Three-Dimensional Economics

ooh! I wish there was a clear and easy answer to this huge and complex issue. The depth of knowledge required to follow the implications and consequences of such broad and far reaching policies is intimidating.

How do we achieve wage growth, corporate growth equality, fair trade and a positive outcome for rich and poor countries alike?

There’s the multi-trillion question with a priceless, elusive answer. It seems the more one learns, the more confused one gets.

Posted by john on May 26, 2005 at 11:26 AM

Dave Moberg’s analysis and criticism of CAFTA is quite astute and needs to be taken seriously.  He aptly points out that the agreement will neither protect labor rights anywhere nor increase markets for such products as finished garments or primary agricultural products.  Many influential (mostly Republican) politicians represent states and/or districts with powerful agribusiness lobbies in Washington whose price supports and federal subsidies would violate the terms of CAFTA while US dumping of cheap export crops like corn, rice, and other essential grains would increase poverty in the Central American counntires thus further constraining local markets already far to narrow to absorb any quantity of US finished goods exports. Garment industry investment in Central America is liable to create more sweatshops producing goods that, since the collapse of the Multi-fibre Agreement late last year, will be unable to successfully compete with cheap, higher quality finished garments from China whose surge in the world export markets over the past half year has been astounding!  What is likely to result from CAFTA is lost jobs in both the US and Central America.  Downward pressure on the export prices of finished garments from China’s privelaged position in the world market can only lower labor standards in countries like those in Central America where the light industrial labor market will be flooded by farmers displaced, or proletarianized, by US dumping of subsidized grains on the local market. What CAFTA is promoting is less “fair trade” than further sweatshop investment by wealthy countries like the US in countries that are increasingly powerless and impoverished by a new, more concentrated division of labor which will integrate these countries into the global market on a more unequal and exploititive basis. It will also further Central American dependency on foreign food imports, loans, aid, and markets!  Globalization has always been less about “trade”, one third of which is intra-firm, than about corporate restructuring of the global economy in a way that increasingly “flattens” or obliterates local economies while increasingly skewing the global distributiion of wealth in favor of the rich!  In a world where globalization is flattening the world in order to vertically maldistribute wealth and power in its wake, workers and the poor in both the US and Central America can expect little from agreements like CAFTA.

Posted by steve on May 26, 2005 at 12:17 PM

I’d like to take issue with Steve’s analysis of globalization, which, well-written and argued though it was, shares many problems with typical left-wing criticisms of globalization.

For one thing, China only has a “privileged position” in the world market relative to much poorer countries like those of Central America or sub-Saharan Africa.  The United States actually still has the most privileged position in the world economy, since the dollar is still (for the time being) the world reserve currency.  That means simply that international debts, including our own, are denominated in dollars, and thus, in the event of a financial crisis, we could devalue the dollar could to pay off our debt.  (It’s a neat trick, but it only works once.)  Foreign investors know this, and thus are willing to lend us money on terms more generous than any other nation is likely to receive. 

It is this fact, combined with the American consumer credit binge of the past ten years, which accounts for America’s burgeoning trade deficit with China, much more than the Chinese government’s aggressive mercantilist strategies.  As Robert Reich explained in a recent article in the “American Prospect,” China’s policies are simply smart for a developing nation.  The Chinese invite in hard capital investment while strictly regulating speculation, and use America’s spending power as the engine of their own development.  While the Chinese will eventually, for political and economic reasons, have to appreciate the yuan, the United States needs to bear the brunt of the adjustment by constraining its spending.  How to do this without sending the economy into a tailspin is anybody’s guess.

I did appreciate Steve’s point about increased competition leading to a downward pressure on wages and prices.  One of the most negative effects of globalization is the deflationary pressures it has wrought.  I would rather he followed through with this point than to talk about the exaggerated phenomenon of the export of capital by multinational corporations to low-wage production centers in developing nations.  Most foreign direct investment, over 80%, occurs among developed nations, and most of that winds up in the United States. 

Again, the United States actually has much lower labor costs than developing regions like Central America, due to the higher productivity of American labor.  This owes to better education, health care, and social services, and a higher overall level of technological development.  In fact, low wages are the only advantage that developing nations have in the world market.

The idea that there is a simple cause of society’s economic ills implies that there is a simple solution, and this, alas, is not so.  What, then, might be a solution?  I would like to hear more written about capital controls and bilateral trade arrangements.  David Moberg mentioned China’s practice of currency controls in passing toward the end of his article.  Currency controls have helped stabilize and smooth China’s economic development; perhaps they could similarly smooth adjustments to trade-related dislocation and unemployment in developed nations.

Posted by Matthew K. on May 28, 2005 at 5:44 AM

China is taking our dollars and buying US notes, in effect, holding an ever greater percentages of our accumulated debt.  Additionally, China is investing heavily in the Americas.  Many of the maquiadoras established under the NAFTA agreement have been taken over and are now owned by Chinese investors.  The Chinese now control much of the garment manufacturing sector in Central America.  They are heavily invested in Panama.  They have established separate trade agreements with Brazil and Argentina.  Their investment doesn’t stop south of the border.  Several brands in the United States have been purchased out-right by Chinese investment groups.  Notable among these is Murray, manufacturer of garden machinery.  Other US brands are discovering that they can not compete internationally.  Consider IBM’s withdrawal from the personal computer market that took effect with their yielding of the PC division to Lenovo this year.  Soon this is going to be true with agriculture as well. Increasingly, many items found in your grocery store are now of Chinese origin—read the labels!
  We are placing ourselves in a highly vulnerable position for the future.  The effect of dependency on foreign oil is already recognized.  Consider now the impact of an ever increasing dependency on not only manufactured goods, but also, our supply of food.  Compound this with the relinquishing control of our national debt in the form T-Bills held by foreign investors and the case for our trade policies of the last two decades begins to disintegrate.

Posted by troubled in the Heartland on May 29, 2005 at 2:38 AM

Heartland:

China still controls only a tiny fraction of the world economy, far smaller than the United States.  I’m sure they do export a lot of goods and capital.  So do we.  What’s your point?  The United States has far more commercial presence in the world than China does.  If you wish to speak of neocolonial influence in Latin America, I suggest you research the history of the United Fruit Company, and the other large American and European concerns which have dominated the region’s economic life.  Not to mention the sordid legacy of American foreign policy in the region stretching back to the 19th century.  If China is guilty of anything, it’s cutting in on our action, again still a disproportionately small slice considering its population and resources.

