January 27th 2001

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Articles from this issue:

Cover Story: What George W. Bush will mean for Australia

Editorial: Defence - "hype" and reality

Canberra Observed: The year of the elections

Victoria: Liberals in trouble - independent MP

Women: Different work patterns require a variety of policies

Straws in the Wind

Documentation: Globalism has slowed world economy

The Media

Letter: Australian Democrats leader replies

Immigration: The end of the White Australia Policy

Comment: Small business - not whingers, just forgotten

As the World Turns

Philosophy: Peter Singer - Jekyll and Hyde

Economics: Economic doubters multiply in USA

Books: 'The Gifts of the Jews: How a Tribe of Desert Nomads Changed the Way Everyone Thinks and Feels', by Thomas Cahill

Books: 'HITLER 1936-1945: Nemesis', by Ian Kershaw

Letter: Selective indignation

Letter: Major parties are different

Books promotion page

Economics: Economic doubters multiply in USA

by Bob Browning

News Weekly, January 27, 2001
Bob Browning discovers that a major - if still unofficial - rethink of economic policy is underway in the United States and elsewhere.

Not only the usual suspects - radicals, "lefties" and special interest protectionists - view with concern elements of America-driven globalism.

Awareness is growing and becoming more broad-based, however much neo-liberals insist that opposition comes only from the economically ignorant and from capitalism-hating minorities.

Whatever one thinks of America's leading liberal newspaper The New York Times, it is rather difficult for anybody other than Hayekian ideologues from corporation-funded think tanks to dismiss it as ignorant, anti-capitalist or anti-American.

In a series of articles between Christmas and New Year 2001, the NYT reviewed US foreign policy over the last decade. It covered the period when the US began to reign supreme as the world's only superpower, doing so under the presidency of the Democratic Party's Bill Clinton.

The NYT described US economic foreign policy during this period as "mercantile" rather than "free trade". One article in the series entitled "The Economic Engine of US Foreign Policy" (December 12, 2000), argued that US policy aimed more to suit the special interests of the United States than its justifying rhetoric would have the rest of the world believe.

The US government claimed its policy was all about spreading prosperity and democracy through free trade. The effective intention was somewhat less unselfish. It was less concerned with the benefits for everybody of genuine free trade than with making foreign markets open up to American capital and goods.

Looking back at the crisis of the new global financial system, which was conveniently labelled the "Asian crisis", the NYT stated:

"The Asian crisis confirmed what many developing nations had suspected: globalisation was a rich country's game, and the rules were rigged to favour the most competitive. The free-market system let the United States ship its goods, open its factories and move capital anywhere it wanted. But poorer nations often found that their products could not compete and that their low-tech exports were subject to tariffs and quotas that American, European and Japanese industries would not eliminate.

"So when the United States proposed a further opening of world markets, developing nations struck back, starting in Seattle in late November 1999."

In the new post Cold War world, the NYT said, formerly sovereign nations used to setting their own agendas:

"found themselves subject to the judgments of foreign investors. If a country's deficits looked too high, its ability to repay loans too dubious or if political chaos made it unsafe for new factories, money would move out with the flick of a few keys. Alliances meant little, and traditional foreign aid seemed trivial. Cash flowed to the most competitive countries; those unable to swim in the new sea found life rafts unavailable."

In Thailand in July 1997, the collapse of its currency crippled investor confidence throughout Southeast Asia and spread to East Asia, South Korea in particular. Having only recently spent billions of US dollars bailing Mexico out of "its" crisis, the US Treasury Department refused to put too much American cash on the line again. It worked through the International Monetary Fund:

"And for months, the Fund made the situation worse for the poor, requiring cuts in social programs before it would provide loans to forestall default."

Rioting, followed by particularly vicious racist violence, erupted in Indonesia. On the good side, the Suharto regime was exposed and deposed for the self-interest and corruption it flaunted, but the nation remained perilously destabilised, verging on disintegration.

Russia was the next victim of global capital fear and flight. In the eyes of more and more Russians, the vaunted new capitalism was discrediting itself. Russia began to revert to old habits. The long-term reforms talked about so passionately are unlikely to be executed in the foreseeable future.

For a few weeks in 1998, it looked as if the virus in the new global financial system might even hurt American markets. The first response of the US Administration was allegedly to blame the global panic on the developing countries. Their economic mismanagement was to blame, not the new financial system that the US monopoly superpower was enforcing.

But opinions have begun to change. Robert Rubin, who headed the US Treasury during that time, now says the so-called Asian financial crisis and the preceding Mexican crisis were "as much caused by the industrial nations' financial institutions", as the mismanagement of Asian elites.

Rubin now heads one of those financial institutions, Citigroup. He concedes that the United States put too much emphasis on opening countries to international investments and not enough on how to handle that money.

With the benefit of hindsight, he said, the US Administration should have put more of an emphasis earlier on getting the rest of it right making sure countries had a regulatory structure and an understanding of what could befall them if the world picked up its money and moved it elsewhere.

In the end, intervention by the US Federal Reserve, the IMF, and the US Government worked to the extent that the crisis eased and wider disaster was averted. The NYT attributes this principally to the chairman of the US Federal Reserve Board, Alan Greenspan, and US President Clinton. Greenspan cut US interest rates. Clinton cleverly, without stirring opposition in the protective US Congress, kept American markets open to ever-larger floods of imported goods. This helped afflicted nations export their way back to health.

But many of the long-term reforms advocated so passionately under the heading of democratic capitalism were never executed. Russia, South Korea and Japan made a few changes but are mainly reverting to old habits. Indonesia continues to verge on disintegration.

As for China, US foreign policy strategists argued that their global "free trade" push would in time erode the power of the Communist elite. President Clinton argued exactly that to sell Congress on the merits of his US-China trade deal. Like media tycoon Rupert Murdoch and the neo-liberal think tanks, Clinton claimed that "in the new century, liberty will spread by cell phone and cable modem." But even as China opened up economically, the US State Department has documented six years of intensifying crackdowns on dissent.

As for the much-vaunted intentions to build a reformed, safer, fairer "global financial architecture", they largely came to nothing. Countries must now reveal more financial information - which helps investors - and the IMF has changed many of its lending practices. But little else has changed. Even President Clinton has stopped talking about redesigning the world's financial system.

The NYT commented:

" The man who came to office criticizing President George Bush for putting commerce ahead of human rights ended up arguing, quite passionately, that the spread of American-style capitalism would eventually help spread American-style democracy ... Clinton supported the use of economic enticements to bring about political change, including lifting cold war embargoes, signing more than 300 trade agreements and even teaching countries the basics of contract law. [He] argued that the accord would spark political openness, but in Beijing, leaders believe they can enjoy the benefits of market reform without loosening their political grip, and by some accounts, they have imprisoned more dissenters than during the Tiananmen crackdown."

When Clinton went to Seattle he began talking about establishing labour and environmental standards for all nations. His comments merely stiffened the resistance of countries like India and Egypt to the "free-trade" proposals. Developing countries were convinced that the US was trying to impose American-style work rules mainly to make their goods less competitive. Clinton himself admitted later:

"A lot of the people in these developing countries who were marching are mad at America because we, almost alone among the advanced countries, would like to have a global trading system that has minimum labour and environmental standards. And so a lot of them thought that's my indirect way of being a protectionist, in protecting the good jobs in America and keeping them poor."

It was not the case, he said. But he lost the argument, and the Seattle talks collapsed.

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