March 25th 2000

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Articles from this issue:

EDITORIAL: Telstra - is there another way forward?

COVER STORY: Aged Care: where to from here?

BOOKS: 'The High Price of Heaven', by David Marr

TAIWAN: Taiwan election presents new challenge for Beijing

ECONOMICS: World economy: the rhetoric, the reality

PAKISTAN: Feudalism: root cause of Pakistan’s malaise

BUSINESS: Innovation, technology and the forces of change

Letter: Free trade and predatory policies


AGRICULTURE: How government kick-started land settlement

LAW: No Native Title on mining leases: Federal Court

POLITICS: SA swings away from major parties

FAMILY: Mr Howard’s "forgotten people": Australia’s families

JUSTICE: The facts behind the furore on mandatory sentencing

COMMENT: The war against drugs is not lost it was never started

CANBERRA OBSERVED: Immigration policy: whose view will prevail?

Letter: Federal control of resource development

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World economy: the rhetoric, the reality

by Bob Browning

News Weekly, March 25, 2000
Bob Browning identifies the real beneficiaries of the globalised, deregulated world economy. His previous articles and reviews of his books are available at www.sprint.

It is increasingly obvious that there is much more in the globalisation package than the beneficial application of new technology and the opening up of national economies to financial flows and freer international trade.

But the term "globalisation" is often used in confusing ways, sometimes deliberately. It can be used to steer people's thinking in certain directions and divert them from others. It can facilitate the dismissal of critics. "You're doubtful about globalisation? You must be against free trade - a protectionist!" Or, "You're not enthusiastic about globalisation? You must be against technological progress - a luddite!"

Dominating the language of discussion in this way helps propagate the fiction that the radical restructuring of institutions around the world is purely economic and technological in nature, not political.

Change is presented as the result of rational economic thought and scientific progress being sensibly and objectively applied in the general interest. People are diverted from any suspicion that special interests or ideology are involved. They are led to believe that the new developments are largely spontaneous, not planned or imposed; that most of the change is inevitable anyway, and useless to resist. And so on.

But more than the invisible hand of the market and the march of science are at work. For better or for ill, globalisation is also a political operation shaped by neo-liberal ideology (what Australians call economic rationalism). It has identifiable special interests, like the rentier class and corporate managers, as its principal beneficiaries. Its implementation is anything but spontaneous. One needs only to look at the array of powerful international and regional inter-government agencies and private financial organisations pushing the neo-liberal globalist agenda to see that.

First there are the inter-government organisations - the Organisation for Economic Cooperation and Development (OECD), the World Trade Organisation (WTO), the International Monetary Fund (IMF), the World Bank (WB) and the G7. Then there are the regional agencies like the European Union (EU) and the North American Free Trade Agreement (NAFTA); the private financial organisations like the credit rating agencies Moody's, and Standard and Poor's, the hedge and mutual funds, the bond and currency traders, and the various investment houses and banks; and the multinational corporations which now comprise 51 of the top 100 economies in the world, while only 49 are nations.

The IMF, OECD, WTO, WB, and G7 meetings put pressure on national states to adopt neo-liberal policies. They want priority given to reducing inflation, public debt, deficits and (company) taxation.

They push national governments in various ways to slash public expenditure, especially social expenditure (eg. welfare, health, education), rather than raise taxes.

High interest rates are used to lower inflation with scant regard for the social consequences or even for the adverse impact on the productive economy. Concern is for the welfare of those who thrive off the financial markets. This was especially noticeable during the Asian economic crisis but it applies generally to their economic attitudes to under-developed and developing nations.

But in prescribing neo-liberal policies, conducting economic surveillance and offering expert advice to nations around the world, they are neither representative of, nor directly accountable to any elected authority. And the "expert advice" they proffer enables political parties to avoid democratic and sovereign responsibilities and go with the flow.

Party leaders can plead powerlessness to oppose international forces, claiming that opposition would only precipitate a crisis of investor confidence, a downgrading of national credit worthiness, and capital flights.

