are clear violations of internationally accepted norms, or when one of the above principles of managed trade applies. There will be, under such policies, the displacement of some workers. Here, governments have the responsibility to intervene with far more effective safety net programs of training and education as well as policies to promote domestic investment, full employment, and better labor laws facilitating union organizing.

At the core of a new agenda on global finance is a reorientation of financial flows from speculation to long-term investment in the real economy at the local and national level.23 A premium needs to be put on creating maximum space for local and national governments to set exchange rate policies, regulate capital flows, and eliminate speculative activity. And mechanisms should be installed to keep private losses private.

Such goals require new action at the international, national, and local levels. A priority at the international level is the creation of an international bankruptcy mechanism independent of the IMF. When a country cannot repay debts, this mechanism would oversee a debt restructuring that requires public and private sharing of costs. The United Nations Conference on Trade and Development is examining ways that such a mechanism could prevent liquidity crises from becoming solvency crises. For instance, if Brazil or any other country was teetering on the brink of deep financial crisis, it could go to this facility rather than to the IMF.

With such a facility in place, the IMF could return to its smaller and more modest original mandate of overseeing capital controls, not capital account liberalization, and providing a venue for open exchange of financial and economic information. Citizen groups (led by religious coalitions in many countries) rallying under the banner of Jubilee 2000, have also argued that current debt reduction initiatives should be substantially expanded to cover a sizable amount of bilateral and multilateral debt, and that debt reduction should be delinked from IMF and World Bank conditions.

Finally, at the international level, many are reviving a 1978 proposal by Nobel prize winner James Tobin of Yale, who suggested a tiny global tax on foreign currency transactions as a deterrent to part of the emerging casino of speculative capital flows.24 In today’s flourishing casino, Tobin’s proposal would discourage harmful speculation and could generate revenues that might be deployed to a wide array of needs from environmental cleanup to social investments. Some have suggested shifting part of the revenue back to the tax-imposing governments as an incentive to them for adopting the tax.

At the national level, there is renewed enthusiasm for ensuring that the rules and institutions of the global economy create maximum space for national governments to regulate capital movements. Look at the countries that aren’t getting destroyed in the crisis: India, China, Chile. Each has capital controls that discourage short-term “hot money” while encouraging long-term productive investment. More and more national and local governments are talking about incentives to channel outside capital to meet local opportunities and needs and to direct mutual and pension fund investments toward productive local activity. For example, unions in Quebec and other parts of the world are taking control of pension funds for local investment.

In trade and investment, a multiyear process between U.S. unions and citizen groups and their counterparts across the Americas has begun to craft an “Alternatives for the Americas” framework for a new approach to U.S. policy.25 The goal is to shift integration from an emphasis on exports based on the plunder of resources and the exploitation of workers to sustainable economic activity that roots capital locally and nationally. Such an approach rejects the undemocratic fast track authority in the United States. Instead it supports the development of a democratic and accountable process for negotiating trade and investment agreements in the United States and throughout the hemisphere. Among the many challenges of implementing such a new internationalist agenda is the need to keep the U.S. from using its disproportionate power to advance standards and rules that protect its own citizens and economic sectors while keeping its less affluent trading partners undeveloped and disadvantaged.

Highlights of the alternative agenda include the following:

  • Harmonize Labor and Environmental Standards Upward: “The commitment to apply and respect basic workers’ rights should be included in any hemispheric agreement as an obligatory requirement for membership in the accord…. The precedence of environmental accords signed by the governments of the Americas should be established in the negotiations around, and agreement on, investment and trade. Environment and sustainability should not be limited to a single area of economic-financial accords, but rather [should] be addressed as an overarching dimension and perspective throughout any such agreements.”26 Representatives of citizen organizations in the South accept this call as part of a grand bargain wherein groups in the North agree to advocate measures to close the growing gap between North and South.
  • Close the Gap Between Rich and Poor Countries Through Debt Cancellation Delinked from IMF Conditions: “In the Western Hemisphere, the most effective way to level the playing field would be through a substantial reduction of the debts owed by low-income countries. Therefore the FTAA [Free Trade Area of the Americas] should include the negotiation of a reduction of the principal owed, lower preferential interest rates, and longer repayment terms. Orthodox structural adjustment conditions demanded by the World Bank and the IMF should be abandoned as they have manifestly failed to resolve the debt crisis and have caused enormous hardship for the poorest sectors of the population.”27 In fact, a Development GAP study of 71 countries that have adopted World Bank and IMF-dictated structural adjustment programs–in part to reduce their debts–found that debt as a portion of GDP grew on average by nearly 50%.28 The alternative approach, urging that debt reduction be decoupled from IMF conditions, departs significantly from the Clinton administration’s current strategy. The administration is supporting increased debt relief but tying such relief to strict adherence to IMF and World Bank conditions.
  • Strengthen Respect for Migrant Worker Rights: “All governments should sign and/or ratify the ‘International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families’ (1990), and a similar instrument should be created for the Americas. This convention…must be part of the international legal framework for all trade and financial negotiations.”29

All of this debate and activity around finance, trade, and investment is reigniting the legitimacy of a state role in development. Whatever comes of the global financial crisis, the widespread fear of an unregulated casino economy able to devastate economies overnight is also destroying the Washington Consensus’ rejection of an activist role by the state. Though most elite participants in the debate allow for a government role only in the realm of short-term financial flows, this concession lets the government genie out of the bottle. If most now acknowledge that governments are needed to check markets in one realm, perhaps there can be a more intelligent discussion about what role governments might play in other aspects of the rapidly globalizing economy.

