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"The World is Ten Years Old"

"The relation of the highest to the lowest 20 percent of income has already risen to 150 to 1. Increasing tensions between democracy and the free market have led to doubts in the once unquestioned successes of the neoliberal creed." Brigitte Young is a professor of political science at the Free University of Berlin.
"The World is Ten Years Old"

The process of globalization is also a gender process

By Brigitte Young

[This article originally published in: Jungle World 25/ 1999 is translated from the German on the World Wide Web. Brigitte Young is a professor of political science at the Free University of Berlin.]

"The world is ten years old", the investment firm Merrill Lynch uninhibitedly declared in Foreign Affairs (1999). It was born when the wall fell in 1989. With it, the youngest worldwide economy - the global market - saw the light. Merrill Lynch is convinced more than ever that the coming years will be a disappointing time for pessimists.

Thus globalization is the great economic event of our age. Technology makes globalization possible. Liberalization makes it a reality and liberalization is reality. So Martin Wolf, member of the editorial staff of the Financial Times explains the great event.

The contrast could not be greater between the euphoria that celebrates the deregulation of global market forces and the disillusionment of those who see the destructive effects of deregulated free markets. Is neoliberalism in reality only the practical conversion of a utopia?, Pierre Bourdieu asks. The utopia of a boundless exploitation becomes reality, a program for the destruction of collective structures still able to resist the logic of the pure market. Globalization reduces the world to a destructive Darwinian struggle for existence in which everyone fights everyone else and cynicism governs as the supreme principle of the right of the stronger. The advocates of the maximum market declare the state as their most wicked enemy.

In this struggle around the future of capitalism, the "Washington consensus" - privatization, deregulation and liberalization - carries the day. The dramatic and unexpected rise of financial crises in different regions like Asia, Russia and Latin America has led to a partial loss of confidence among the followers of the free market in its universal prescriptions for macro-economic stability. The Washington consensus has created a new transnational state (IMF, OECD, World Bank, WTO) beyond democratic control. This consensus contradicts important theories of neoclassical economics. Its prescriptions for the Third World are counter-productive.

The Washington Consensus

The Washington consensus arose in reaction to the Latin American debt crisis in the eighties as arrangements between the IMF, banks and governments. To cope with these macro-economic instabilities, US economic experts, the International Monetary Fund and the World Bank prescribe one cure, massive doses of trade liberalization, financial deregulation and privatization. Massive indebtedness of the public treasury and high variable inflation rates were assumed to be results of misguided state policy. If the government would be "vacated", the market would guarantee an efficient allocation of resources and thus lead to robust growth.

The answer to the economic problems of Third World countries was a doctrinaire faith in the self-regulating powers of the market. The maximum market and the minimum state were the golden rule to restore stability. This transition from state regulation of the debt crisis to the autonomous market represented a change of the functioning of the Bretton-Woods system. While the IMF before 1973 was the administrator of the international financial system, the post-Bretton-Woods institution is today the watchman of the financial markets.

In fact the original task of the IMF ceased to exist in the early seventies through the collapse of the system of fixed rates of exchange. Today the IMF with the World Bank is responsible that debtor countries - regardless of their serious economic difficulties - meet their international loan obligations. The IMF became the lender of last resort for debtor countries to still receive credits.

However the credits of the IMF do not help affected countries stand on their own feet. Rather an IMF credit assures creditors that the loan interests will be paid despite the social costs and human suffering. The withdrawal of public expenditures, strict austerity programs, reduction of credits and money supply and drastic lowering of real wages are in the center of the monetarist dictates of the IMF and the World Bank. The service of international credits becomes the most important domestic- and foreign policy responsibility of indebted Third World countries.

Little attention is given to the social costs of disciplinary monetarist measures and to the creation of necessary prerequisites for making economies more competitive on the global market. The model of the IMF does not make possible any solution to the bank- and balance of payments crises of the Third World or guarantee possibilities of democratic participation. The universal prescription for all countries who saw themselves forced to request financial help from the IMF is supply-orientation and deflation.