I can’t really understand your point about “relinquishing control of our national debt” at all.  How are we relinquishing control of anything by simply borrowing money from China?  Again, if anything, the United States is using its privileged position as world reserve currency to borrow beyond its means, something no other country can do.  Of course, we can’t do that forever, but that’s as much a result of our own policies as China’s.  Also, has it occurred to you that the Chinese economy is as dependent on the American export market as the United States is on China’s loans?

I simply can’t understand what you have against China.  It is true that in 30-50 years time, it will be a commercial and military superpower to rival the United States.  So what?  Happens all the time in world history.  We will have to adjust our foreign policy to meet the new reality, that’s all.  Chinese protectionist policies are simply what every rising power after England has used to counter the trade advantage of established rivals.  The United States did the same thing in the 19th century.  There’s really nothing we can do about it short of tit-for-tat negotiation.  Retaliatory tariffs would simply spark a trade war that would harm both ourselves and the Chinese, and create substantial political and geopolitical tensions to boot.  There are no simple solutions to complex problems.

Posted by Matthew K. on May 29, 2005 at 9:12 AM

I would like to respond to Matt’s comments above. Foreign Direct Investment (FDI) and the hyper-mobility of capital is not an exagerated or misplaced concern but are at the very core of the globalization debate.  Globalization is not based on trade between nation-states (one-third of which is intra-firm) but on FDI flows by Transnational Corporations (TNC) who wish to operate closer to their markets and who create a whole new global division of labor by forging new production and supply chains which concentrate and centralize the wealth and control of the global economy even as it disperses some manufacturing activity through outsourcing. China’s emerges in this “new economic geography of centrality” less as a “trade rival” than the new anchor of global TNC investment strategy to restructure global capital accumulation on a more profitable basis.  China is doubtless the single largest destination of global FDI flows currently. Matt also neglects to note that the world he refers to in which third world countries recieve a minor share of global FDI flows has been gone since the early-1980s.  East Asia (excluding Japan) recieved less than 1% of total FDI flows in 1980.  By the late 1990s financial collapse of the “Asian Tigers”, East Asian less developed countries (LDC)recieved about one-quarter of all FDI flows.  The difference of the global division of labor whereby LDCs are no longer a source of extractive materials for the capitalist northern tier but a transnationalized locus of manufacturing investment in a new global division of labor.  This kind of globalization hurts both north and south.  The US service sector and retail based low-wage economy offers little to the growing number working poor and shrinking middle-class while countries in Latin America have lost jobs, farms, and economic independance through trade agreements like NAFTA that allow dumping of subsidized US grains on the local market and export-oriented sweatshop production that also monopolizes production for the local market through capital intensive, “lean” technologies.  The world has become more impoverished as inequality increases in a way that increases global instability. One major fallout from corporate globalization is increased migration to the global northprecisely from those countries in Asia and Latin America that recieved the highest quantity of FDI flows over the period of the 1980s and 90s. China’s development strategy was successful because it employed capital controls and other forms of regulation that has proven successful such as requiring TNCs to use domestic suppliers and engaging in long-term planning.  The real factor is China’s political capacity to resist imperialist interference in her project of “market socialism.”  Those who doubt this assessment should keep a careful watch on Hugo Chavez in Venezuala.

Posted by steve on May 29, 2005 at 12:51 PM

Matt—-
In garnering information for your other pursuits in life, I hope you exercise greater care and restraint of jumping to conclusions while reading than you have demonstrated here with your response to my comments regarding China.  No one mentioned neo-colonial influence.  No one suggested or implied that China is guilty of anything.  I do suggest that with agreements such NAFTA, GATT, and CAFTA, the United States has ceded control and determination of its own economy to outside forces.  It would be wise not to underestimate the Middle Kingdom.

Posted by troubled in the Heartland on May 30, 2005 at 2:13 AM

“The strategists have a saying:
I dare not be a host, but rather a guest;
I dare not advance an inch, but rather retreat a foot.
This is called marching without moving,
Rolling up one’s sleeves without baring one’s arms,
Capturing the enemy without confronting him,
Holding a weapon that is invisible.

There is no greater calamity than to under-estimate the strength of your enemy.
For to under-estimate the strength of your enemy is to lose your treasure.

Therefore, when opposing troops meet in battle, victory belongs to the grieving side.”
        Lao Tzu—TAO TE CHING #69

A principle of martial arts is to turn an opponent’s strength back upon them—- 
    We worship and extoll the majesty of the dollar as we enjoin the rest of the world to follow our newly revealed religion.
Stepping back, diminishing the thrust, returning the force to bring the opponent down—-
    So it is that our greed has enabled China.

Posted by heartland on May 30, 2005 at 2:17 AM

“Generally in war the best policy is to take the state intact; to ruin it is inferior to this.
  To capture the enemy’s army is better than to destroy it; to take intact a battalion, a company or a five man squad is better than destroying them.
  For to win one hundred victories in one hundred battles is not the acme of skill.  TO SUBDUE THE ENEMY WITHOUT FIGHTING IS THE ACME OF SKILL.”
  —-Sun Tzu Offensive Strategy

  “Victory is the main object in war.  If this is being delayed, weapons are blunted and morale depressed. When troops attack cities, their strength will be exhausted.
  When the army engages in protracted campaigns the resources of the state will not suffice.
  When your weapons are dulled and ardour damped, your strength exhausted and treasure spent, neighboring rulers will take advantage of your distress to act.  And even though you have wise counsellors, none will be able lay good plans for the future.
  Thus, while we have heard of blundering swiftness in war, we have not yet seen a clever operation that was prolonged.
  FOR THERE HAS NEVER BEEN A PROTRACTED WAR FROM WHICH A COUNTRY HAS BENEFITED.”
  —-Sun Tzu Waging War

Posted by heartland on May 30, 2005 at 2:42 AM

Heartland:

In response to Steve’s comments:

As far as I know, China is not currently the primary destination for foreign direct investment.  The United States is.  Most factory production still happens here, and most hard and speculative capital flows still wind up here.  The “hyper-mobility of global capital” is indeed a grave concern, but mostly with regard to speculative capital, of the kind that created the emerging markets crises of the late ‘90s, not direct investment. 

I’d be very interested to know what the source material for your statistics is.  That’s not because I doubt their veracity—it seems quite probable to me that 1/3 of global trade is intrafirm, and that 1/4 of FDI ended up in the Asian tigers by the late ‘90s—but because I would like to see the context in which they were written. 

