Adjusting to Neoliberal Globalization
An economic policy can only be considered good as it gives benefits and blessings to people. In the last thirty years, the gross domestic product of Germany has doubled. however the net real incomes of dependent employees have not doubled but stagnated or fell. the state is heavily indebted because over four million persons are unemployed. Permanent employment conditions change more and more to uncertain temporary work. Translated from the German
Adjusting to Neoliberal Glolbalization
By Horst Afheldt
[This article originally published in the journal "Das Parlament" is translated from the German on the World Wide Web, http://www.bundestag.de/egi-bin/druck.pl?N=parlament. Horst Afheldt is a political scientist.]
Whoever makes prescriptions and demands for adapting to progressive globalization lives pleasantly. The danger of being on the loser's side is trifling. One runs safe in the crowd of economic "experts" in industry, politics and the daily press. The trend will probably prevail more and more. But is the current course right? Or are the flares announcing this course false fires?
Under the title "10 Advantages of the WTO System", the World Trade Organization praised its direction on its Internet "homepage". I will discuss some of these advantages. Certain problems will be emphasized.
"The system allows conflicts to be solved constructively", we read. A global organization settling a trade dispute contributes to maintaining world peace assuming it limits itself to this task and does not try to dictate a single trade policy. Nations like Russia and many African states are confronted with massive problems because the presuppositions for adopting or fulfilling the WTO criteria did not exist and still do not exist.
Joseph Stiglitz, chief economist of the World Bank at that time, declared in 1999: "Up to now the key to success according to the view of the World Bank and the International Monetary Fund was in liberalization and privatization. However the developing countries that followed these prescriptions are engulfed in crisis. The Chinese refused the advice of the World Bank and were successful. Instead of privatizing, they concentrate on new businesses. Instead of liberalizing trade, they aim at competitiveness. China has the best overall economic balance. Poverty fell from 66 percent to 22 percent of the population." Observing cultural diversity avoids conflicts, not enforcing uniform rules,
"A system based on rules of law and not on power makes life easier for everyone." However identical rules for everyone are not synonymous with chances for everyone in the world of states of today. More than 150 years ago, Friedrich List explained that a free world market benefits all partners equally when they have the same starting chances. This is hardly the case in early phases of economic development. Annulling all trade barriers intensifies inequalities. That was the reason for the protective duty policy over decades for the young (and still young) US whose economic development from a British colony to the leading world power is the greatest success story of protectionism.
Diversity assures life, not identical rules. This is also true for economies. In the past, different models of successful growth were used under different conditions in different parts of the world. This was shown in the industrialization phase of the German empire before the First World War, Roosevelt's New Deal in the thirties, the German economic wonder of the social market economy and the emergence of the East Asian tigers and dragons. Many of these models followed state concepts. From Bismarck 1879 to Roosevelt 1933, national economies were delivered from catastrophes through state interventions. They were plunged into catastrophes by an opened world market. All these economic models were adjusted to the specific demands of the respective society and the dominant worldwide realities. If they did not adapt as Russia's neoliberal experiments after 1990 showed, the result was an economic and social catastrophe.
All the successful models came to an end and were replaced by other models. Choices and alternatives were and are important for survival of the individual economies. The neoliberal model demands exclusive authority from Silicon Valley to the Upper Volta worldwide and manifestly for all time. This is megalomania or delusions of grandeur. A WTO that prescribes the worldwide enforcement of the free trade system makes life in the world harder, not easier.
Does the world trade system offer "the consumer a greater choice and a broader realm of different qualities? Goods from every corner of the world can reach every other corner through free world trade. In this way, goods formerly unknown in Europe can be found everywhere today. This is diversity. Still the principle of the market is shifting production where it is cheapest. This is also true for the "diverse" goods offered according to the principle of free trade. Everyone makes what he can make best and what is globally competitive. Finally, standardized industrial products appear that can be transported cheaply and practically. Three or four standard apples that are essentially tasteless can be found on all the shelves of the world out of hundreds of different local varieties of apples. Holiday Inn hotels and McDonalds restaurants are worldwide. Diversity becomes monotony.
The level of import duties or reduced trade barriers necessary for consumers or workers can only be decided in every particular case. Any "standardized rule" for all regions of the world would only do harm.
"The basic principles of free trade increase the economic efficiency of the system and lower its costs." "Trade stimulates economic growth." Trade is not an end-in-itself. Trade serves the economy and should be reflected in economic success as measured by the gross national product. Thus the efficiency of the world trade system can be define3d as the relation of world trade to the respective world gross domestic product. Compared to the year 1900, the world gross domestic product has increased 17-fold. The world trade that helps to produce and spread this expanded gross domestic product has grown 38-fold, more than twice as much. More and more trade is necessary for the growth of the world domestic product. Thus the economic efficiency of free trade is relatively trifling.
