FREE GLOBAL ECONOMY FROM CORPORATE HIGHJACKERS

by Someshwar Singh

Geneva, 19 Apr 2000 -- The time has come for the citizens' backlash to globalization to become the "frontlash" for a new global economy, suggests a new U.S. publication.

The publication, "Field Guide to the Global Economy", by the US-based Institute for Policy Studies (IPS), is written by Sarah Anderson and John Cavanagh with Thea Lee and carries a foreward by Barbara Ehrenreich.

The book presents a crisp analysis of, and a useful insight into the all-pervasive process of globalization. It seeks to de-mystify the multiple forces that move globalization and suggests a course that may bring honour to its tinted glamour.

The problem, according to the authors, is not so much that the world is so tightly linked now - by trade, investments, and high-speed telecommunications - but that the links converge in such a small number of hands.

There are 193 nations in the world, many of them ostensibly democratic, but most of them are dwarfed by the corporations that alone decide what will be produced, and where, and how much people will be paid to do the work. In effect, these multinational enterprises have become a kind of covert world government - motivated solely by profit and unaccountable to any citizenry.

Only a small group of humans on the planet, roughly overlapping the world's 475-member billionaire's club, rules the global economy. And wherever globalization impinges, inequality deepens. From Mexico to Japan, the rich are getting richer while the poor are getting more desperate and numerous.

The solution, argue the authors, does not lie in a retreat to nationalism and rigid protectionism, or in hermetically sealed economies like that of North Korea. Potentially, globalization could lead to a safer, more peaceful and - who knows? - more interesting world, if, for example, international trade agreements were designed to promote human rights and preserve cultural diversity, instead of just to ease the accumulation of wealth by those who already have more than they know what to do with. But that would be a very different kind of globalization, one in which people who are not "players" - investors or executives - also have a choice.

"There's only one way to get there, and it's through even more connectedness, this time among the millions of people at the grubby end of the global economy: labour unions in Mexico linking up with religious groups in Europe; students in California protesting on behalf of workers in Vietnam; women's groups in Massachusetts exchanging information about pharmaceuticals with their counterparts in India or Peru.

"What you get, as the grassroots networks expand and link up across national boundaries, is something far more exciting than the dash for profits glorified on CNN commercials. It's called solidarity, an old-fashioned word for the love between people who may never meet each other, but share a vision of justice and democracy and are willing to support each other in the struggle to achieve it. This is our adventure for the new millennium - recapturing the global economy from its corporate high-jackers. Don't be left out."

Although it is the public institutions that enact and enforce the rules of road, large international corporations have been the principal driving force behind this globalization. According to the United Nations, there were 7,000 transnational corporations in 1970. Today, there are 44,000, with 280,000 affiliates around the world. Of these, it is the largest 200 that are the dominant engines of the global economy.

The profits and sales of the top 200 firms have outpaced world economic growth by significant margins. The largest 200 global firms are so dominant that they have begun to rival nation-states in their economic clout. For instance, the oil-rich nation of Saudi Arabia could not top the sales of six corporations - GM and Ford, Royal Dutch Shell and the Japanese firms Mitsui, Itochu, and Mitsubishi.

The amount of money spent on cheap underwear and other discount goods at Wal-Mart (a shopping outlet chain in the US) in 1997 was more than the GDP of 163 countries. 'Cigarette-peddler' Philip Morris had sales greater than the GDPs of 148 countries.

And the top 200 firms' economic clout far outweighs the benefits they provide in terms of employment. In 1997, while their sales as a percentage of world GDP was 26 percent, their employees as a percentage of world's workforce was only 0.74 percent.

One of the reasons why the TNCs have grown so big, argues the book, is that there is 'no more monopoly busting.' At the end of the World War II, the American occupiers broke up the great business combines of Germany and Japan on the grounds that they were incompatible with democracy.

Within the United States, business history is the story of waves of mergers, followed by efforts to control or reverse this trend through legislation. "However, since the 1980s, government has taken a hands-off approach. In 1998, the United States witnessed a tremendous merger boom involving deals worth $1.6 trillion, up 78% from 1997. In this era of globalization, governments and corporations argue that the mergers are needed for firms to compete in global markets."

For the world's banking industry, the merger mania began since the mid-1990s. By 1997, the combined assets of the world's top 100 banks totalled $21.3 trillion, or the equivalent of 73% of global economic activity. Unlike the top 200 corporations, the United States is not the dominant force in banking. During the 1930s, the US government enacted legislation that curbed banking expansion across the state borders and between commercial and investment banking. Despite the breaking down of some of these walls, there are still thousands of banks in the US. Hence, the top U.S. bank - Chase Manhattan - ranks only number eighteen globally in terms of assets.