That the economic situation of individual states improved through the Washington consensus can not be proven. The free global circulation of capital has had grave anti-democratic effects. Global financial markets become transformed into a new supranational world order. National financial transactions decline while several select global cities form a global network of financial centers. This supra-national order with its own institutional structures, communication networks and action logic has created a technocratic transnational state without citizens - in the words of Ignacio Ramonet, "a center of power without a civil society".

Capital markets and transnational corporations are the transnational citizens of this new state. The danger arising from this supra-national order is the erosion of social and political rights of national citizens, not so much the weakening of the nation state. The secret negotiations of the OECD states on the Multilateral Agreement on Investments (MAI) without the consideration of Third World countries or citizens of the First World is only one example of the dominant logic of the global economic order.

The current recommendations of the IMF for overcoming the world economic crisis reflect the interests of financial capital: deregulating markets, lowering the inflation rate through high real interest rates, reducing the size of the government apparatus and removing budget deficits. The cure or course of treatment is identical for all countries irrespective of their geographical size, political culture and cultural tradition, economic system and level of economic development. If a country falls into arrears with its international debt service obligations and urgently requests the assistance of the IMF, a letter of intent for structural adjustment programs must be signed. Through this document, these countries practically declare their capitulation to the IMF dictates.

The IMF ignores the structural, supply-conditioned causes of payment or liquidity problems. A comparison to Germany after 1945 can be revealing here. Special importance was given to production, investments, innovations, trade and to the social welfare system as an antithesis to capitalist markets and an international political system providing political coordination and cooperation. Financial markets stood in second place in relation to the commodity markets. Nowadays we have the opposite. The center of gravity lies with the financial investments especially speculative transactions like derivatives.

Hedging transactions are concluded with the help of derivatives and based on very complicated, mathematically calculated entries according to the rise and fall of exchange rates, interest rates or stock portfolios. Speculators need very little money for these deposits. However the deposits are often lost. Day X comes on which the money must be raised to cover the lost deposits. Many banks and investment houses can no longer control the vast sums that their stockbrokers invest in these "hedge transactions" of the so-called financial derivatives.

The near bankruptcy of the US Long Term Capital Management Fund (LTCM) is a particularly crass example of totally uncontrolled financial circulation. The sum of money in this speculation was equivalent to Germany's gross national product at the end of the eighties or the total world trade volumes in the seventies. The US Federal Reserve had to rescue LCTM. Swiss banks and other banks lost enormous sums. More than a thousand such investment funds operate worldwide. No international agreement controls the global circulation of this hot money.

The World Trade Organization (WTO) is an instrument able to annul laws endangering freedom of trade. National laws for protecting the environment, health regulations and labor law are such legal violations. The WTO has become the most important implementation organization for the neoliberal agenda of the IMF and the World Bank. Rita Hayes, American ambassador at the WTO, openly admitted this purpose of the Washington agenda of these institutions: "Since the global monetary- and financial crisis is multi-dimensional, the WTO supports the IMF and the World Bank to attain macro-economic structural and fiscal goals."

With their emphasis on trade- and capital liberalizations, the architects of the neoliberal global order give no attention to the social interests of existing people. The pioneering work of Diane Elson, Caroline Moser, Lourdes Benera and many other development specialists and feminist economists stressed that the needs of indigenous populations cannot be simply dissolved in pure air. In other words, social functions become the privatized burdens of women. The assumption that women's work can be endlessly extended underlies this shift. However world trade and financial liberalization are at the expense of women and children and strengthen the inequality of social and economic relations between men and women as we know from many development studies.

