Time-Warner, which controls an unprecedented number of periodicals, books, films, TV programs, and cable TV systems, acquired Ted Turner’s TV channels and film inventory. A German company, Bertelsmann AG, was reported in May 1998 to be acquiring the biggest U.S. book publisher, Random House, for over $1 billion, having already taken over Bantam Books, Doubleday, Dell-Delacorte and Broadway Books, the BMG music club, the RCA and Arista record labels, and McCall’s and Family Circle magazines in the United States.277
The “Baby Bell” phone companies, separated from “Ma Bell” by a court antitrust decree, were allowed to recombine, and to enter the long-distance telephone business. The merger of Bell Atlantic and Nynex, valued at $22.7 billion, was second in size only to the $25 billion RJR Nabisco deal in 1989.278
Non-profit health services become private monopolies
Health maintenance organizations (HMOs), originally required to be non-profit, had convinced almost every state legislature by 1996 to allow HMOs to be organized for profit and in some cases to be converted from nonprofits.279 Similarly, nonprofit hospitals were allowed to become profit-making by merger or acquisition. A Public Citizen report found that in 1995 there were 447 community hospitals involved in merger and acquisition activity (more than 900 if hospitals already part of chains are included)—almost one fifth of all community hospitals.280
Two hospital chains—Columbia/HCA Healthcare, the nation’s largest for-profit hospital chain, and Tenet, ranked number two—had gained control of three-quarters of the for-profit market by 1994, and Columbia/HCA said that it planned to acquire as many as 500 more hospitals in the next few years. In 1995 it purchased or began joint ventures with 41 nonprofit hospitals.
In 1997 Columbia/HCA owned 340 hospitals in 36 states, England, and Switzerland. Founded in 1988 by Richard L. Scott, a former attorney, with only $125,000 of his own money and $61 million in borrowings, it grew from two hospitals in Texas to its present huge hospital empire, 147 outpatient surgery centers, approximately 550 home-health agencies, and a host of other medical facilities.
Columbia/HCA’s methods have come into question in the biggest health-care fraud investigation ever conducted, involving Florida, Tennessee, Georgia, Texas, Utah, North Carolina, and Oklahoma. Meanwhile, a merger being negotiated with Tenet, the second largest chain, would produce a profit-making health-care combination with a $31.5 billion market value.
Tenet, then known as National Medical Enterprises, was the target of the previous largest health-care fraud investigation that was settled in 1994 for more than $380 million. Later, in July 1997, a Tenet unit agreed to pay the U.S. more than $12 million to resolve allegations that several of its hospitals defrauded Medicare through illegal contracts and kickbacks.281
The military-industrial complex
Consolidation of power is especially dangerous in the defense industry. Federal Trade Commission approval in 1997 of the $14 billion merger of McDonnell Douglas Corp. into Boeing Co. to form the largest aerospace company in the world left the Defense Department with only one bidder on military aircraft. Boeing was left with only two competitors for commercial airline sales throughout the world.282
In his farewell address to the nation in 1961, President Dwight D. Eisenhower had warned of “an immense military
establishment and a large arms industry” and urged an alert and knowledgeable citizenry to guard against “the acquisition of unwarranted influence...by the military-industrial complex,” referring to the Defense Department, military contractors, and members of Congress who represent defense-oriented constituencies. Unfortunately, his warning has been as little heeded as George Washington’s farewell warning against “entangling foreign alliances.”283
Monopoly in the national pastime
An interesting special case of monopoly involves major league baseball. Periodically, as in 1994 when a baseball strike for the first time resulted in cancellation of the World Series, some fleeting attention is paid to the unique status of the national pastime. The legal immunity of the owners makes their situation stand out among all the organized professional sports. It also explains their arrogance in calling lockouts and refusing binding arbitration of labor disputes.
A fundamental error was made by the Supreme Court long ago. Chief Justice Oliver Wendell Holmes was speaking as a rooter rather than a jurist when he proclaimed baseball was not a business, just a game. He was wrong then, and the error is even clearer now when players’ salaries and club franchises are multi-million-dollar affairs. Why should big league baseball club owners get special privileges not accorded to other profit-seeking businesses or even other professional sports?
The immunity of organized baseball from antitrust challenges has allowed the American and National Leagues to limit expansion and the owners to hold communities to ransom. To have a major league team they have been compelled to furnish expensive facilities at taxpayer expense. Owners want the new stadiums to have luxury suites or “sky-boxes” which typically sell for $80,000 to $200,000 a season to corporate executives who will use them for entertaining clients and associates as a tax-deductible expense.
During the 1994 strike bold statements were issued by Congressional leaders demanding legislation to remove baseball’s
antitrust immunity. The law finally enacted and signed by the president on October 27, 1998, however, revokes antitrust exemption only for labor relations, not for relocation and expansion decisions, and appears to have little practical effect because of a 1996 Supreme Court ruling that unionized employees cannot file antitrust suits.284
World competition as an excuse for monopoly
When huge American-based companies seek permission to combine into even larger entities, their favorite excuse is that they need to merge in order to become more competitive in a world market where they are contending with other giant corporations. If the company is obtaining capital, arranging for production, and marketing its products on a global basis, however, it can no longer be factually described as an American company. It is multinational, having stockholders, creditors, employees, subsidiaries, sub-contractors, and customers in various countries.
As Korten pointed out, when Philip Morris acquired Kraft and General Foods, “as it did in the 1980s to create the U.S.’s largest food company, it does not make U.S. markets more competitive; it creates a strengthened platform from which to create and project monopoly power on a global scale....The bigger our corporations, the greater the need for big government to protect the public interest....The more we cut our giant corporations down to human scale, the more we will be able to reduce the size of big government....”285
Being more competitive, in the ideal capitalism of Adam Smith, results in better value to consumers. It doesn’t always work that way in the modern world of multinational corporations. Price reductions and product enhancements may be temporary until a giant corporation drives smaller competitors out of the market. This process can continue until the few remaining global corporations agree to divide the market, geographically or otherwise, so that each has a monopoly in its sphere.
The trend can be seen by anyone browsing the shopping malls and observing several results:
1. The tenants of each mall are overwhelmingly the same as those of other malls. The anchor stores are chain department stores, the specialty shops are mostly members of chains that are represented in the other malls, and the same can be said generally of the fast food restaurants in the malls. “You’ve seen one mall, you’ve seen them all.”
2. To a considerable extent the same product lines are found in different stores. If you prefer a color or style that is not “trendy” at the moment, you are unlikely to find it by going from one store to another.
3. Prices have little to do with products’ intrinsic worth. Successful promotion of denim as fashion since the 1960s has made sturdy work clothes into expensive “designer” garments. Shoes made for a few pennies in sweatshops around the world are priced at $100 or more.
If we interpret “more competitive” in the sporting sense of American companies winning greater market share than those of other nations, the question arises: “How does America benefit if stockholders (of whatever nationality) in a U.S.-based global corporation prosper at the expense of American workers and consumers?”
Where a global corporation is based is almost irrelevant, since the great corporations have grown so large they tower over all but the largest nations and have learned to dominate the politics of even the mighty United States. Just as U.S. corporations found it to their advantage to be chartered in Delaware because of the permissive nature of its laws, and ships of whatever ownership tend to be chartered in Panama or Liberia for similar reasons, multinational corporations can choose their nominal nationality as a matter of convenience and play off one nation against another to the corporation’s commercial advantage.