Regional organisations like the EU and NAFTA also promote the neo-liberal agenda. Globalisation and joining the EU monetary union has put enormous pressure even on powerful countries like France and Germany to meet the criteria for deficit reduction by reducing social expenditure. The EU's Social Charter is proving to be comparatively toothless. Europe's more humane social market is being forced to give way to the Anglo-US laissez-faire model of capitalism.

NAFTA restricts member nations regarding social protection through the public sector. NAFTA can strike down any measures which member countries take if those measures are judged under NAFTA rules as subsidising the supply of services, or establishing a monopoly, even when the services involved are part of national social security systems. NAFTA's deregulatory economic and trading clauses are weighted in favour of a "a level playing field" for competition. They are heavily weighted against Canada's level of social protection which exceeds that of the other members, the US and Mexico. NAFTA exerts downward pressure on social security in Canada.

Bond rating agencies like Moody's and Standard and Poor's determine the credit-worthiness of governments. If they downgrade a government, it has to pay higher interest rates on bonds, and it may be shunned by international lenders as a bad risk. Bond rating agencies can put pressure on governments by putting them on "credit watch". This helps induce governments to "mend their ways".

Canada in 1995 provided an example. After the then Canadian Government was elected on a platform of maintaining social programs, a crisis atmosphere developed. The Wall Street Journal warned that if "dramatic action is not taken in next month's federal budget, Canada could hit the credit wall."

Shortly after the WSJ 's warning, Moody's put the Canadian Federal Government on credit watch, which sent shock waves through investment managers and other financial market players. When the budget was finally introduced it contained massive cuts. Canada's Finance Minister described the cuts as "the most radical reduction in government since the demobilisation from a wartime to a peacetime economy".

In the new globalised financially-deregulated economy, foreign and local investors can dispatch their money elsewhere in a matter of minutes. In order to maintain "investor confidence", governments argue the necessity of reducing expenditure, inflation, and taxes on companies, wealth and high income earners.

Governments can thereby justify policy collaboration with international interests, despite the adverse social consequences, the impact on the productive, job-creating economy and the undermining of the democratic process.

One-third of world trade is now intra-firm trade. In the United States it is half the total trade by value. When corporations transfer goods from one location to another within the same firm, it is the corporate managers who decide the price at which these goods are "sold", not the market. The price is set, according to where the least tax can be paid.

A 1990 study by the US Congress found that more that half of all the firms surveyed had paid virtually no taxes. Just on 60 per cent of foreign firms reported no profits in the US, and paid no taxes. California is trying to make companies pay taxes based on a proportion of their worldwide earnings, but this is being contested in the courts.

An Australian study found that 60 per cent of the foreign and Australian multinationals operating in Australia during 1993-1994 claimed to have made no profits, and paid no taxes. OECD countries are more than sluggish in addressing this question. Rather, pressure is being put on governments to focus on indirect and regressive taxes, especially consumption taxes.

The IMF and OECD have actively promoted consumption taxes, discredited progressive taxes and lauded regressivity (loading the tax burden on to the lower income groups).

At the same time, corporations play national and state governments off against each other, playing them to offer subsidies to have multinational operations located in their electoral bailiwicks. The neo-liberal ideology of globalism demands social welfare be downsized but corporate welfare upsized.

A revealing recent occurrence was the push, secretly negotiated through the OECD, for the Multinational Agreement on Investments. The MAI aimed to give foreign capital and multinational corporations the right to "national treatment". National treatment is another of those euphemisms beloved of economic rationalists.

What the MAI actually amounted to was the demand that nations give multinational corporations unrestricted access to do business in their countries, but with virtually no reciprocal accountability by the MNCs or restriction on them by national governments.

Any subsidy to the public health system, for example, would have been deemed unfair competition unless equal assistance was given to multinational health care corporations seeking to compete with the public health system. Systems like Australia's Medicare could have been rendered inoperable.