What does it mean that 1/3 of global trade is “intrafirm”?  Does that mean that 1/3 of international exchange occurs within one and only one giant multinational?  My impression was that in such industries as a ‘global supply chain’ could be said to exist, such as automobiles, the work process is divided up into dozens of firms operating out of many countries.  Besides, that’s still 2/3 of international commerce that is not intra-firm.

As for the point about the Asian tigers, as you yourself noted, the flow of capital into these nations was abruptly reversed as a result of the East Asian economic crisis.  As I understand it, some of these nations recovered rather quickly, some did not, but none have experienced the rates of growth they did before the crisis.

My aim, in any event, was not to downplay the importance of foreign investment in shaping globalization, but merely to point out that the problem of outsourcing to “cheap” foreign labor markets is somewhat exaggerated by critics of globalization.  Most hard capital investment occurs among developed nations, and most, in fact, winds up in the United States. 

I would much rather we focused on larger problems like curbing the enormous, unregulated international system of currency speculation, which swallows up investment that could be used on more constructive direct investment and destabilizes the global economy. 

I would also warn against trumpeting too much the Chinese experiment in “market socialism,” which yearly becomes less “socialism” and more “market.”  Though its policies have been very effective at creating growth, the Chinese government has only done so by reviving forms of exploitation not seen in that nation since the colonial period.  Social insurance benefits that workers took for granted under Communism are being whittled away, while the government uses its dictatorial power to crush labor unions.  Were the collective farms broken up and redistributed to the peasants, the problem of rural poverty in China would be solved overnight; but this land is held in reserve for large, well-connected business interests. 

Until the economy really took off in the early 21st century, China had a huge problem with unemployement and civil unrest.  It remains to be seen whether the new market economy is sustainable, or merely another bubble, and it also remains to be seen how the Chinese political system will adapt—or not—to the unrest that would acompany a period of prolonged economic dislocation.

Posted by Matthew K. on May 30, 2005 at 7:01 AM

Heartland:

I’m confused.  What is the threat posed to us by the Chinese making investments abroad?  And if you’re not accusing the Chinese of war by other means, why follow up your posting with quotations from Sun Tzu, highlighted passages of which read “TO SUBDUE THE ENEMY WITHOUT FIGHTING IS THE ACME OF SKILL,” and the like.  Whether you use the word “neocolonialism” or not, you certainly use its meaning. 

Personally, I find it embarrassing when nationalist critics of globalization like Ralph Nader and Pat Buchanan say that global trade agreements and economic institutions threaten the sovereignty of the United States.  The United States and its allies fund organizations like the IMF and the WTO, determine their mission and modus operandi, and routinely ignore their decisions when contrary to the national interest.  Treaties like NAFTA and GATT, like any other treaties, exist at the whim of the signators.  Their provisions are routinely ignored when inconvenient, and they may be torn up at any time.  The main victims of international trade agreements are the poorer nations, who have less bargaining power and must accede to terms slanted toward the interests of the developed world.

Posted by Matthew K. on May 30, 2005 at 8:16 AM

There is a wealth of information about Foreign Direct Investment (FDI) in the annual UNCTAD:World Investment Reports as well as some World Bank and WTO sources that give the vital statistics that are repeatedly bandied about in this whole debate.  Also Jerry Harris, an Historian at DeVry Tech, has written many articles on Globalization over the past 10 years emphasising the DFI/cross-border mergers & acquisitions basis of the globalization over nation to nation trade making globalization essentially a new historic epoch of capitalist development.  The one-third figure for intra-firm trade, I believe, derives from one of the UNTAD WIR reports and refers to firms moving intermediate or capital goods between each other (or the parent corporation and its foreign subsidiary)under production contract across borders generally involving manufacturing.  I found this area of global economics a bit murky myself but I believe this is the definition.  In fact the source I cited for DFI flows to East Asian LDCs, a Chinese sociologist using UNCTAD Statistics, noted that import intensive nature of Southeast Asian manufacturing industry in the 1990s as a bottleneck to the Export-led growth strategy.  In describing a value-added chain in the global production process in which the main capital exporters in East Asia like Japan, export high value-added capital goods to countries like Thailand using low value added assembly labor, force the Asian LDCs to adopt export-led growth at the expense of chronic balance of trade deficits inherent in a production chain where Thailand could only expand manufactured exports through regular costly imports of capital goods for its consumer durable goods export manufacturing sector.  The resulting currency crisis eventually curtailed this strategy. Ostensibly, this production chain consisted of Japanese manufacturers and local firms in joint production ventures for export.  Elsewhere Jerry Harris has noted that since 1990 China has recieved about half a trillion dollars in FDI and became a source of billions in exports since that time. This has more to do with TNCs global FDI strategies than China as a world trade power. The point is that globalization rips down former national borders making the globe the new organizational format in the structuring of investment.  Who gets most of it or where FDI concentrates is less important. Trade in this epoch is eclipsed as the key mode of international economic relations.  Speculative flows are a big part of the scene and should be curbed.  They are a sideshow to the real issue of FDI-a large and highly destructive one but a sideshow all the same!

Posted by steve on May 30, 2005 at 9:36 AM

Steve:

Thank you for the source material.  I will look into it.  I do urge you to reconsider your views on speculation.  Only in an ideal world would speculation be a ‘sideshow’. 

As John M. Keynes put it: “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”  This, in fact, is one of the central arguments of Keynesian economics: that there are periods during which speculation begins feeding off itself, swallowing hard capital investments that provide stable jobs and improve productivity.  If there is any problem with globalization, it’s that there is too much speculation and not enough hard investment directed toward LDC’s. 

Which brings me to a salient question: What is the problem with foreign direct investment anyway?