When nations allow monopolistic practices, ostensibly to facilitate competition in global markets by their home-based companies, the eventual outcome is not competitive global free enterprise but global domination by mega-corporations that are powerful enough to form cartels, inflate prices, drive down wages, and dominate governments. It is appropriate for corporations to concentrate on profits and returns to their stockholders, but if that
effort is not under the restraint of fair competition and government regulation for public protection, the impact on humanity and the environment can be horrendous.
The ultimate monopoly
Although monopolies have been created by royal grants, by patents and copyrights, by public utility franchises, by broadcast licenses, and by market power that drives out competition, the foremost natural monopoly is land. When economists speak of land as a factor of production, they include all natural resources, such as “arable land, forests, mineral and oil deposits, and water resources” in the words of one textbook, “free gifts of nature usable in the productive process.” In those countries where the populace is most down-trodden, the control of land by a few wealthy families is typically cited as a major cause.
The Single-Tax Movement, founded by Henry George and explained in his book, Progress and Poverty, became strong in the late 19th century and continues to exist today. It proposes to abolish all taxation other than upon land values, declaring that alone would provide all the revenue needed for government and could eliminate the other taxes that burden progress. George quoted David Ricardo: “A tax on rent would fall wholly on landlords, and could not be shifted to any class of consumers.” That is because, as monopolists, land owners will charge all that the traffic will bear even without being taxed.
For justification, George pointed out that all ownership of land traces back to some time when it was taken by force. Apart from the shaky titles upon which private land ownership rests, George described at length how increases in prices of land, sometimes quite dramatic, occur as the result of population growth and the general progress of society, and not by any productive work of the land owners. In modern times prices of land are seen to jump sharply when land zoned for farming or low density residential use is rezoned to permit commercial development. Land owners obtain a windfall, and have been known to show their gratitude to public officials who change the rules for them.
In America it may seem enough land is available for this not to be a major problem. On the other hand, throughout the world, in Africa, in Asia, and along the Amazon in South America, multinational corporations have been busy acquiring land to exploit natural resources. In many cases, with the connivance of corrupt governments, indigenous peoples have been driven off their ancestral lands. Mining, oil drilling, and timber cutting have often had disastrous effects on local farming and fishing. Henry George may or may not have come up with the ultimate solution to this problem, but the problem has not gone away.
31. CHANGING VIEWS ABOUT THE BALANCE OF TRADE
Much concern about trade over the years, especially in newspaper editorials, has reflected worry about an “unfavorable balance of trade,” meaning the nation imported more than it exported. This has been a cause for alarm as long as anyone can remember. Should it be? It depends on what has been bought, just as the significance of national debt, as previously discussed, depends on whether it has been used for investment (physical and human) or consumption. During the period of rapid industrial development in the United States there was much importing of machinery and tools that improved production capacity. The impact of a trade deficit also depends on how it has been financed. When the required foreign currency has been borrowed, it must someday be paid back, either through a surplus of exports or by selling assets, such as real estate, and too much foreign ownership of American property can be worrisome.
As America has reduced its tariffs and trade barriers under international agreements, exports of U.S. products to other countries have fallen far short of balancing the imports. According to William Greider (1997): “Cumulatively, since 1980, Americans have bought $1.5 trillion more than they sold in their merchandise trade with foreign nations. The trade deficits started modestly in 1975, exploded during the 1980s, and, despite ebbs and surges, set a dollar-volume record of $180 billion in 1995.”286
In the 1990s shoppers found “Made in China” dominating many categories of merchandise, and other labels indicated imports from numerous low-wage countries in Asia and elsewhere. In 1997 imports from China alone were $62.6 billion, having more than doubled in five years, and far surpassed the nearly $13 billion U.S. exports to China. This flood of imports was on top of heavy reliance on foreign oil. The foreign-origin percentage of goods other than oil sold in the U.S. had grown, according to David Korten, from 15% at the beginning of the 1980s to 30% in 1995.287
Free trade favored by economists
Probably more economists agree on the issue of free trade than any other question. In principle, it is an extension of the division of labor. Adam Smith wrote in 1776: “The tailor does not attempt to make his own shoes but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers.”
This idea was expanded by Smith, David Ricardo, and others to show how each nation should exploit the “comparative advantage” provided by its climate, natural resources, human skills, and other national assets. The comparative advantage argument for free trade is endorsed by virtually all economists, agreeing that a nation should concentrate on making those products for which it has a comparative advantage (not even necessarily an absolute advantage) and importing the others. Impressive proofs have been offered that the nation will benefit by not imposing tariffs and trade barriers regardless of what others do. Some economists, however, have come to believe it necessary to place restrictions and conditions on completely free trade when other nations behave badly.
History of tariff policy
Since nations are run by politicians rather than economists, national policies have often been based on protectionism rather than free trade, imposing tariffs and other restrictions against imports. In the U.S. the battle over tariffs has continued throughout most of the nation’s history. Curiously, the Republican and Democratic parties have changed places in this debate.
In 1931, during the Hoover administration, the Republican Congress enacted very high tariffs in the Smoot-Hawley Tariff Act that is widely believed to have worsened the Great Depression of the 1930s. After that great failure, American policy was to work with other countries for the reduction of trade barriers. In 1934, during Franklin D. Roosevelt’s first term, the Democratic Congress passed the Reciprocal Trade Agreements Act that led to negotiations and tariff reductions.
By 1993 the parties’ positions had reversed. Republicans were pressing to enact a North American Free Trade Agreement (NAFTA) with Mexico and Canada, while opposition in Congress came mainly from Democrats. NAFTA had been proposed partly in response to the success of the European Common Market, which opened up trade among its members while maintaining barriers against outsiders.
President Clinton supported NAFTA and got it approved with the votes of most Republicans and some Democrats. Independent presidential candidate Ross Perot had campaigned against NAFTA across the country in 1992, predicting a “great sucking sound” as American jobs would be drawn to Mexico. Most labor unions also opposed it.
Why did the parties switch?
At the risk of over-simplification, one could say that for most of their histories the Republican party reflected the interests of the industrial North while Democrats were the party of the agricultural South. Although farmers, from time to time, have felt a desire for tariff and/or quota protection against foreign agricultural products, they built up a fierce resentment against high prices of manufactured goods they needed due to tariffs on those products. Northern industrialists, of course, favored tariffs that handicapped foreign competition against their products, often joined by their employees who feared for their jobs if imports captured the market.
Several things changed. The South, which had been solidly Democratic for generations, began switching to the Republicans when white Southerners were cultivated as a Nixon political strategy. Farm support for free trade weakened as factory farming displaced large numbers of farmers. Corporations, which generally had lobbied for high tariffs on consumer goods competing with their products and low tariffs on the raw materials they imported, found all tariffs a burden as they combined into multinational empires. The corporate trend toward global markets caused business elements in the Republican party to lobby against trade barriers.
Business interests also influenced the Democrats, but opposition to NAFTA came mainly from Democrats with labor union backing and from Perot’s independent Reform Party. Historically, labor unions have been spotty in their attitude toward trade barriers. Philosophically, they often have favored free trade to bring down consumer prices, but when they perceived a barrier as necessary to protect jobs in a particular industry they sided with owners to demand protection.