The Post-Washington Consensus

Criticism of the neoliberal Washington consensus can be heard within the financial institutions. Joseph Stiglitz, vice-president and chief economist of the World Bank has called to a post-Washington consensus that leaves behind the dictates of Washington. For political measures to be lasting, Third World countries must be able to gain their demands. To counteract the dogma of liberalization, he recommends three correctives to present political measures:

1. The center of gravity should no longer be liberalization or deregulation but the development of a "regulative framework" assuring an efficient financial system.

2. Financial regulation should be coupled to the creation of a "corporate control structure" that allows more transparency and avoids extensive capital misallocations.

3. A legal framework and incentives for "self-control" of economic actors should be created.

Stiglitz is not alone with his call for a new consensus. The domino effect of the financial crises in Asia which first touched Russia, then Brazil and other Latin American countries finally commands the attention of the most powerful global players. The theme negotiated at the World Economic Forum in Davos in February 1999 is called "responsible globalization". The nineties witnessed the greatest increase of income disparities.

The relation of the highest to the lowest 20 percent of income has already risen to 150 to 1. Increasing tensions between democracy and the free market have led to doubts in the once unquestioned successes of the neoliberal creed.

Unfortunately Oskar Lafontaine's call for a global stabilization of the exchange rates, coordination of European monetary policy and stimulation of economic growth through anti-cyclical Euro-Keynesianism met the vehement resistance of the financial community. His resignation signaled the defeat of a regional European/ German neo-Keynesian alternative to neoliberalism. Lafontaine stood alone with his call for lowering European interests to reduce unemployment. Even France was against adjusting the interest rates of the Euro, yen and dollar to one another while the German Centr4al Bank and the US indicated they have no interest in a worldwide stabilization system of the exchange rates.

Hans Tietmeyer, president of the German Central Bank, still believes that the free movement of capital leads to optimal allocation of resources. According to Tietmeyer, the current measures of the IMF for capital liberalization are the only possible way out of the current crisis. The British Chancellor of the Exchequer admits the necessity of new rules of the game.

Nevertheless Tietmeyer found the IMF and the World Bank innocent when with other bankers he apportioned blame for the global financial crisis. As a result of the confusion, representatives of the international financial community criticize the economic and fiscal measures of individual countries, the underdeveloped financial sectors of the new markets, the ineffective control and crisis management and inadequate social protection.

The need for stricter "transparency measures" may be the only common agreement in the tug-of-war between those demanding tighter controls over the financial markets and those resisting these demands. Transparency, according to the reasoning, could function as a warning system giving investors sufficient information to avoid a financial disaster.

The Democratization of the Post-Washington Consensus

It is unlikely that the international financial elites will assume responsibility to "create a socially oriented platform" facilitating the democratization of the global economy. Finance ministers and political actors have finally recognized that more than only combating inflation is needed for functioning markets. In the words of Joseph Stiglitz, "rational financial regulations, competitive rules and political measures are necessary to enable technology transfer and strengthen transparency."

However there is no serious discussion on solving the debt burden of developing countries. On account of this deficiency, the resumption of economic aid to developing countries means that these countries will supply their resources to the First World. Lafontaine's Euro-Keynesianism also would not alleviate the present global inequalities. A global Keynesianism is necessary to check contemporary deflation measures. For the first time since 1930, the world suffers under the obvious inability of governments to stimulate demand. Demand cannot be raised in the countries shaken by crises since a collapse of interests destabilizes the currencies and scares off foreign investors.

One way out of this trilemma consists in dissolving the connection between national interests and the exchange rate. Restriction on the capital streams of some developing countries, regulation of the financial markets and development of the economy would give a new direction to the current policy of short-term financial assistance. Short-term support only keeps the debt burden at an intolerable level forcing debtor countries to austerity and deflation measures with enormous social and human costs.

The IMF, the World Bank, the WTO and the OECD could be relics of an economic order of the Cold War. These institutions have shown little flexibility in coping with the challenges of globalization and are not suited to promote equality and economic development.