Posted by Matthew K. on May 30, 2005 at 10:02 AM

Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all.”—John Maynard Keynes

Posted by Heartland on May 30, 2005 at 11:14 AM

http://news.bbc.co.uk/1/hi/world/americas/4586855.stm
...
“Political agenda
Brazil is also forging closer links with other developing nations in the rest of the world. Trade with China has grown sixfold since 2000. It is likely to expand even faster in the future.
China will require larger and larger volumes of agricultural produce, particularly soybeans to feed its poultry and cattle, and Brazil is one of the few countries in the world that is able to respond to this demand.
In mid-May, President Lula hosted the first-ever Arab-South American summit, with heads of state and ministers from 33 South American and Arab League states meeting in Brasilia.
Although the Brazilian government played down the political significance of the event, it also turned down the US request to be an observer.
For it is clear that, along with the desire to forge closer economic links with other developing countries, there is a political agenda to the flurry of Brazilian diplomatic initiatives. Foreign Minister Celso Amorim puts it simply: “We want a world that is more just, where every nation can compete more fairly.”
Political scientist David Fleischer, a naturalised Brazilian, explains: “Most of the industrialised countries, including the United States and the European nations, based their industrial revolution on capital accumulated from agriculture. That is what the developing countries are trying to do today.”
To do this, developing countries must export more agricultural goods. The main obstacle comes from the massive subsidies that both the European Union and the United States pay to their farmers. These not only make it very difficult for producers in the developing worlds to compete but also reduce artificially the price of commodities on the world market.
The Brazilian government says that these subsidies are illegal under the rules of the World Trade Organization (WTO). Its diplomats have won two important victories in the last year: the WTO has ruled that both the subsidies that the US pays to its cotton farmers and that the European Union pays to its sugar beet farmers are illegal.
Brazil’s successes have won it enemies. Simon Michel-Berger from Copa-Copega, a lobby that represents Europe’s 11 million farmers, accuses Brazil of providing unfair competition to what he says is Europe’s more environmentally friendly way of farming.
“The question is whether such a model of agriculture that produces a commodity at such a low prices can really be sustainable?” he asks.
Brazil’s ambassador to the WTO, Luiz Felipe de Seixas Correa, laughs. “People who lose cases always complain,” he says. “We genuinely believe that in the end both developing countries and developed countries would benefit from a more just world where poor countries are able to use trade to grow their way out of poverty.”
Brazil - The Gentle Giant Awakes is broadcast on Monday 30 May, 2005, at 0905 BST on the BBC World Service.

Posted by heartland on May 30, 2005 at 11:21 AM

Matt—

Nations do not have friends, they have interests.  China will do what is best for the interests of China.  The question is, do those best interests coincide with the United States? 
Additionally, it has been stated that there has never been a successful conquest of China, for in the end the invaders all become Chinese.  China does not think of itself as the Middle Kingdom for no reason.  Prudence is in order as we increasingly become dependent on goods and services from them.  How you can not see that is of total amazement to me.  Take a stroll down the aisle of your local store and read some labels. Almost nothing is manufactured here anymore.  Read the labels on your food and you’ll discover the same thing is beginning to occur there, too.

Posted by Heartland on May 30, 2005 at 11:34 AM

The US is not necessarily the main destination of FDI flows every year although it may still hold the greatest amount of cumulitive stock of FDI.  It does seem most annual FDI flow to the US seem modest for a GDP over $12 trillion. Usually annual FDI flows to the US are only in the tens of Billions while portfolio investment in the financial markets and, of course, US Treasury Bonds seem to draw the greatest amount of foreign capital flows.  It has been pointed out, by the way, by economic analysts in TAP magazine that such is the fault of the US deficit maintained deliberately by Bush which is actually an anti-jobs policy drawing investment flows toward bonds instead of job creating FDI!  The US over the past five years has been eclipsed in certain years as the #1 destination for FDI by such powers as China, the UK, and others.  Some countries have very high and growing FDI as a proportion of their GDP.  Israel’s cumulative stock of FDI as a proportion of gross fixed capital formation has gone from less than 5% in the early 1990s to over 20% in 2003 despite major setbacks due to political unrest in 2001-02. FDI stock in that country is probably between 25 and 30% of Israel’s $120 billion GDP. This is remarkable for a small country.  These proportions not only indicate the extent to which the failed Oslo peace process was really only about globalization but the role of FDI in globalization in general.  Some countries have stocks of FDI approaching their GDP!  The problem, since you ask, is that although FDI-especially in consumer goods export manufacturing-raises GDP growth rates to phenomenal levels, it is done in ways that maldistribute wealth, reorient the economy away from balanced national development, kill off local businesses, and cause heavy import dependence on basics that were provided locally.  The Israeli poverty rate is incredible with one in three families below the poverty line despite average annual GDP growth rates for the last 10 years of between 4 and 5%!  The reason is the relocation of jobs to special export zones in nieghboring countries like Egypt and Jordan.  The labor movements in each country have expressed worries that textile and electronic plants in these zones will set the standard for wages nationally causing a race to the bottom that will harm national income levels. The Palestinians have similarly been pressured to establish Free Export Zones for manufactureres beginning in 1998 and already many local workshops, most of whom employed 5-10 workers, have disappeared being replaced by exporters paying low wages having streamlined production, costing employment and paying little or no taxes.  Most are foreign investors.  I’ve studied the Middle East situation carefully.  Of late, an IMF report has determined that the fastest growing sector for FDI flows there is manufactured consumer goods over oil!  This speaks volumes about globalization’s core purpose in restructuring capital investment and production on a world scale to revive and concentrate greater profits.

Posted by steve on May 31, 2005 at 4:06 AM

Steve—

“The problem, since you ask, is that although FDI-especially in consumer goods export manufacturing-raises GDP growth rates to phenomenal levels, it is done in ways that maldistribute wealth, reorient the economy away from balanced national development, kill off local businesses, and cause heavy import dependence on basics that were provided locally.”

I’m sorry, I don’t see that FDI necessarily causes all of the problems you ascribed to it.  Certainly it is not the only cause of these things.  I don’t see that FDI necessarily causes inequality—that’s done mostly by the labor market and the division between wages and profits in the pricing mechanism.  It also does not necessarily cause dependence on foreign economies.  It depends how it’s done.  In many East Asian societies, including, as we have discussed, China, foreign investment is paired with forced partnership with domestic firms, and assists national economic development.  FDI played a major role in the incorporation of less-developed nations like Spain and Ireland into the EU, without these effects.  And FDI played a huge role in American economic development in the 19th century.  It really all depends how it’s done.

I think you’re looking too hard for monocausal explanations for and simple solutions to complex problems.

Posted by Matthew K. on May 31, 2005 at 8:12 AM

A recent study confirmed no necessary causal link between FDI and GDP growth under globalization.  Issues of reinvestment, profit repatriation, the value-chain inequality, and, of coarse, local economic (and technological/intellectual property) concentration are all concerns that enter into the consideration of any development strategy that relies significantly of FDI.  You are correct ot point out that it depends on how it is done.  Obviously, China has been quite successful as opposed to many countries in Latin America and East Asia whereby financial crises brought down the neo-liberal experiment amidst great devstation.  It is true that China has boththe market and political power to ensure technology transfer and backward economic linkage gaurantees to keep wealth and needed skills in the country for further development and to encourage further FDI.  China’s growth is unprecedented except for the other three historic industrial revolutions.  FDI seems to be everywhere proliferating at a rapid rate regardless of its performance record.  Economists estimate growth of total global FDI stock over the next decade to go from 50% of global GDP to about 75%, that is, at the rate it has been growing over the past two decades. This indicates the core dynamic driving the restructuring of global capitalism and the concentration of global means of production and the extension of capitalist relations of production in order to squeeze ever more wealth from the system.  It is sure to be mostly maldistributed.  The global system has tended to marginalize more people rather than incorporate them except where politically designed to do so like China. Democratic Political agenda is key the so called “high-road” to global growth if it is to avoid economic collapse.