Controlling the balance of trade
When governments seek to control trade, one method is by means of tariffs, quotas, or other trade barriers. Typically other nations retaliate and everyone is worse off. Another method is to monkey with foreign exchange rates (which could also have many other consequences). That is, if a government devalued its currency to make foreign goods cost more, imports would be discouraged. At the same time, its exports would cost less in foreign currencies and therefore be cheaper and more attractive in other countries. This would, at least in theory, tend to improve its balance of payments, unless, of course, other countries retaliated by devaluing their currencies.
History has shown that free trade and freely floating exchange rates, in the absence of government and central bank interference, find their own equilibrium. No country can run an unfavorable balance of payments indefinitely—the foreign currency borrowed to cover the difference must be redeemed sometime, which tends to drive up its cost in terms of the local currency until an equilibrium is reached.
Thurow wrote in 1996: “Since trade deficits can only continue as long as someone is willing to lend the deficit country the money necessary to pay for its trade deficits, the current pattern will essentially continue as long as Japan is willing to lend to the U.S. the money that the U.S. needs to pay for its entire trade deficit—a sum about twice that of the bilateral deficit between Japan and the U.S., since the rest of the world pays for its Japanese deficits with its American surpluses....”288
Are foreigners getting our national assets?
Concentration on the trade deficit may be distracting us from more important questions. As recently as 1980, according to Greider, the U.S. had a net surplus in “factor incomes” every year of $35 billion or so, equal then to 1.5% of the national income. That refers to all of the profits, dividends, and interest payments that American firms and investors collected from their investments abroad less the outflow of financial returns paid to foreign investors on the assets they held in America. In the fourth quarter of 1993, for the first time in nearly a century, the outgo of factor incomes exceeded the inflow.
Meanwhile, government and private borrowing abroad had turned the U.S. from a creditor to a debtor nation. In the second quarter of 1989 foreigners earned $31.9 billion on their investments in the U.S., surpassing the $26.9 billion Americans earned on their investments abroad.289 For the first time in history, one economist declared, “an advanced industrialized nation had gone back to debtor status in peacetime.”290 Slavin noted in 1991 that foreigners owned about 10% or 12% of real assets in this country, and “at the rate they’re going, within another 20 years they’ll own more than half.” He wrote that they owned half of the cement industry, one third of the chemical industry, and such American institutions as TV Guide, Burger King, Bloomingdale’s, A&P, Woman’s Day, Twentieth Century Fox, Smith and Wesson, and Tiffany’s.
“The Japanese own L.A.’s Arco Plaza, New York’s Exxon Building, Washington DC’s U.S. News & World Report Building, Atlanta’s IBM Tower, Las Vegas’s Dunes Hotel, and most of the major hotels on Waikiki Beach,” he added. “The British have $1 billion invested in Washington, DC real estate....In fact, foreign interests hold close to half the office space in downtown Los Angeles, about 40% in Houston, one third in Minneapolis, and a good 20% in New York.
“Foreign banks hold about 20% of all the banking assets in the US and provide perhaps 30% of all business loans....Some investment banking firms are owned in part by foreigners, while Aubrey G. Lanston was purchased outright by the Industrial Bank
of Japan....The British...now own three of the top five [advertising] agencies.”291
After the strong dollar due to high interest rates at the start of the 1980s had stimulated imports and increased the debt owed to foreigners, the dollar began to slide in March 1985, making that debt represent greater value in U.S. assets. Reich said in 1988: “With the dollar priced so low, and American companies so uncompetitive, it’s as if America announced a fire sale, with everything marked off the regular price.” By then foreigners owned 12% of America’s manufacturing base, setting a 20th century record. In 1980 it had been only 3%.292
Eisner, in 1994, was unworried by increasing foreign ownership of assets in the United States. He remarked that many American investments overseas had been made years earlier and increased in value, even if only by inflation, so that official statistics on a cost basis undervalued their current worth. “The bottom line,” he wrote, “is whether we are paying foreigners more than they are paying us, and until at least the last year we have not been.” He referred to 1992, when net investment income was positive at $6 billion, “and turned only trivially negative in 1993.”293 By 1996, it was positive but less than $3 billion.294
As Daimler-Benz announced an agreement to buy Chrysler Corp. in May 1998, the Associated Press reported that direct investment by German companies in the U.S. had grown to $7 billion in 1997, eight times what it was five years earlier.295 The $40.5 billion purchase of Chrysler was surpassed in August 1998 as the biggest foreign takeover of a U.S. company when British Petroleum PLC agreed to pay $48 billion for Amoco Corp., strengthening BP’s ranking in third place behind Royal Dutch-Shell and Exxon among the world’s oil companies. It was estimated that 6,000 jobs would be cut, in what the Associated Press called “the biggest industrial merger ever.”296
Global corporations and foreign governments
From the point of view of the multinational corporations, whether headquartered in the U.S. or elsewhere, America’s trade deficits don’t matter. A sale counts whether from a domestic or foreign factory, whether an export or an import. In fact, such
companies assemble products from so many low-wage sources that it is difficult to identify a “country of origin,” and for tax reasons they manipulate prices between their subsidiaries so that official export and import figures become distorted.
Greider commented that when President Clinton promoted Boeing’s aircraft sales abroad, “he was also championing Mitsubishi, Kawasaki, and Fuji, the Japanese heavies that manufactured a substantial portion of Boeing’s planes. Boeing was offloading jobs from Seattle and Wichita to China as part of the deal....”
In addition to global corporations, other nations attempt to influence U.S. trade policies and rewrite U.S. laws in favor of foreign corporations. In the late 1980s, 92 Washington law, public relations, and lobbying firms were employed on behalf of the Japanese government and corporations, compared to 55 for Canada, 42 for Britain, and 7 for the Netherlands. Japanese corporations were spending an estimated $100 million a year on political lobbying in the U.S. and another $300 million to influence public opinion in the U.S. Later the Mexican government spent upwards of $25 million on its campaign for NAFTA.297
The extensive investigation by Congress in 1997 of alleged Chinese contributions to President Clinton’s 1996 election campaign recalled the original “China Lobby” of Cold War days. Communism being the exclusive criterion for judging nations in the Cold War, our government blacklisted mainland China and subsidized Chiang Kai-shek’s government-in-exile on Taiwan, which maintained the biggest lobby in Washington, generously rewarding its many supporters in Congress.
The new China lobby, this time supporting mainland China, consists of a one-trillion-dollar bloc of 55 major U.S. companies including General Motors, Mobil, Exxon, Caterpillar, United Technologies, Boeing, Cargill, Philip Morris, Procter and Gamble, TRW, Westinghouse, IBM and others. U.S. industrialists claim that freer trade with China means more jobs for Americans, but the truth is that China annually exports $51 billion or more to the U.S. while importing only $12 billion from the U.S.298 Meanwhile, China demands that U.S. companies relocating there
hand over access to high-technology trade secrets and know-how.299
In 1995 by playing off General Motors and Mercedes-Benz over rights to manufacture and sell in China for fixed periods of time China ended up gaining sophisticated technology from both to design and build new models. By contrast, when China insisted on technology transfer in automobile manufacturing, Japan had said “no thank you” and opted out of the race.300
32. A NEW KIND OF TRADE WAR
Trade warfare, which has worried many policy makers and economists, is no longer a simple matter of raising tariff barriers against imports. U.S. tariffs were reduced from an average of 53% in 1930-33 to less than 15% by 1951. This occurred under the 1934 Trade Agreements Act, which allowed reciprocal reductions without Congressional ratification, as well as several international conferences following establishment of the General Agreement on Tariffs and Trade (GATT) in 1947. Because of reciprocity, tariffs of other countries were also reduced.