The growth of the gross domestic product is also not an end-in-itself. With regard to the social market economy, Ludwig Erhard declared: "The measure, standard and judge over the good and evil of economic policy are not dogmas... An economic policy can only be considered good as long as it gives benefits and blessings to people!" In the last thirty years, the gross domestic product of Germany has doubled. However the net real incomes of dependent employees have not risen correspondingly but stagnated or fell. The state is heavily indebted because over four million persons are currently unemployed. Permanent employment conditions change more and more into uncertain temporary work. Hardly a day passes when an "expert" or politician does not admonish employees, pensioners and unemployed to adjust their claims to the changed conditions, literally to lower their claims. Despite 30 years of growth policy, public and private poverty have increased in many places in a wealthy republic.
Jobs are created through world trade. Nevertheless problematic developments should not be ignored. Jobs are lost or low-wage jobs arise in other places. For example, jobs arise for Philippine sailors on ships sailing under low-wage flags. This can be generalized. Jobs in wage-intensive industries in industrialized countries are lost. Exporting industrial products may create an equalization in the balance of trade but not in the job balance. Only industries with high productivity can remain in industrial countries, that is industries with fewer and fewer workers. Labor is a cost factor. The minimization of all costs through global free trade is the promise of free trade. Because free trade keeps its promise, the number of unemployed not surprisingly has drastically risen since the expansion of world trade in OECD-countries with their higher living standards on account of higher wages and social benefits.
What about the developing countries? The repression process on the labor market is also manifest there even though on a much lower level. The starvation wages for child labor are falling today in many places. Increasing the low wages of these countries is necessary for economic and humanitarian reasons. However every attempt to raise these wages through agreements in the world trade system has failed in the past and will fail in the future.
The standard objection against "social regulations" is that higher paid labor through social standards in developing countries would lead to a decline in demand for their goods. But the prices at which these goods are offered in industrial countries hardly depends on the amount of the paid wage. For example, the production costs for a pair of Nike shoes in Indonesia amount to 12 cents. They are sold for $80 to $100. Still the price of "low-wage work" is decisive in the mutual competition of low-wage states for the choice of location of global corporations. Thus positional competition on the world markets contradicts the goal of the economy: the prosperity of people. The economy does not function as a means to this end.
Does freer trade lower the lost of living? Free trade hindered by nothing undoubtedly leads to the optimal "allocation of resources". The cheapest (worldwide) supplier receives the surcharge; the most favorable worldwide location is chosen for production. The free trade system is superior here to every other system. Welfare state systems that raise the price of production through protective social regulations, work time limitations, minimum wages or social fees have fewer and fewer chances in the long run in this competition of a global population that is growing dramatically. State or regional environmental protection measures reduce competitiveness. Attempts to convert European agriculture to healthy production near to nature in an open world market are frustrated from the start. In contrast, a European market with fixed norms could assure sales. The regionalization of markets - of production and consumption - could answer central problems of world trade.
Free trade lowers prices and incomes. The economist Herbert Giersch described the long-term effect of worldwide free trade years ago as follows: "In the extreme, simple work in Germany cannot be paid higher in the long run than in Chechnya or on the Indian subcontinent." Even drastically falling consumer prices cannot compensate for the consequences of this development.
"Lowering trade barriers allows trade to increase and leads to higher incomes. This is true for national income and personal income.." The claim of the World Trade Organization that the personal net incomes of the majority of the population have risen can be denied as well as the claim that the governments have more money for redistribution. On the contrary, a worldwide endangering of the tax basis of the states is striking today. This is clear in a study of the International Monetary Fund. The study shows: "According to a widespread view, tax competition could reduce governments' possibilities for continuing to finance the welfare state." On the problem of taxes on business revenues, the study concluded: "Some authors see the possibility that tax revenues from corporations will be driven to zero in the long-term future." This is connected with the numerous possibilities of freely choosing the fiscal business location in a global economy. The form of taxation will play an increasingly important role.
"According to the rules of the WTO, it is difficult to take back a liberalization of a trade sector... For governments, this liberalization can often represent good discipline." However the ability to correct errors once committed - whether through an old or newly elected government - is one of the characteristics of democracy. Irrevocable decisions are ultimately anti-democratic.
A state subject irrevocably to the free market through the WTO agreements is helpless toward corporations that play off the public treasuries in the worldwide competition for locations. The state can no longer force a social balance or equalization, protective measures or living standards. Only shifting the social misery between unemployment on one side and lower wage sectors with reduced social benefits on the other side will be possible. This helplessness also seizes environmental policy. Here we meet again the confrontation of two goals as with the theme wages and prices: either democracy or boundless free trade.
But how should necessary rules be set to the market enabling corporations to work for a sustainable and just market economy without damaging themselves?
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