Posted by steve on May 31, 2005 at 11:43 AM

The neo-classical resurrection of Ricardo and Say’s law is yielding a Malthusian result in over-drive.  Ought not the boom of the ‘90’s be better thought of as wind-fall from the introduction of a vastly enlarged work force.  Here, in the United States and elsewhere, wages are being reduced to bare subsistence levels.  As Malthus suggested, acquired wealth does necessarily ‘trickle down’.

Posted by heartland on May 31, 2005 at 12:34 PM

correction—As Malthus suggested, acquired wealth does not necessarily ‘trickle down’.

Posted by heartland on May 31, 2005 at 12:35 PM

It may be true that nations don’t have friends, but interests.  (It must be said, the nation-state itself is a relative novelty in political history, and may be a transient phase in human social development.) Given that a confrontation with China is assuredly not in our interest, or theirs, I think there is ample ground for a future of peaceful coexistence with China, cemented by appropriately regulated trade. 

I don’t see anything inherently threatening about “Made in China” labels, and would remind you that there are plenty of “Made in USA” labels on products Chinese people buy.  Once again, the trade relationship between China and the United States is complex.  Our trade deficit with China—which, again, is as much our fault as theirs—is not sustainable.  The Chinese will eventually have to appreciate the yuan, and the United States will have to curb its spending. 

The only question is how it happens.  Will it happen gradually and diplomatically, or will Congress and the mandarins in Beijing bow to protectionist pressures?  A trade war, if that is what you are advocating, would be economically ruinous to both the United States and China.  It would cause unemployment, higher prices, and stagnant productivity growth. 

More importantly, as history has shown us, trade wars have a tendency to turn into actual ones.  A nuclear exchange would not necessarily spring from the heightened tensions, geopolitical rivalries, and possible arms race that would accompany a falling-out between the U.S. and China, but it could.  I sincerely hope this is NOT what you are advocating.

As long as we are slinging around Kissingerian adages, we may find it helpful to review some outstanding truisms of the International Relations field.  Firstly, the most parlous phenomenon obeserved in diplomatic history is when an existing balance of forces is threatened by the rise of a new Great Power.  Witness the devastation wrought by Germany’s eclipse of the British Empire in the early 20th century.  Similarly, the rise of China portends a conflict with the United States, whose outcome, if it came to a crescendo, would be more devastating to humanity than both the World Wars.

Secondly, as classical liberal and neoliberal critics of realism have pointed out, there is an economic dimension to modern geopolitics.  Great Power rivalries are typically at a minimum during periods of expanding international trade, but heat up when protectionist barriers appear.  What neoliberals forget is that free trade is its own worst enemy in this regard; that the dislocations and crises which accompany capitalist development themselves inspire protectionist counterattacks, as described by the great political economist Karl Polanyi in “The Great Transformation.” 

What we need, in other words, is not free trade, but fair trade.  Can we agree on that, at least?

Posted by Matthew K. on May 31, 2005 at 1:37 PM

It also need be said:

Thomas Malthus was one of the great Chicken Littles of social science history.  There is no name more synonymous with “false prophet” than his.  Every grim vaticination made by Malthus turned out to be wrong.  As it turned out, as Britain industrialized, family size decreased and agricultural productivity increased, allowing an ample agricultural surplus. 

In fact, the entire notion of ‘scarcity’ is a bugaboo contrived by conservative economists to justify the distributional injustice of the capitalist system.  The great development economist Amartya Sen won the Nobel Prize—from a committee dominated by conservative mainstream economists—for demonstrating that every modern famine in human history is caused principally, not by natural disaster, but by maldistribution.  There’s plenty to go around. Poverty and declining wages are artificial excrescences of the capitalist system.

Posted by Matthew K. on May 31, 2005 at 1:48 PM

It is the initial premise of your thinking that is of greatest issue—-How can there be infinite economic growth within a system of finite resources?  The hubris associated with nationalism, or even regionalism, can not be as easy dismissed as you assert.  There is no true parity of trade between the United States and China—-we are rapidly being relegated to the status of a third world provider of raw resources, chiefly agricultural products and that status is presently in jeopardy.  There does not exist a true unencumbered market to establish any kind of equilibrium in the global scheme.

Posted by troubled in the Heartland on May 31, 2005 at 3:27 PM

I never said there could be infinite growth.  Resources may be finite, but they are not “scarce,” in the sense of there being only enough production in excess of the minimum necessary for the survival of the population for a small elite to enjoy.  Scarcity in this sense may have existed in precapitalist societies, but the labor-saving technologies introduced by capitalism have made it a thing of the past.  The only “scarcity” that exists today is that which is artificially created by the division of labor and reward.

Of all the comments you have made regarding China, the one about it relegating us to “the status of a third world provider of raw resources” is the first that I would describe as patently ludicrous. 

I will say it again: no one is forcing the United States to borrow money from China.  Or Japan or Europe, to whom we owe far more money, for that matter.  The United States is living beyond its means, using its position as world reserve currency (which will not last forever) to rack up a level of debt no other country could afford.  Agricultural subsidies are are only export?  We export cars and computers and specialty parts and chemicals and Hollywood movies.  China doesn’t even have a marketable car yet.  (Besides, our agricultural exports are undermining less technically sophisticated Third World producers and helping to cause famines in developing nations!)  Although in absolute terms, China is quickly gaining on us in GDP and productivity, which is no surprise given its huge, educated population, in relative and proportional terms it still lags far behind, and is unlikely to catch up for at least a generation. 

If you are concerned about our relative decline as a Great Power—an ailment that has afflicted Russia, Great Britain, France, the Netherlands, Spain, and yes, China, each in turn—I suggest you look at the cause of historic Great Power decline: imperial overstretch.  Too much money spent on wars, not enough on human welfare.

The United States is the richest, most powerful nation on Earth.  We are premiere even among other rich nations. We are the dominant military power, “the world’s last superpower.”  For the past fifty years, the United States has used that power to buttress right-wing military dictatorships throughout the Third World, particularly in places where the United States wished to control some key natural resource, usually oil.  We have actually been complicit in genocide on three non-consecutive occasions.  We have stepped into the imperial niche vacated by the British Empire, using our control of the world financial system to borrow money on favorable terms and lend it dearly.  Our multinational corporations routinely exploit the workers of the Third World, low wages being the only way the developing nations can compete with more productive First-World labor. 