Tariffs, however, are not the only method by which nations discourage imports. Quotas are sometimes used, and even more often there are structural obstacles, such as official rules and local industry practices that tend to keep outsiders from entering the home market. Such barriers have been cited by the American automotive industry, for example, as preventing sales in Japan.
Trade warfare has also included forcing companies to reveal technology, often developed with the help of government subsidies, as the price of low-cost overseas production and/or access to home markets. Such methods were used by Japan to destroy most of the American electronics industry. According to Richard Florida and Martin Kenney’s The Breakthrough Illusion (1990), the greed of U.S. companies for short term profit often caused them to sell their innovations to foreign companies instead of perfecting them in mass production at home.301
By the 1990s a change in the nature of capitalism had altered the terms of the battle over trade restrictions. No longer were the main protagonists nationalistic companies each seeking to invade foreign markets while protecting their home market. Instead, multinational corporations of dubious national identity sought access to global markets and fought against any restriction by governments, whether of working conditions, labor practices, consumer protection, product safety, or environmental responsibility.
Ironically, U.S. official policies had helped to create global corporations without loyalty to the U.S. even if headquartered here. Government subsidies helped U.S.-based corporations establish factories abroad, and the tax laws allowed advantages to such companies. As Greider wrote in the American Prospect (Jan.-Feb. 1997):
“It makes no sense for American taxpayers to subsidize the dismantling of their own industrial base or to provide various tax breaks to support the balance sheets of companies determined to globalize their employment base....If American companies are willing to operate factories where their workers are policed by communist cadres, if they accede to foreign demands for certain levels of investment, employment, and output, then they can surely learn to deal fairly with their own native land....”302
The business elite, converted from isolationism and protectionism to global market capitalism, now looks to international bodies for help in achieving its objectives. The World Bank and the IMF pressure borrowing countries to ease the way for global corporations to displace local agricultural and manufacturing industries, making local populations dependent on foreign sources for jobs and food. The North American Free Trade Agreement (NAFTA) and global trade agencies also aid corporations to prevail against national legislation.
North American Free Trade Agreement
Until the 1993 debate between Ross Perot and vice-presidential candidate Al Gore on the Larry King show, I was undecided about NAFTA. It would appear to be a good thing for the U.S., as well as for Canada and Mexico, so long as it didn’t contain pitfalls. The treaty, as negotiated by the Bush administration, was considered by Clinton and Gore to lack safeguards against pollution and labor exploitation, so side agreements on these points were added.
Because Perot never explained his opposition by pointing out serious shortcomings in these agreements—preferring to dwell on problems that occurred before the Clinton administration took office, and losses of American jobs that occurred without NAFTA –I was inclined to accept Vice President Gore’s assurances about
the side agreements. Subsequent events showed the agreements to be toothless, and certainly Congress did nothing to remove the tax and subsidy incentives from corporations moving their operations abroad.
The greatest harm was in the failure of protections against pollution and labor exploitation. As reported in a 1996 article in Dollars and Sense, “Corporations and their government allies in all three NAFTA countries vehemently opposed setting up institutions with strong monitoring and enforcement powers.” They had their way, as no budget was provided for enforcement.
NAFTA did not begin, merely accelerated, business moves for tax breaks, lax environmental regulations, and compliant labor. Proctor Silex, for example, had moved for these reasons from the northeastern U.S. to Moore County, South Carolina, and got the county to float $5.5 million of municipal bonds to finance sewer and water hookups for its expansion. Then it decided in 1990 to move again to Mexico, leaving the county 800 unemployed workers, many drums of buried toxic waste, and the sewer and water debt.303
The south side of the border, even before NAFTA, had attracted General Electric, Ford, General Motors, GTE Sylvania, RCA, Westinghouse, Honeywell and many other companies. The 620 maquiladora (assembly) plants employing 119,550 workers in 1980 had grown to 2,200 factories employing more than 500,000 Mexican workers in 1992.304
While the environmentally destructive operations of factories in Mexico seem to have been invulnerable to the protections NAFTA was supposed to bring, Ethyl Corporation may have found a way to use NAFTA to defeat pollution control in Canada. In September 1996 the company began steps to prevent the Canadian government from outlawing its exclusive product, MMT (methylcyclopentadienyl manganese tricarbonyl), designed to boost octane in gasoline. The Canadian government’s objection to MMT is the fear that manganese may be neurotoxic and also interfere with computerized pollution diagnostic systems.305
This is an example of how provisions of trade agreements designed to prevent national regulations from being used as trade
barriers have had the detrimental effect of undermining national and local health, safety, and environmental standards. Similarly, trucks crossing the border from Mexico have been made immune to California vehicle safety rules.
GATT and WTO
The success of FDR’s reciprocal trade agreements, GATT, and several later international conferences at which GATT was extended, led to the creation in 1994 of the World Trade Organization (WTO). Based in Geneva, it enforces rules for world trade among developed nations. As members, countries forfeit some of their sovereignty and agree to abide by WTO rulings affecting their trade policies.306
As in the case of NAFTA, multinational corporations attempt to use WTO not only to break down trade barriers but also to undermine national and local rules on health, safety, workers’ rights, and the environment. They can accomplish this by persuading any member government to bring a challenge under the following provision that lurks among some 2,000 pages of the GATT agreement creating the WTO: “Each member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements.”
WTO will not accept as valid the desire of a nation to reduce risks by enforcing stricter standards than those of WTO. Unfavorable WTO decisions cannot be appealed in federal or state courts. Challenges are heard in secret before a panel of three members who are usually lawyers experienced in representing corporate clients on trade matters. Their individual positions must not be revealed even after a decision is reached, even the documents presented in a case remain secret unless a government releases its own documents, and the defendant bears the burden of proof. All of this is undemocratic but highly favorable to corporations that want to ride roughshod over health, safety, human rights, and environmental protections.
David Korten (1995) declared: “Control of economic rules is one of the most important powers in the world today. Under the WTO, a group of unelected trade representatives will
become the world’s highest court and most powerful legislative body.” He also pointed out that, because GATT allows the WTO to change certain trade rules by a two-thirds vote of member representatives, its unelected bureaucrats have the power to amend the WTO charter without referral to national legislative bodies.
Detrimental actions of the WTO bureaucracy
Tobacco provides an example of the harm this mechanism can do. As tobacco has increasingly been under attack in the U.S. for its health hazards, tobacco manufacturers have sought new foreign markets and used political pressure to fight restrictions by foreign governments. When Taiwan proposed to ban tobacco advertising and cigarette vending machines and to fund a public education campaign against smoking, tobacco companies got the U.S. trade representative to threaten trade sanctions against Taiwan.307 Similar pressure caused Korea to repeal bans on foreign tobacco companies, and male teenage smokers increased from 1.6% to 8.7% of the male teen population.
Another example involves a regulation under the U.S. Clean Air Act that was held in violation of global trade rules by a WTO panel in January 1996, responding to a challenge filed by Venezuela and Brazil. The panel refused to apply a GATT exception for valid goals, such as environmental protection. Unless the ruling were overturned on appeal, the U.S. would have to allow importation of dirtier gasoline that causes smog and air pollution, or else give up “equivalent” trade benefits or sanctions for the plaintiff countries.