Large U.S. banks, the book says, deserve a good share of the blame for the Asian crisis that began in June 1997, because they had lent a great deal of money to Asian nations without rigorous checks. Six US banks had over $19 billion in loan exposure to Thailand, the Philippines, Indonesia, and Korea at the time the crisis broke.

Nevertheless, these banks are doing fine -- thanks to taxpayers who have financed International Monetary Fund (IMF) bailout funds to these countries. After July 1997, the US Treasury Department worked closely with the IMF to orchestrate massive bailouts to the tune of $121 billion. "Much of that money went to repay US and other financial institutions. Moreover, while millions of workers in Asia and elsewhere suffered under the crisis, the CEO's of the banks that made bad loans fared extremely well in 1997."

For example, the salary and bonus of Frank Newman, CEO of Bankers Trust in 1997 was $10,937,500. His total compensation during the year, including gains on stock options was $12,013,000. The average salary and bonus of CEOs of US banks that made bad loans to Asia was $4,970,695.

In the post-war world vision, the IMF and the World Bank, and then the GATT (now transformed into the WTO) were created as public international institutions to anchor the three pillars of global economic activity - the Bank to help post-war reconstruction and assist long-term production in poorer countries; the IMF to oversee international monetary and financial order and provide short-term financing for balance-of-payments support and currency stability in an era of fixed-exchange rates; and the GATT to ease restrictions on trade. Other public institutions too were founded to supplement activities of these three, "but none match the power and breadth of the World Bank, the IMF and the WTO."

With a staff of over 11,000, the Bank has offices in 65 of its 181 member nations, and routinely lends more than $20 billion a year for "development" projects - long-term, low-interest loans to build dams, power plants and agricultural "modernization". But the principal goal of the Bank (according to its Articles) is to promote foreign private investments. The US Treasury Department promotes government funding of the Bank as a way to boost US firms. A top Treasury Department official bragged to Congress in 1995 that for every dollar the U.S. contributes to the World Bank, U.S. corporations receive $1.30 in procurement contracts."

Hence, say the authors of the book, what might have become a development institution has largely evolved into a facilitator of global corporations' overseas investments, often with devastating consequences for the environment, communities, and workers. None have benefitted more than agribusiness firms and energy firms; more than two-fifths of the World Bank loans during its over half-century existence have gone to these two sectors. "For decades, the World Bank has been the world's largest promoter of chemical-intensive agriculture. Agrochemical firms from the United States and Europe have been the prime beneficiaries."

According to IPS researcher Daphne Wysham, nine out of ten energy-related projects financed by the World Bank benefit at least one corporation headquartered in the United States or one of the six main industrial powers. At the same time, World Bank projects have become major contributors to greenhouse gas emissions.

The World Bank oil, gas and coal projects initiated between 1992 and 1998 would add an amount of carbon to earth's atmosphere equivalent to one and a half times that emitted by all the world's countries in one year. These energy projects invariably provide electricity to export-oriented firms and seldom meet the growing energy needs of the world's poorest, two billion of whom live without access to electricity.

Many of the corporations that benefit from World Bank contracts comprise the misleadingly labeled Global Climate Coalition, a network of industries that lobby to prevent the U.S. from taking action on climate change.

In 1980, the World Bank added a new component to its operations -- it began offering large "balance of payments" loans to governments in return for "structural" changes in policy. The debt crisis, which peaked in 1982, gave the World Bank the leverage to force countries to accept the free market mantra. In return for new loans, debt-ridden countries agreed to carry out "Structural Adjustment Programmes" (SAPs) of the World Bank or similar conditions attached to IMF facilities.

As for the IMF, in its early years, it provided short term financing for balance-of-payments support and, during the era of fixed rate exchanges, helped ease pressures on currencies through loans. But after the end of the fixed exchange rates system, the IMF searched for a new Mission, and shifted its role during the 1980s.

Firstly, it focussed more on ensuring that private investors and banks were shielded from large losses when their developing-country investments went bad, rather than helping governments avoid currency crisis. Secondly, the IMF began imposing much more stringent conditions on countries that received its loans.

In August 1982, Mexico was the first large debtor to announce that it could not service its debts and the IMF was again brought center stage. In a series of deals with different countries, the US Treasury Department and the large banks told countries that they would get no new loans (to repay the old ones) until they agreed to an IMF package. "Now the world's financial policeman, the IMF pressed for a series of measures that steered scarce resources in poorer countries toward repaying creditors in the richer countries."