When the collapse of global commodities markets in the late ‘80s undermined the Third World’s payment power, the creditor nations, especially the U.S., imposed harsh “structural adjustment programs” on the debtors.  These programs were designed to force the debtor nations to pay back their debts at the expense of already-underfunded social services, and to jump-start laissez faire capitalism.  Most of these austerity programs have failed, as in Argentina, leaving untold poverty and misery in their wake.

And after all this—all this!—you maintain that the United States is the victim?  I suggest you save your sympathy for those who deserve it.

Posted by Matthew K. on May 31, 2005 at 4:34 PM

It is the height of hubris to state the United States is “... premiere even among other rich nations. We are the dominant military power, “the world’s last superpower.” For the past fifty years, the United States has used that power to buttress right-wing military ...”
So, what is it with you quasi-libertarians and reading skills?  Who said the United States was a’victim’?  No wonder you manage to skew so much of your other reasoning.  Christ!  You are bound and determined to extract what you want to extract and nothing more…or less.  No one said that anyone is forcing anyone to borrow money.  We have, however, placed ourselves, voluntarily, into a vulnerable and unsustainable position.  How is it that you can not comprehend that, or its implications?  What cars are exporting?  What computers are we exporting?  Did you ever look inside a device to see where it was manufactured?  You, my friend, might be very surprised.  What we are exporting are skills, trades, and technologies, and once those have been assimilated we will be a little use to the Asian powers.  Not even as a market, for they will have established near autonomy within their own region, the EU, and the remaining nations of the Third World.  Say good bye to the USA.  We have committed a messy and undignified economic suicide.

Posted by troubled in the Heartland on May 31, 2005 at 4:58 PM

you are all blowing smoke up someone’s ass.  where are the mutha’ f’ing jobs on West Blvd. brothers?  when does your bull shit translate into something that has meaning here in the real world?

Posted by 53th & Crenshaw on May 31, 2005 at 5:58 PM

To 53rd & Crenshaw,  If you read the discussion carefully at least some of it would explain why there are no jobs in poor, urban communities in the US. This is in fact a huge concern of people in the global justice movement which you should involve yourself in so you can find out more and make an impact.  Also, we have no power to actually make decisions!  Our ideas are not acceptible to powerful people because we prioritize people not profit!  What Matt said in his last statement contains some good points but a lot of folks still miss the point about globalization.  Its not about trade between nation-states but the competing investment strategies of the largest Transnational corporations.  China is the power it is today not because of rival trade strategies which are good or bad but because of the restructuring of formerly national economies into global circuits of accumulation that have made national borders less relevant than in the past.  China is the anchor or global investment and manufacturing and the source of trillions in exports.  TNCs did this as much as the Chinese leadership!  They succeed more than other developing countries because of their ideological commitment to national development that other poor countries lack due to the internal political domination of externally oriented and dependant wealthy social classes.  These classes are now merging into the global economy’s transnational capitalist class as junior partners such that the profit considerations of these classes are impervious to the national developmental needs of their respective countries.  Capital has never really know boundaries and now it is increasingly fashioning a world order that will reflect this in no uncertain terms!  Capitalism is about the long-term concentration of means of production and wealth on a global scale not the moving of goods back and forth.  TNCs invest abroad also to reduce trade activity and be closer to emerging markets. Much trade is investment related anyhow.  The laws of motion of capital is toward concentration and centraliztion. What we are seeing today is the logical culmination of over 500 years of world history!

Posted by steve on Jun 1, 2005 at 5:22 AM

Troubled:

What’s with you economic nationalists and writing skills?  Everything you have said so far has implied that China is taking over the world through other means.  (And when was it established that I’m a ‘quasi-libertarian’?  I’m a progressive, natch.)

Here is a list of American exports to China, compiled by the US Census Bureau:
http://www.census.gov/foreign-trade/statistics/product/enduse/exports/c5700.html
I think you will find we are still a top-notch exporter of sophisticated merchandise.  We are, after all, the wealthiest and most powerful country in the world.  In fact, the main site has information on American exports to every country on the Earth.

The U.S.‘s trade deficit is indeed a huge problem.  As I have said, again and again, it is not the same kind of problem that any other country with a national debt has, since the dollar is the world reserve currency and can be devalued to pay off the debt in a crisis.  You have never responded to or even acknowledged this point, which is central to my argument.

In short, while the U.S. economy has serious problems, especially the risk of a “dollar crisis” in which investors dump dollars for Euros or some other competing currency, and we lose our status as world reserve currency, we are not literally faced with reduction to a Chinese colony within the next 10 years.  Maybe the next 100, if we are particularly stupid.  Maybe. 

Chill out, take a deep breath.  We actually agree on most substantive issues, I feel.

Posted by Matthew K. on Jun 1, 2005 at 7:32 AM

Perhaps, but you still miss the point.  The point isn’t China and it sure isn’t trade! The point is TNCs and FDI.  That is the very core of globalization. TNCs can prosper as people and “nations” suffer!  Let’s not forget that the nation-state is only an organizational form of capitalism restricted to a particular historic epoch of that system’s development as a national system.  Capitalism is in the global phase of its 500 year history.  The nation-state and the middle-classes that previously built up capitalism are either going by the way side or fragmenting and shading into the transnational overstructure of global accumulation. As far as the deficit is concerned this is the consequence of long-term, US economic stagnation since the 1970s. Overproduction due to reduced effective demand causes an economic slowdown in late capitalism. US monopoly capitalists save profits by reducing industrial capacity and jobs not cutting prices to clear the market of goods.  Chronic stagnation and recession results.  The 1990s were a time when real estate and stock market bubbles were used to expand consumer spending through risky credit over-extension in order to pump prime artificial effective demand. Since we now manufacture consumer goods in China instead of the US it resulted in a balance of trade deficit. Aside from high tech and, of course, military hardware, the US economy is based on services and retail (ie Walmart).  Walmart’s average annual sales for the past five years have been on the order of a quarter trillion dollars. They have become the new anchor of our globalized economy the way the automobile was just after WWII during the Keynesian welfare-state phase. We have gone from Fordism to Walmartism.  Such is globalization.

Posted by steve on Jun 1, 2005 at 8:29 AM

53th & Crenshaw:

I think you have a really legitimate point.  The point of all this discussion should be the impact of the global economy on jobs, everything else is irrelevant.