Another anti-environmental ruling was issued by GATT in 1991 declaring the U.S. laws banning sale of tuna fish caught by methods that kill large numbers of dolphin to be an illegal trade barrier.308 A similar issue was due to come before a WTO resolution panel in February 1998. India, Malaysia, Pakistan, and Thailand challenged the Endangered Species Act, under which shrimp sold in the U.S. must be caught using inexpensive “turtle excluder devices” that can reduce sea turtle mortality from shrimp trawling as much as 97%. On the panel of trade experts (with no particular scientific background) is one from Brazil, a country previously embargoed for failing to protect sea turtles from shrimp
trawlers. The dispute process is secret, not subject to outside appeal, and citizen groups are excluded.
A WTO challenge can even be used against state-supported non-violent human rights efforts. In late 1996 Thailand and Japan, joined by the European Union, complained that a Massachusetts law forbidding state agencies to contract with or invest in corporations with holdings in Myanmar (formerly Burma), a repressive military dictatorship, was against WTO rules. The Massachusetts law is part of an international human rights campaign. A successful challenge would force the U.S. to pay sanctions in order to maintain the state law.
In WTO cases, according to Multinational Monitor, the U.S. normally prevails as a plaintiff but loses as a defendant. In other words, countries tend to succeed when they challenge other nations’ regulations (to protect health, safety, the environment or other interests).309 The U.S. government, as challenger, has supported commercial attacks against environmental and consumer interests. Two important examples involve U.S. actions favoring agribusiness versus governments of other nations.
(1) Since 1996 the European Union has banned the use of artificial growth hormones on cattle. Acting at the request of the U.S. National Cattleman’s Association, the United States Trade Representative challenged the ban, and the WTO panel, in June 1997, ruled it an illegal restriction of free trade, subjecting the UE to possible economic sanctions by the United States.
(2) The U.S., which does not export bananas, even challenged the EU over its policies giving preference to bananas produced on family farms and by unionized workers in Europe’s former colonies in the Caribbean. The WTO ordered the EU to drop those preferences or face U.S. trade sanctions, thus benefiting Chiquita Banana’s investments in huge Latin American nonunion banana plantations.310
The U.S. Trade Representative’s Office came close in 1996 to supporting an industry front trying to get WTO in 1996 to ban consumer labels that provide information about environmental impact of products. It backed off when other federal departments joined the Sierra Club and Green Seal in objecting.311
How corporations influence American and WTO policy
The U.S. is not the only WTO member that is heavily influenced by powerful corporations, but it is worthwhile to see how American interests are represented in the WTO. Although the Federal Advisory Committee Act of 1972 requires a “fair balance,” that has been taken to mean only that advisory committee membership must be representative of the business community. The public is never allowed to attend their meetings, and in December 1991 Public Citizen’s Congress Watch reported that the members of the three main trade advisory committees included only two from labor unions and no consumer representatives. The other members were 92 from individual companies and 16 from industry associations.312
Major polluters were strongly represented on these advisory committees, whose members have access to a library of classified information and special communications links to the government negotiators. DuPont, Monsanto, 3M, General Motors, and Eastman Kodak, who made up half of the EPA’s list of the top ten hazardous waste dischargers, were included, as were 27 companies who had fines assessed against them or their affiliates for failure to comply with environmental standards. Twenty-nine had contributed to an unsuccessful campaign against California’s Safe Drinking Water and Toxics Enforcement Act, and 29 had put up over $2.1 million that defeated another California initiative called Big Green which would have tightened standards for the discharge of toxic chemicals.313
At meetings held between 1989 and 1991 of the Codex Alimentarius Commission, or Codex, that sets WTO’s global food standards, only 26 of 2,587 individual participants came from public-interest groups. Nestle, the world’s largest food company, with 38 representatives, was among 140 of the world’s largest multinational food and agrochemical companies that participated in Codex. A Greenpeace USA study found that Codex safety levels for at least 8 widely used pesticides were lower than current US standards by as much as a factor of 25. The Codex standards allow DDT residues up to 50 times those permitted under US law.
Does free trade cost American jobs?
Despite the loss in the 1980s of so many well-paid blue-collar jobs in the United States as corporations moved their operations to lower-wage countries in the global economy, most experts have held that the solution is for Americans to hone their skills for high-tech jobs and let the less skilled work go to less developed countries. The double advantage would be to get the high pay and be able to buy cheap foreign-made products. This idea fits neatly with the concept of comparative advantage in classical economics.
Unfortunately for the United States and other developed countries, they no longer have a virtual monopoly on advanced technology. Some examples of what has already happened and is accelerating are given in a 1997 book by Business Week’s chief economist, William Wolman, and Anne Colamosca:
“Anywhere you go in Asia nowadays—China, India, Taiwan, or Singapore—you can find highly skilled workers designing interactive CD-ROM programs, producing programs that map three-dimensional images to diagnose brain disorders, designing digital answering machines or interactive computers for children....Citibank taps local skills in India, Hong Kong, Australia and Singapore to manage data and develop products for its global financial services....
“Penang, Malaysia, has become a global center for many components used in [Hewlett-Packard’s] microwave products and has taken over responsibility for computer hard-disk drives from Palo Alto. More and more, specially trained Filipino accountants do much of the grunt work in preparing tax returns for multinational firms. All this overseas work is easily transferred via satellite links, computers, and e-mail....
“In Bangalore, trained medical transcriptionists with university degrees decipher American medical jargon and transmit transcripts overnight to Virginia hospitals, which need the work to be highly accurate and done quickly in order to discharge patients. The Bangaloreans get paid roughly one-tenth the $25,000 average salary of full-time medical transcriptionists in the United States.... India’s software industry, which barely existed 10 years ago,
notched up sales of more than $1.2 billion in 1995 and has been growing at over 40% a year.”
The basis for this success story, according to the authors, was laid in decades of free university education that was available to all classes. Although many poor families didn’t take advantage of it, a middle class of about 120 million people was produced, “by far the largest educated class of Indians the country had ever known.”314
Some economists have pointed to Americans who lost their corporate jobs but started their own businesses. This is part of a trend heralded by Alvin and Heidi Toffler in The Third Wave where mass production and mass consumption are seen being replaced by “customized production, micro markets, infinite channels of communication.”
The supposed growth in small firms, however, does not seem to be supported by the figures. Wolman and Colamosca quote data from a 1990 Harvard University Press book by Brown, Hamilton, and Medoff that shows small firms became a slightly smaller proportion over a ten year period. Those with fewer than 100 employees dropped from 36.3% of all firms in 1976 to 35.0% in 1986. Firms with fewer than 500 employees dropped from 50.4% to 49.7% of all firms in the same decade.315
33. THE ARCANE WORLD OF FOREIGN EXCHANGE
Just as the financial news erupts from time to time with warnings from the “experts” that there is a crisis in the balance of trade and/or the balance of payments, also there are periodic panics over the value of the dollar in foreign exchange. Humans have millennia of experience with various units of exchange—that is, money. They have ranged from items of practical use, such as livestock, to symbolic and ornamental ones, such as wampum, silver, and gold. Today it is mostly in the purely symbolic form of paper (or electronic credits), although nominal amounts of precious metals are kept in national treasuries.