The neo-conservative counter-revolution which has legitimised the interests of business and financial élites in the name of the free market and supply side theories, has triumphed principally in the United States and Britain. The trend started in earnest with the advent of the Thatcher and Reagan governments.

Voting strength in organisations such as the IMF and World Bank is based on the financial status and contributions of member states. The US is the world's leading economic power and the biggest contributor to the inter-governmental organisations. The UK, and especially the City of London, has a well-known special relationship with the US.

It is Anglo-US dominated inter-government organisations that conduct the supranational steering of the economic and social policy of nations in the neo-liberal direction. The OECD, IMF, World Bank, WTO and the G7 are all strongly influenced by the US Government and US-UK-managed capital.

The economic rationalist political agenda is to induce "competitive austerity" through structural change. This includes "flexible labour markets" - i.e., downsizing, part-timing, casualising, de-unionising. It also includes the reduction of public spending, privatisation, and the transfer of the tax burden to salary earners and consumers via indirect taxes.

In its World Economic Outlook , May 1994, the IMF typically praised the US model, for the "greater flexibility" of its "labour market" which it described as:

"Less generous unemployment insurance provision in terms of benefit payments, duration of benefits, and qualification of benefits; wider earnings dispersions; lower levels of unionisation and less centralised wage bargaining; less government intervention in the wage bargaining process; fewer restrictions on hiring and firing of employees; and lower social insurance charges and other non-wage labour costs, such as the amount of paid vacation".

"Flexibility" is a euphemism for the commodification of labour, that is treating people as tradeable things, as just one of the various available means of production. Treating people as expendable and of value only in relation to production is dehumanizing - an attitude not altogether different from that of another economistic ideology, communism.

But with the communist threat and the socialist alternative gone, and with social democracy in retreat, there is an absence of any real political competition. All major parties have become essentially the same, especially as they become increasingly dependent on corporation approval and money for electioneering.

Ramesh Mishra, Professor Emeritus, York University, Canada, in his latest work Globalisation and the Welfare State (Edward Elgar Publishing, 1999) questions the neo-liberal promise that economic growth of the current sort will translate into more real jobs or higher wages for the majority of the workforce:

"Clearly 'trickle down' is dead. These developments - chronic unemployment, declining wages and working conditions, job insecurity and diminishing occupational benefits - call into question a number of optimistic assumptions connected with the globalising market economy.

"One of these is that a free market economy will - given sufficient time - take care of need and dependency through growth, job creation and higher wages. Another is that if the state withdraws from social provision, the ensuing gap can be filled by non-state sectors, notably employers, the market and voluntary organisations...

"But neither jobs, nor higher wages, nor social benefits can necessarily be provided by a growing economy ...

"The more the productive sector of the economy is de-socialised, commodified, the greater is the need for compensatory social policy to provide a measure of equity and a semblance of secure and civilised public life ...

"Moreover, with capital mobility, insecurity of employment, 'lean production', and labour market 'flexibility' , the education, training and retraining of the work-force is also far more likely to be the responsibility of the government rather than of corporations and employers."

Currently in OECD countries there are over 35 million unemployed - even according to official figures which underestimate the jobless and exclude the under-employed. Much of the unemployment is structural and long term.

Frontal attack on full employment, social protection and community infrastructure can be electorally dangerous for political parties. Laissez-faire capitalism, entrenched welfare state institutions and attitudes, and electoral democracy, as Mishra argues, can be an explosive combination. Populist outbreaks around the world add to his warning.

Realising this, governments often prefer to advance their economic agenda by stealth. The tactic is to slowly reduce the quality and increase the charges for services like public healthcare and education; to introduce rationing through waiting lists and queues; to restrict eligibility; and to make access to benefits more complex and humiliating. (Recent changes to Australia's public health and unemployment benefit systems are of interest in this context).

None of this makes for a decent or enduring society. History should not be forgotten. When laissez-faire capitalism was last allowed to run rampant, the Great Depression, Bolshevism, Nazism and two World Wars followed.

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