A typical World Bank/IMF adjustment package had the following policy conditions and impacts, the authors say: cut government spending (less money for education, health care, and environment); devalue currency and export more (accelerates plunder of natural resources for export, increases global pressures to compete by cutting prices and wages); liberalize financial markets (more volatile short-term investments); reduce real wages and cut government price subsidies (workers suffer and prices of rice, cooking oil, and other necessities skyrocket, often leading to riots); and increase interest rates to attract foreign capital (domestic business bankruptcies, crisis for individuals with debts). Most developing countries - particularly in Latin America and Africa, increasingly in the transition countries of east and central Europe - have implemented or are in the process of implementing IMF agreements or World Bank SAPs. While often succeeding in shrinking government budget deficits, eliminating hyperinflation, and maintaining debt-payment schedules, SAPs have exposed developing countries to the worst aspects of the global economy. Their impact on people, particularly women, children, and the poor, has been devastating.

The origins of the WTO go back to the efforts to create the International Trade Organization (ITO), whose broad mandate (balancing economic goals of liberalizing world trade with social goals of full employment), was rejected by the US Senate, resulting in the much smaller GATT.

But from mid-1980s, the US began plans to replace the GATT with a larger organization equipped with more powerful tools to break down barriers to trade and investment. Negotiations were completed in 1994, and the WTO replaced the GATT in 1995.

Unlike the GATT, whose powers centered on reducing tariff barriers, the WTO machinery can be deployed to eliminate any perceived barrier to trade and investment. These can include health, safety, or environmental laws which other nations believe are unfair barriers to trade.

Developing countries were particularly concerned that transnational corporations would use the WTO as a battering ram to knock down the last barriers they had to foreign investment.

Nevertheless, as Mauritius's representative stated after completion of the blueprint for the WTO, 'We lost everything, but we will put our head on the block with dignity.'

The authors note that the WTO negotiations and dispute hearings take place behind closed doors in Geneva, Switzerland. "Although U.S. negotiators must consult with non-governmental advisory committees, these entities are dominated by corporate lobbyists, while labour unions and environmental groups have only a few seats. So-called trade experts, picked from a set roster by government representatives, hold the power to rule on WTO disputes."

Commenting on the long-drawn out banana dispute between the European Union and the U.S., the authors say "Bananas are a curious focus for a U.S. trade war, because not a single banana is grown in the continental United States. U.S. officials claim that the battle is over the principles of 'fair trade.' However, there are strong suspicions that the U.S. position was simply purchased by Chiquita, a U.S.-based firm with the most to lose from EU policy because of its extensive banana plantations in Latin America. According to the Center for Responsive Politics, Chiquita's CEO Carl Lindner and his family, his companies, and their executives gave $5 million to political candidates and parties between 1991 and 1998.

As for high-tech global assembly lines of today, the authors say that what is new is that a number of poorer countries, led by China and Mexico, now have the infrastructure to house practically any industrial or service operation - including production of high-tech, capital-intensive products such as automobiles and aircraft. For example, Ford, Boeing, and other global corporations are now setting up state-of-the-art manufacturing plants in countries where wages and other costs are kept extremely low through repression.

One result of the international division of production, is that roughly a third of world trade is not between countries but between one part of a global firm and an affiliate of that same firm. From 1982 to 1994, such "intra-firm" trade increased significantly as a share of U.S.-parent company trade. Exports shipped to their foreign affiliates rose from 31 to 42 percent, while imports sourced from their foreign affiliates rose from 36 to 50 percent.

Intra-firm trade dominates exchange across U.S.-Mexico border. Intra-firm trade offers corporations the opportunity to avoid taxes by setting prices to maximize losses for subsidiaries in countries with high tax rates and maximize profits in tax havens. This type of accounting chicanery is known as transfer pricing. Such practices are the opposite of free trade, as the argued benefits of free trade - lower prices and higher quality resulting from increased competition - are seldom passed on to consumers as global corporations carry out trade among their own units.

Referring to the colonial history of Europeans financing explorations, later becoming colonial conquests, the authors point out that the movement of goods, capital and labour created a colonial division of labour, some of which persists even now.

Colonial trading companies directed much of this trade traffic until the nineteenth century when the private Japanese, European, and U.S. firms that are the forebears of some of today's largest global corporations and banks were incorporated.

Flourishing colonial economic activity in the Caribbean, Brazil, and the southern United States soon exterminated so much of the indigenous population that new labour supplies were needed. Colonial authorities vastly expanded the African slave trade by linking West Africa with the Western Hemisphere.

Up to thirteen million Africans were shipped across the Atlantic Ocean between 1444 and 1870, at least two million of them dying in transit of murder, disease, suicide, or malnutrition. While many cut sugar, others sweated in the tobacco, cotton, and rice fields of North America or in the gold and diamond mines of Brazil.

The authors note that although governments have facilitated the free flow of goods and capital, the trend has been to increase restrictions on the movement of people across borders. They point out, for instance, that the United States, along with Canada and Mexico, did ease restrictions on cross-border movements through the North American Free Trade Agreement (NAFTA) - but only for business executives and professionals. (SUNS4653)

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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