Governments have experimented with schemes to control the purchasing power of that symbolic paper currency. The United States went off the gold standard in 1934, but attempted to stabilize the dollar. For many years it maintained a huge hoard of gold at Fort Knox, Kentucky, and until 1971 stood ready to buy gold from other nations or sell it to them for $35 per ounce. This is one of the reasons the U.S. dollar became the de facto standard for international reserves and transactions.
Pegging international exchange rates
The International Monetary Fund (IMF) was set up in 1944 in an effort to control fluctuations in exchange rates and to end the cycles of devaluation and retaliation for export stimulus purposes. In theory, exchange rates could be adjusted to cope with long-run shifts in the strength of national currencies, but short-run fluctuations due to speculation would be stabilized with short-term loans from the IMF.
In practice the “adjustable-peg system” of IMF only rarely made the adjustments necessary to correct long-term disequilibria, so it became, in effect, a rigid exchange rate system. It collapsed in 1971, as the dollar became substantially overvalued and President Nixon ended the free inter-governmental conversion of the dollar to gold at $35 per ounce.
Since then, in an environment where exchange rates were allowed to “float” for the most part, national governments or their central banks have continued to combat short-term fluctuation by buying and selling their own currencies. There also have been some special arrangements, including the European Monetary System or Exchange Rate Mechanism (ERM) to peg currencies to each other in the European Common Market.
If there is a fundamental weakness in a currency, official manipulation will not save it, as has been demonstrated by many unsuccessful attempts. One outstanding example was the official rate for rubles in the Soviet Union. Nobody would trade at the official rate, so government was reduced to using barter for international trade. In the end stores were opened in Moscow where rubles were unacceptable and all purchases had to be made in U.S. dollars. That example was later followed in Cuba.
There has been much talk in countries whose money was losing value of the “gnomes of Zurich.” Actually, trading in currencies by the Swiss banks is almost entirely for the account and under the orders of their customers, many of whom may be corporations and individuals in the home country of the currency. The effect of their trades can only be transitory.
I happened to be visiting in England in 1992 when the British pound, seriously overvalued against the German mark, was under attack by speculators. Both the Bank of England and the German central bank bought pounds and sold marks in a vain effort to bolster the pound. The British Chancellor of the Exchequer boldly declared that there would be no devaluation of the pound. Nobody believed him.
The rescue effort of the central banks was very costly to them, but large profits were made by speculators. I later learned that George Soros‘ hedge fund sold $10 billion of British pounds in a bet against the effort to prop up the pound and won an estimated $1 billion profit. Soros is a villain to some for his role in this crisis, but a hero to others for his charitable work.
The pound was devalued, of course, Britain withdrew from the ERM, and the actual weakness of the pound was demonstrated by its fall, measured against the Japanese yen, of
41% in eleven months. The central banks, like the currency speculators, could only produce short-term effects at most.316
The role of the financial community
The pressure for governments to support currencies often comes from banks. When the Asian financial markets took a precipitous drop in December 1997 and Asian currencies lost much of their value in foreign exchange, it was worry about banks having to write off risky loans to Asian countries, such as Indonesia, South Korea, etc., and to businesses run by family and friends of their rulers that was a major impetus to the international rescue effort. The IMF, the World Bank, the Asian Development Bank and the G-7 countries, including the U.S., rushed to pour in billions of dollars for the bailout.
A similar crisis had occurred in Mexico less than a year after the NAFTA agreement was ratified, as the Mexican stock market, in December 1994, lost more than 30% of its value in pesos. It was said to be due to political corruption that had been kept under wraps while support was organized for NAFTA. President Clinton provided more than $50 billion in U.S. taxpayer money from a fund set up to stabilize the dollar. As reported by Korten, this was “to ensure that Wall Street banks and investment houses would recover their money....When the US bailout linked the dollar to the falling peso, wary currency speculators sold dollars to buy German marks and Japanese yen—further weakening the dollar....”317 Austerity measures imposed on Mexico caused further impoverishment and repressive government campaigns against the indigenous tribes rebelling in desperation.
Money supply and currency value
There is a close connection between exchange rates and monetary policy, because higher interest rates (that accompany a tight-money policy) attract foreign investment. The investors, seeking to convert foreign currency, drive up the price of the home currency. In May 1994 the Federal Reserve had made three interest rate increases of one-quarter percent each time in rapid succession, and home mortgage rates were 2% higher than the previous October, despite a 12-month decline in wholesale prices and a rise in new unemployment claims. It was suspected that the real reason was to prop up the dollar exchange rate.
An earlier example of this effect was in 1981 and 1982 when the Federal Reserve implemented a tight-money policy. Capital rushed into the U.S., where bonds were paying 15% while equivalent instruments in Germany and Japan returned only 5% or 6%, and the dollar rose sharply against other currencies. This had an effect on international trade. The expensive dollar was curtailing overseas sales, while the relatively lower value of foreign currency helped artificially cheap imports capture domestic markets, and heads of U.S. corporations visited the White House to plead for relief.318
From June 1980 to February 1985 the British pound dropped from $2.34 to $1.10 and the German mark from 57 cents to 30 cents, raising the dollar to dizzying heights. By March 1995 the dollar was being allowed to slide, but already, according to Phillips, “Third World nations like India, China and Brazil were no longer U.S. agricultural export markets; buoyed by high U.S. prices, they had become competitors.”
34. THE CHALLENGE OF STRAIGHT THINKING
With so many misconceptions permeating economic assumptions and policies, is it possible to bring national decision-making back to reality? Given the enormous influence of the world banking structure and global corporations on the political structure, the media, and the economics profession, the task is formidable.
In the field of economics, there are unfettered minds that manage to form independent judgments and get published. The proof is in various sources I have quoted in this book. Although orthodox economics clings to pre-Keynesian classical dogma, just as scholars of the Middle Ages insisted on geocentric flat-earth doctrine, changes do occur in academic disciplines. One may hope that future events will result in more scope for economists who recognize that Keynes was right about the errors of classical economic theory.
Meanwhile, my advice to the individual reader is the same as I have often given to university students in economics and financial management courses: don’t blindly accept any statement, not even mine nor the ones in the textbook (good textbooks report different sides of controversial matters). Look for at least two conflicting views on every issue and use your head to decide what you believe is true. Then, keep an open mind to be proven wrong by new information.
The more that people challenge the fallacies encountered everywhere, the better chance there is that public spokesmen will feel pressure to present facts rationally and the media to offer something better than sound bites sandwiched between commercials.
Policy consequences of misinformation
Not only are economic misconceptions harmful in the intangible realm of knowledge and understanding, but they also have catastrophic consequences for public policy. People are misled by measures of production that mask the costs of human
and environmental damage, by distorted government accounting, by specious arguments against progressive taxation, by inflation phobia that causes wasteful unemployment, by confusing democracy with materialism, by the idea that bigger is always better, and by unquestioning faith in financial markets and corporations. Because of this, the United States and the world face much more serious problems than those that hold the attention of the mass media.