What does free trade mean for you?  Hard to say.  A nation cannot lose jobs to trade unless it has a current account deficit with another nation—unless, in other words, it buys from them on credit.  This is true, for example, of the United States’ trade relationship with China, not to mention Japan and Europe.  But the United States can borrow money on better terms than any other nation because of its status as “world reserve currency,” as I have been trying to explain to “Troubled in the Heartland.” 

What this means is simply that all international debts are calculated in U.S. dollars, including our own.  Thus, if our creditors start demanding their money back all at once, we could simply pay off our debts by printing more dollars.  Everyone knows this, and so lends us money at a more generous rate then to any other country.  So even in cases where we have a current accounts deficit, it’s hard to say if we’re actually losing jobs.

Trade agreements between countries with similar productivity levels, like the U.S. and France, do offer certain benefits.  They tend to increase competition, lower prices, and more efficiently distribute resources.  However, they also, by increasing competition, create deflationary pressures—a general downward movement of wages and prices.  Deflation was what afflicted the economy during the Great Depression.  If it comes back, look for an economy with a manic-depressive boom and bust cycle, with a tendency toward periods of progressively higher unemployment and lower wages.  (It should be added, trade is not the only cause of deflation.)

Free trade agreements between countries with very dissimilar productivity levels, like the U.S. and Mexico, is different, in my opinion, though most economists don’t think so.  In theory, free trade will benefit both rich and poor nations equally, though in practice poor nations typically end up being exploited. 

This seems to be true of the trade relationship between, for example, the U.S. and Mexico, in which the Mexican economy nearly collapsed as a result of the investment bubble created by NAFTA.  Mexico ended up with a trade deficit with the United States, which it could only resolve by encouraging many of its unemployed to immigrate to the U.S., and using its cheap labor to lure American car companies into moving factories south of the border.  Immigration and capital-export have increased competition for low-wage jobs here in the U.S. (It should be remembered, though, that the export of capital to Third World countries accounts for only a small percentage of total capital exports, most of which occur among wealthy nations.) 

In short, it’s really difficult to assess the impact of globalization on jobs.  Trade creates some benefits and some problems, though in my opinion the problems outweigh the benefits.  The major problem facing us today, I believe, is the globalization of capital markets—the free trade of stocks, bonds, and other paper money throughout the world.  This is one of the few sectors of the economy to be truly globalized.  The ability of investors to move their money across borders reduces the power of national governments to regulate the economy and provide social services.  It also creates speculation—betting on the prices of stocks and bonds based on the bets other investors are likely to make, instead of business fundamentals.  This increases economic instability and worsens recessions, and detracts from long-term investment projects like factories that could benefit people on West Blvd. 

I hope I have addressed some of your concerns.

Posted by Matthew K. on Jun 1, 2005 at 9:18 AM

One of the reasons that those who engage in what Keynes called “casino capitalism” on a global scale don’t invest in good paying jobs in blighted areas of Chicago and other big cities is because financial speculation is more profitable.  The new global division of labor has placed consumer goods manufacture in other countries.  Walmart, as evidenced by the fact that a proposed store for a Chicago west side location was understandably rejected, is the country’s single biggest employer with well over a million workers and the current “backbone” of the US economy because it is profitable for US and other TNCs.  How trade and financial speculation affect the national deficit and other aspects of our well-being is irrelevant if TNCs are making money with this new global business model whereby the retail dog wags the manufacturing tail in these new global production and supply chains.  Retail employment is low wage here as manufacturing employment is elsewhere.  This global division of labor, which is structured by TNC profit motive, made it that way! Specialization intensifies with global concentration of wealth and control of means of production.  Until something other than private appropriation of higher and higher profits determine economic decisions, many people such as our friend on the southside of the city will have quite a hard time finding a job at a living wage.

Posted by steve on Jun 1, 2005 at 10:02 AM

3//Xinhua Online, China 2005-05-31 08:15:39
http://news.xinhuanet.com/english/2005…

CHINA MOVES TO SAFEGUARD MILLIONS OF TEXTILE JOBS

BEIJING, May 31—In a move to safeguard thousands of jobs, China declared it will scrap - after only 10 days - its sharply increased export duties on Chinese-made textiles.

The withdrawal comes after Washington and the European Union clamped more restrictions on Chinese exports, which China said are “unfair and incorrect.”

Minister of Commerce Bo Xilai told a news briefing yesterday that export tariffs on 81 categories of textile products will be lifted, including the 74 for which 400 per cent increases were announced.

The latest restrictions imposed by the US side will affect US$2 billion worth of Chinese exports and 160,000 jobs, while the EU action will lead to a loss of US$300 million exports and corresponding jobs.

“Behind each category of product in question, some 1,000 to 6,000 Chinese enterprises would feel the pinch,” Bo said.

“We have to make corresponding policy adjustment since the EU and the US have set controls on Chinese textile exports,” said Bo.

“We must be fair to Chinese producers.”

To ease the concerns of trade partners, the Finance Ministry unveiled on May 20 a staggering 400 per cent increase on export tariffs on 74 classes of products starting on June 1.

Such products registered a sharp rise in exports in EU and US markets in the first few months of this year after decades-old global textile quotas were abolished on January 1.

Experts said there would be no sharp rise in exports if US and EU had taken a step-by-step approach to abolishing the quotas.

Bo said he had hoped the earlier announcement of steep tariff rises would help ease concerns of trading partners, but “it is a pity that both the EU and the US failed to accept the policy.”

The China Textile Import and Export Chamber of Commerce said the adjustment will help ease the burden on Chinese enterprises, which are already operating on razor-thin profit margins.

However, Bo warned enterprises to prepare for further restrictive measures and adapt to a new international trade environment.

Bo said he had noted that some domestic enterprises, under great pressure from the restrictive moves, were calling for retaliation measures, but he ruled out the possibility of a trade war.

“We do not want to see a trade war,” he said. “I do not believe retaliation to be the only way (forward) for us. A healthy trade relationship is good for both sides,” he added.

Although Bo stressed that China still hopes to solve the textile row through consultation, he said China reserves the right to resort to the World Trade Organization (WTO) to adjudicate the dispute since controlling measures not only violate WTO principles, but are also prejudicial against China.

Posted by heartland on Jun 1, 2005 at 8:29 PM

4//RIA Novosti (Russian News & Information Agency), Russia May 31, 2005 19:09
http://en.rian.ru/russia/20050531/40449657.html

RUSSIA, CHINA, INDIA HAVE BIG COOPERATION POTENTIAL

MOSCOW, May 31 (RIA Novosti) - Russia, China and India have a big technological and financial potential for economic cooperation, the Russian Foreign Ministry said.