Knowledge is lacking on the effect of deflationary political measures on women and men. According to one study, the economic crises of the eighties and the 1987 stabilization and adjustment program as an answer have cancelled the advances in heath and food supplies and in the educational system. The increases in the wage level of women in developing countries of the last three decades were brought to a halt and even rescinded.

The situation worsened in the nineties. Austerity measures - to name only one political "corrective program" - included no cuts in the military realm. Rather these austerity measures caused a reduction or complete ending of health-, education and other social programs. However these "side effects" lie outside the central considerations of the globalizers.

As Saskia Sassen explains, traditional descriptions are limited to a narrow analytical area. In these descriptions, "the great spectrum of micro-practices and cultural expressions constituted and legitimated by men and/or by male relations" is faded out. Similarly Isabella Bakker discusses the "conceptual silence" as to the asymmetrical power relations based on gender characteristics. Diane Elson speaks of the "male constitution" of the development process.

Feminist economists recognize that a democratization of the global economy requires a new center of gravity in "gender-specific macro-economic policy". The genders play a crucial role in the process of the global economic restructuring. A global Keynesianism is not enough for gender-neutral successes.

A necessary first step is stimulating global demand to end the deflation-spiral. Expansion of economic activities is not enough to challenge the existing gender blindness that is deeply rooted in the historical and institutional practices of the state and the market determining the differentiated access and control of material and immaterial resources by men and women. Markets and states are institutions characterized by market structures with asymmetrical class- and gender dimensions.

The free enterprise standpoint of society as Karl Polanyi remarked in 1944 made two false assumptions. Firstly, the economy is equated with compatible relations and compatible relations are equated with freedom. The first error in this market utopia is that economic conduct is "divided" in a producer sector that ends when the products reach the market and a consumer sector in which all the products appear on the market.

Secondly, both the producers and the consumers are "free" either to draw income from the market or spend income on the market. Society, state, family and human relations play no role in this market utopia. The production and distribution of foods is only governed by prices. The self-regulation of the market means that the available supply of goods at a fixed price equals the demand.

These assumptions are simply false. Markets are embedded in social relations. Cooperation, mutuality, trust, redistribution and watchfulness are crucial for every functioning market economy. The standard economic descriptions do not consider "non-free enterprise relations" which structure all markets and which persons participate in market transactions. As Isabelle Bakker reminds us, markets are political and cultural institutions as well as economic institutions. This insight is vital in working toward a global gender-democracy since the reinterpretation of markets as political structures embedded in social relations illuminates both the possibilities and the pressures of the market for marginalized groups.

Despite the frequently exploitative nature of working conditions, the integration of women in the world of work has made possible a certain economic independence of these women and allows a doubt tin the "natural" dominance of men and the subordination of women. At the same time, markets like other institutions guided by social relations can reassess existing resource distributions and socially constituted gender orders of the world of work.

This is imperative since economic analysis ignores the gender-specific hierarchical dimension between those who earn money in producing businesses and those limited to the non-monetary, reproducing economy. Aside from the northern countries, raising children is mostly regarded as a private matter left to the family. Both macro-economic policy and neoliberalism presuppose the reproduction economy as pre-existing.

Lafontaine's call for a Euro-Keynesianism and Paul Krugman's global Keynesianism are built on the traditional sex-specific division of labor. The needs of the family and social interests are considered externalities. The work burden of women is assumed open for endless extension.

The neoliberal reversal in privatizing public services assumes that the costs of social reproduction can be shifted to the private sphere, that is to the burden of women. However the underlying traditional gender-model is undermined by the growing necessity for women to earn money.

The contemporary reality is that the majority of women worldwide are no longer at home. Women are responsible for the reproduction economy and also contribute to the productive economy. Obviously the way that we solve the challenges of social and human development goes hand in hand with questions of global demand and cannot be left to traditional economists. A resolution for gender equality, as Diane Elsen argues, must include more than security nets for preventing poverty. Instead of binding up inflicted wounds, wounds should not be inflicted at the beginning."

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