Several authors have made a convincing case that we are now experiencing an important turning point in history. The Tofflers’ The Third Wave (1980) rated the current era of rapid change as important as the Agricultural Revolution (when nomadic herdsmen settled on the land) and the Industrial Revolution. Their account of mass production and mass consumption being replaced by customized production, micro markets, and infinite channels of communication was criticized by Wolman and Colamosca for neglecting “to inform their public that this devolutionized system of production continues to be dominated by the great multinationals.”319
Thurow, in his 1996 book, The Future of Capitalism, used the analogy of tectonic plates to describe the world’s current upheaval, listing their economic counterparts as (1) the fall of Soviet Communism, (2) a shift toward mobile brainpower industries, (3) huge demographic changes, (4) replacement of national economies by a global economy, and (5) lack of an umpire to enforce rules of the economic game.320
In the midst of this ferment, aside from the lingering threats of nuclear war and terrorist attacks, the major challenge to democracy and human progress involves the domination by corporations of the institutions of self-government. Democracy has always had an uphill fight against various forms of tyranny. It has made much progress in the developed countries that have put behind them the absolute monarchies and the doctrine of the divine right of kings that prevailed until the 20th century. Today’s major challenge is to overcome domination of government by corporations, and it is made more difficult when the corporations are actually bigger than the national governments.
In the United States the most blatant forms of bribery may be rare, but through concentrated corporate control of the information media, as well as corporate favors and campaign financing to politicians, the rulers of big corporations tend to get their way most of the time. On the world scene, global corporations (including global bankers and financial companies) dominate international agencies unrestrained by democratic safeguards.
Campaign finance reform
The key reform in U.S. politics, upon which almost all economic reforms depend, is campaign finance reform. Television has made campaigning so expensive that fund-raising is a perpetual burden to elected officials, and their contributors, who are mainly corporations and their controlling stockholders, expect gratitude. Although it is illegal for corporations to contribute to political campaigns, they seem to have done so by various loopholes and subterfuges.
The solution is conceptually simple but politically daunting. Government could restore the requirement that broadcasters serve the public interest and that they maintain fairness by providing equal time to opposing sides of controversial issues, including election campaigns, and there could be requirements for a reasonable amount of time for debates, instead of hit-and-run attack ads. At the same time, limits could be placed on campaign contributions in some of the ways that have already been incorporated in proposed legislation.
Most politicians give lip service to campaign reform, but many content themselves with denouncing campaign financing of those in the opposite party and show little enthusiasm for limits that would affect themselves. Requiring broadcasters to provide free time on an equal basis to candidates in each election would reduce the dependence of politicians on campaign donations, but the demonstrated political power of the broadcast industry makes this seem most unlikely.
Outlawing paid political ads on TV would encounter the additional problem that the Supreme Court has interpreted the Constitution to give corporations the right, as free speech, to lobby
Congress, propagandize the public on political issues, and make undisclosed and tax-deductible donations to organizations that aid the campaigns of favored politicians.
Attempting to reform campaign finance in ways that would not run afoul of Supreme Court rulings, the bi-partisan McCain-Feingold bill got a bare majority in test votes in the Senate but was killed on February 26, 1998, when the majority leader removed the bill from the agenda after threats of a filibuster. It got another chance some months later when the House of Representatives passed the Shays-Meehan campaign finance reform bill (the House version of the McCain-Feingold Senate bill) but this also died in the Senate.321
Attempts at the state level to reform political campaigns in North Carolina were thwarted when a federal judge, Terrence Boyle, on April 29, 1998, declared state legislation unconstitutional which prohibited corporate political contributions, required groups seeking to influence any election to report their finances, and prevented lobbyists from making contributions to legislators while the state legislature is in session. His ruling is to be appealed by the State.
If there is no other way to overcome the favored status courts have given to corporations, it would have to be accomplished by constitutional amendment, making the limitations and responsibilities of corporations so clear the courts could not interpret them away. Constitutional amendment would also be necessary for at least some of the changes in the political system proposed by Phillips in his 1994 book, Arrogant Capital: (1) dispersing power away from Washington by letting Congress vote electronically from home districts and meet sometimes away from Washington, (2) emulating parliamentary systems where legislators can serve in the cabinet and new elections can be called when gridlock occurs, (3) using nationwide referendums and proportional representation to upset the two-party political monopoly, (4) reducing outgrown Congressional staffs that have become cozy with lobbying interests, and (5) adding national referendums as an alternative method of amending the Constitution.322
Amending the U.S. Constitution
The Founding Fathers provided two methods for amending the Constitution. They did not intend it to be easy, and it isn’t, but it is not impossible. The piecemeal method in which Congressional proposals are submitted for ratification by the states has been used for all the amendments made so far. If it were not for Constitutional amendments, we would have no bill of rights, there would still be slavery, voters could not elect Senators, women and blacks would have no vote at all, taxes could not be based on income, and presidents would have unlimited terms.
It is unlikely that Congress and the states will make the necessary changes affecting corporations and campaign funding by piecemeal amendments. There are some hopeful signs of effective public resistance to corporate lobbying when issues become prominent enough. For example, despite the money showered on politicians by tobacco interests Congress balked at approving limitations on victim’s lawsuits, President Clinton was denied “fast track” authority to prevent Congress from amending trade agreements, and public protest made the Department of Agriculture back off its proposed labelling of organic foods according to the permissive definition wanted by agribusiness.323 Congress, however, seems unwilling to pass either a law or a Constitutional amendment to control improper influence.
The alternative would be to resort to the other procedure provided in Article Five of the Constitution, the convention method, which has never been used in over 200 years. It would be invoked by application of the legislatures of two-thirds of the states to Congress, which then must call a convention to propose amendments that will be subject to ratification in three-fourths of the states either by their legislatures or by state conventions.
Stuart Chase called vainly for a constitutional convention in 1934 to deal with public utility regulation by federal incorporation of all interstate business. He quoted David Lilienthal that “the utilities have regulated the regulators” and observed: “There is no rhyme nor reason in New Jersey’s mothering a corporation with a head office in Pittsburgh, and branches in every state in the union....The calling of a Constitutional Convention...would open the way for
modernization and for more effective federal control....” It didn’t happen then, but perhaps it’s time to try again.324
A Constitutional Convention would not be limited to reforming campaign finance and defining the rights and responsibilities of corporations, but could take up other issues. Some people would call this opening a can of worms. Partisans of a particular cause might favor or oppose having the convention based on whether they thought their views would prevail. Assuming that the convention actually came into existence, it would be surrounded by public controversy over its work, and the issues getting the most attention in the media might not be the most important. There is no guarantee that the convention would reach agreement on constructive changes, nor that the states would ratify the work of the convention.
Whether it is possible to amend the Constitution by the complicated steps required for a convention remains to be seen. It is a bit strange that people who heartily approve the results of the original Constitutional Convention are afraid of having another one. Lawyers and judges may be the most formidable opponents, and lawyers tend to dominate the legislative bodies whose action is needed. Quirk and Bridwell’s 1992 book, Abandoned: The Betrayal of the American Middle Class Since World War II, describes their opposition:
“...Law professors and judges, such as retired Supreme Court Justice William Brennan, tell us the Supreme Court is our ‘continuing Constitutional Convention.’ At the same time they tell us to be afraid of a real convention because it might ‘run away.’ Where would it run away to? Whatever the convention does has to be ratified by three-fourths of the states. What are they afraid of?...Pat Buchanan, in Right from the Beginning, calls for a second constitutional convention....The call for a convention, Buchanan writes, will ‘reveal which of the two parties is a populist, and which elitist, which trusts and which fears the people.’”325
Given sufficient public concern, amendment by Constitutional convention may succeed and solve a host of problems. Even if the obstacles prove too strong, the very fact that an effort is being made could provide the impetus for
Congress to enact some of the reforms that are permitted by the Constitution but have been gridlocked in the system.