Citizen groups are growing strong enough to stall the implementation of elite consensus policies, as seen in the fights over fast track and the MAI. In private discussions among think tanks that have been at the center of the consensus, there is a grudging acknowledgment that the Washington Consensus has lost much of its legitimacy with the public, and that there is a need to factor more labor and environmental concerns into the policy. Yet, the growing strength of citizen opposition does not yet translate into their ability to create a new overall consensus. Too much of the elite still clings to the basic precepts of the old consensus.

The emerging era of no overall consensus on the U.S. role toward the global economy can be a healthy and vibrant era, notwithstanding the vast human suffering around the world among victims of the financial casino. If there is any lesson from these past two decades, it seems to be that an elite consensus on the best approach toward globalization is dangerous.

Most of the new citizen debate over globalization focuses on the theme of democracy. In country after country, citizen organizations are demanding an end to the customary practice of governments consulting primarily with corporate representatives. They are demanding that global institutions–and the negotiations setting their rules–be transparent, accountable, and inclusive. They are insisting that globalization not undermine the democratic prerogative of national and local governments to decide limits and priorities in economic matters. As workers, environmentalists, farmers, women, and others demand to be heard, the contours of the global economy of the 21st century are being redrawn.

Reference Notes

1 Jackie Calmes, “Despite Buoyant Economic Times, Americans Don’t Buy Free Trade,” Wall Street Journal, December 10, 1999. In the same poll, almost three-quarters responded that immigration “should not increase, because it will cost U.S. jobs and increase unemployment.”

2 See the Development Group for Alternative Policies website (http://www.igc.org/dgap) for documentation on the impact of free market regulations on Southern nations.

3 Mortimer Zuckerman, “A Second American Century,” Foreign Affairs, May/June 1998.

4 John Williamson, “The Progress of Policy Reform in Latin America,” Policy Analyses in International Economics, Number 28 (Washington: Institute for International Economics, January 1990). Williamson’s 1990 monograph built on a paper entitled “What Washington Means by Reform,” which he presented at a conference in La Paz, Bolivia, in 1985.

5 Correspondence with MacEwan, March 5, 1999.

6 Gary Burtless, et al., Globaphobia: Confronting Fears About Open Trade (Washington: Brookings Institution, Progressive Policy Institute, and Twentieth Century Fund, 1998), p. ix.

7 Burtless, p. 7.

8 Calculated by author using data from the United Nations Development Program and Forbes in 1999.

9 Quoted in Sierra Magazine, July/August 1996, p. 22.

10 Robert Scott, Thea Lee, and John Schmitt, “Trading Away Good Jobs: An Explanation of Employment and Wages in the U.S., 1979-1994,” Economic Policy Institute, October 1997.

11 Data published in Sarah Anderson, John Cavanagh, and Thea Lee, A Field Guide to the Global Economy (New York: New Press, 2000).

12 Burtless, pp. 20-21.

13 Data supplied from Steve Beckman, an international economist with the United Auto Workers, 1999.

14 See Lance Taylor, “The Revival of the Liberal Creed—The IMF and the World Bank in a Globalized Economy,” World Development, vol. 25, no. 2, 1997.

15 Figures from the World Bank, quoted in John Cavanagh and Sarah Anderson, “International Financial Flows: The New Trends of the 1990s and Projections for the Future,” Institute for Policy Studies, April 1997, p. 6.

16 See International Confederation of Free Trade Unions, ICFTU Online, January 21, 1999.

17 Henry Kissinger, “Perils of Globalization,” Washington Post, October 5, 1998.

18 William E. Simon, “Abolish the IMF,” Wall Street Journal, October 23, 1997.

19 Jagdish Bhagwati, “The Capital Myth” Foreign Affairs, May/June 1998, p. 12.

20 See the Development GAP, Structural Adjustment Participatory Review International Network website at: http://www.igc.org/dgap/saprin/index.html.

21 Burtless, p. 7.

22 BankBoston, “Poll Shows Public Believes Trade Pacts Cost U.S. Jobs,” Press Release, November 7, 1996.

23 The proposals that follow are drawn from “A Call to Action: A Citizen’s Agenda for Reform of the Global Economic System,” which was drafted at a December 1998 meeting sponsored by Friends of the Earth, the International Forum on Globalization, and the Third World Network. For a detailed analysis of alternative proposals regarding global finance, see Robert A. Blecker, Taming Global Finance: A Better Architecture for Growth and Equity (Washington: Economic Policy Institute, 1999).

24 James Tobin, “A Proposal for International Monetary Reform,” Eastern Economic Journal, vol. 4, 1978, pp. 153-9.

25 Alliance for Responsible Trade, Common Frontiers, Red Chile por una Iniciativa de los Pueblos, Red Mexicana de Acción Frente al Libre Comercio, and Reseau Québécois sur l’Integration Continentale, “Alternatives for the Americas: Building a Peoples’ Hemispheric Agenda, Discussion Draft #2,” November 1998.

26 Alternatives for the Americas, pp. 15, 19.

27 Alternatives for the Americas, p. 36.

28 The study by the Washington-based NGO was released in April 1999. It found “a positive correlation between the number of years that a country has an adjustment program in place and an increase in debt as a percentage of GDP. The average (mean) increase in the debt/GDP ratio among those countries studied was 49 percent.

29 Alternatives for the Americas, p. 25.