Other national actions
Constitutional amendment is an ambitious and usually lengthy process. Meanwhile, there have been some other proposals worth considering if they could be accomplished over the powerful opposition of the corporate rulers. Eisner proposed more relaxed monetary policies, allowing national debt to grow in proportion to GDP, a fair loophole-free tax system, and government policies to invest in education and infrastructure.326 Phillips likewise suggested reform of central banks, as well as government policies favoring work and wages instead of global competitiveness, reining in the financial industry and the Federal Reserve Board, using tax provisions to discourage exporting of jobs, and countering the concentration of wealth by raising taxes on the “really rich—as opposed to the not-quite-rich.”327
Similarly, Kuttner proposed returning to the objective of full employment instead of NAIRU, strengthening unions, providing universal health care, increasing education, promoting profit sharing, and perhaps rewarding socially responsible corporations with tax and other preferences.328 Most such suggestions seem to have little chance, however, until something is done about campaign finance reform and corporate political influence. National action to combat the loss of jobs overseas has also been proposed and is highly controversial because of the powerful arguments in favor of free trade. Some economists (including Eisner and Krugman) do not consider import competition a major cause of American job problems.
One measure to reduce exporting of jobs does not involve any restrictions on trade, and that would be to remove the subsidies and tax advantages that encourage companies to move their plants overseas. Other proposals aim at fairness and equity rather than protectionism in the traditional sense. Kuttner, for example, suggested making free trade conditional on “a floor of common social standards and pay-for-productivity norms.”329
Phillips wanted to compel exporting nations to do a fair share of importing and require trading nations to honor labor rights.330
Products could be excluded that are made by slave, prison, or child labor, as well as those produced under conditions that threaten human health or the environment. Such restrictions have been proposed and even (imperfectly) applied. Restrictions on products of gross environmental exploitation might put useful pressure on the companies involved. Any conditions or restrictions on trade, however, may conflict with WTO or NAFTA rules. The U.S. would have to utilize some of the escape hatches in GAAT that are employed by other nations, reform WTO to prevent exploiting and polluting industries from getting favorable rulings in secret tribunals, and/or risk fines for retaining the restrictions. Such fines, nevertheless, might be less costly in many cases than accepting or competing with substandard practices.
Meeting the challenge of globalism
Actions at the national level may be largely fruitless. All the powerful forces in society, especially public officeholders of both parties and most of the information media, insist that the global economy is inexorable. Reports of its harmful effects, as described throughout this book, usually appear in specialized publications, only occasionally surface in newspapers and magazines, and are rarely mentioned on television, which is where most Americans say they get their news.
The message is that globalism will have its way, individuals must adjust to the demands of unrestricted global markets, and all will be well if people just get the high-tech training needed to compete in the modern interconnected world. Since educational levels in the U.S. continue to rise, but median real family incomes have been stagnant since the mid-1970s, there is little evidence to suggest that the prescription will help most people.
If the United States and other nations can’t resist the global corporations and bankers, doesn’t it make sense to restrain them at the global level? Big business needs agencies its own size to enforce fair trade and protect the public—in other words, traffic control to keep the juggernauts from running over the pedestrians. Some of the United Nations agencies ought to be filling at least part of this role.
The most modest method of controlling global excesses would be to reform those agencies, specifically the World Bank, IMF, and WTO. The walls of secrecy should be removed, independent outside experts should be used, and the policy-makers and advisory groups should include balanced representation of the interests involved, not dominated by the global corporations. The World Bank should include experts not beholden to the financial community; e.g., economists from labor organizations, consumer groups, and the academic world, as well as environmental organizations and experts from the countries involved in their development programs. The same should apply to the IMF, although it really is redundant since the collapse of the pegged currency system. The WTO should include balanced representation of consumers as well as producers, and judges on its tribunals should be independent scientific experts who can distinguish legitimate environmental concerns from mere pretexts, especially in the matter of food safety.
With these reforms, it could be hoped that the agencies would not impose their brand of economic systems on loan recipients, nor interfere with nations desiring a higher level of safety and environmental protection than world standards. Perhaps local industries and indigenous peoples would be given more respect, and UN agencies would stop underwriting projects where multinational companies work with corrupt local officials to use violence against the inhabitants. The agencies might also stop sending money to tyrants who stash it away in numbered accounts. Working for these reforms is worthwhile, but all changes must come through the UN member nations, which generally have shown no signs of limiting the growth and power of multinational corporations.
Is world government the answer?
The ideal solution may lie in some form of world government. Thurow recognizes that a global economy requires “an elected democratic world government” but believes it would be opposed by political forces on both the left and the right.331
Global government may seem out of step with modern trends, as viewed by many observers—differentiation, devolution, and small-scale operations in some cases having occurred as predicted in Tofflers’ The Third Wave. Likewise, the formation of smaller political units through the breakup of the Soviet Union and Yugoslavia fits the Toffler concept. On the other hand, most worldwide economic activities seem to show a trend toward larger scope, such as the European Community, NAFTA, WTO, and expansion of NATO. Certainly corporations have been merging at a frantic rate and across national boundaries.
World government is indeed a utopian concept, but the world economy is largely being governed already by global corporations and global financial and trade organizations that are neither democratically controlled nor open to public view. There is little to choose between world tyranny of a political empire and world tyranny by an oligopoly of commercial cartels ruling in concert with local dictators.
If the UN is to become the umpire to enforce rules of the economic game, it will need considerable changes in its charter. Delegates to the General Assembly too often represent non-democratic regimes rather than the countries’ populations. In fact, all posts in the UN are filled by governments, none by election (unlike the European Community, which chooses its parliament by election). The development of a democratic world government must necessarily be a slow process, to insure that elections of delegates are free, but a start must be made.
With all its faults, the UN has already been more effective in preventing wars than its weak predecessor, the League of Nations, and has saved many lives, especially through UNICEF and various peace-keeping missions. Lesser levels of government certainly are no match for the giant corporations that have no loyalty to any country and habitually buy control of politicians wherever they operate. The objective should be global democratic institutions strong enough to maintain a level playing field for business and finance, and answerable to the people of the world, not just to national governments. This goal will be difficult to achieve, but certainly a worthy challenge for all who seek the
betterment of humankind.
A final thought
If the solutions I have suggested seem impossible to achieve at the both national and global levels, many reforms of the past have seemed impossible and took a long time to accomplish. Often it seems that things don’t get fixed until they get really bad. The “economic royalists,” as FDR called them, had created many problems that culminated in the 1929 stock market crash and the Great Depression. Only when it got that bad did the public ignore the editorial advice of the overwhelming majority of newspapers and elect a new President and Congress.
In President Franklin Roosevelt’s first 100 days, a multitude of neglected problems were tackled to provide a “New Deal” for the “Common Man.” FDR was credited with saving the nation from a radical revolution. Important among the reforms of the Roosevelt administration was the SEC, enforcing a greater degree of honesty among financiers and corporate management. While we would not welcome a national disaster like the crash and depression, the ordeals now being suffered might hasten a solution to some of today’s problems.