“The economic factor plays an important role in the rapprochement of the three countries. Russia, India and China have rapidly developing and perspective economies,” official spokesman for the Foreign Ministry Alexander Yakovenko told RIA Novosti prior to the trilateral meetings of the Russian, Indian and Chinese foreign ministers in Vladivostok (Russia’s Far East) on June 2.

(SNIP)

According to the spokesman, Moscow, New Delhi and Beijing share common interests in the international sphere. “Russia, India and China are faces common problems in the fight against new threats and challenges, above all, terrorism, and share common approaches to the eradication of this evil,” he said.

The three powers are interested in maintaining stability in the Asia-Pacific region which, unfortunately, has many hot spots.

Further development of regular trilateral dialogue meets long-term political and economic interests of the three countries, promotes mutually beneficial cooperation and makes an important contribution to regional and international stability, Yakovenko concluded.

Posted by heartland on Jun 1, 2005 at 8:31 PM

Globalization game
By Clyde Prestowitz | May 31, 2005 http://www.boston.com/news/globe/editorial_opinion/oped/articles/2005/05/31/globalization_game/
US PRESSURE on Beijing to revalue its yuan is now dominating the news, but China is only following Japan as a manifestation of a much bigger problem. Globalization is broken. As currently structured, it is undermining US productive capability and becoming unsustainable.
Without fundamental change in the rules of globalization, any conceivable yuan revaluation now won’t have much impact on world economic imbalances. Remember that economists said a 20-30 percent revaluation of Japan’s yen (then at 260 yen to the dollar) would balance trade in the 1980s. But the yen has more than doubled since then, and Japan still maintains a large trade surplus both globally and with the United States, as do all of the world’s major economies.
The real problem is that globalization is a different game for many countries than it is for America. While China’s peg of the yuan to the dollar is now the focus of criticism, most Asian countries have long managed their currencies to remain weak against the dollar in order to stimulate their exports. Japan has spent over $300 billion in currency intervention in recent years to keep the dollar up and the yen and export prices down. In addition, many countries offer tax holidays, financial incentives, and protected markets to attract new facilities in ‘‘strategic” industries that no one expects to move just because currencies fluctuate.
These actions follow from policies specifically aimed at accumulating large trade and dollar surpluses as a matter both of stimulating growth from exports and of assuring national economic sovereignty by avoiding dependence on foreign lenders.
While US state governors extend financial incentives to attract investment, they have only peanuts to offer compared to foreign countries, and, of course, do not control their own currencies. The federal government has long shown no interest in attracting foreign factories to or keeping US factories on its shores. Rather, America’s emphasis is entirely on consumption-led growth. Banks aggressively offer credit cards to students with only part-time jobs. Home equity loans with tax deductible interest payments are used to pay for vacation trips. Not only does the White House call for tax cuts in wartime, but tells consumers it’s their patriotic duty to buy more. Americans at all levels really do believe that debt and deficits don’t matter.
The confluence of America’s consumerism with the strategic, export-led growth policies of many other countries has produced a world with one net consumer, the United States, which now consumes about $700 billion a year more than it produces. All other major economies are net sellers, depending directly or indirectly on US-bound exports for much or all of their growth. Because America consumes more than it makes, it must borrow from abroad to finance its excess consumption. In a kind of vendor finance program, a few foreign central banks provide the financing by buying US Treasury bills and other US assets.

Posted by heartland on Jun 1, 2005 at 8:37 PM

Wolfowitz’s Move to the World Bank Presidency and the Sharpening of Economic Policy as a Weapon of Mass Impoverishment
by Njoki Njoroge Njehu & Leslie Cagan http://www.commondreams.org/views05/0531-33.htm

...“From the legislatures to the streets, citizens in many of the countries that borrow from the World Bank have vigorously opposed the policies it demands—privatization of basic services like water provision, health care, and education; massive public-sector lay-offs; drastic trade and investment deregulation; dismantling established protections for workers. Now a man already notorious around the world for his leading role in the Iraq war has been appointed by President Bush to lead the World Bank. It makes the link between U.S. military and economic policy clear: they are two sides of the same coin.
For the billions of people living in the countries marginalized by contemporary economic and political structures, the actions and motivations of the United States look pretty simple. It will do what is necessary to control whatever resources it considers essential, and it will use the available political, military, and economic tools to ensure that its dominance is never threatened, and in fact extended however possible. People in Africa, Asia, and Latin America have long seen that the culmination of any intervention by the United States and its allies in their countries, whether economic or military, is the re-structuring of their economies to serve foreign and corporate interests. Sometimes that means preserving unsavory regimes; occasionally it means overthrowing them. Most often it requires less violent means—the enforcement of economic contracts by international institutions like the World Bank.
The World Bank has long been a vital part of building and maintaining a global economy that uses poorly-paid workers and farmers in poor countries to maintain the comfort of consumers in rich ones. The World Bank and its sister institution, the International Monetary Fund (IMF) have long exploited poor countries’ debt burdens to impose the policies that maintain this system. The most vulnerable people in the world are in essence paying off debts for failed policies and projects and the whims of old dictatorial regimes which they never wanted nor benefited from.
Ironically perhaps, Wolfowitz—when he was focused solely on Iraq, asserted the doctrine of “odious debt.” He argued that Iraq’s creditors should cancel the debts owed them by Iraq because they were contracted by a dictator and used against the people’s best interests. It is an argument that debt campaigners have made in the case of debts incurred by dictators in Brazil, Chile, Argentina, Nigeria, Indonesia, Haiti, the Philippines, and elsewhere, as well as in the case of apartheid South Africa and regarding the many failed projects and outright “white elephants.” He was right in the case of Iraq and for the sake of justice and consistency the logic must be extended to cover other countries in the same situation. If he were to maintain this principle as president of the World Bank Group, he could be part of transforming the global economy in a positive way. Because that transformation would come at the expense of the World Bank’s prerogatives, Wolfowitz will have to decide whether to maintain his principles or preserve his power. There is little in his track record to indicate that he might choose justice over power, but we would be glad to be surprised.
An old saying maintains that “diplomacy is war by other means.” Paul Wolfowitz has been both diplomat and war-maker. Now at the World Bank, unless he is willing to change its course dramatically, he will vividly demonstrate that today economic development, along with international trade, is war carried out by other means.

Posted by heartland on Jun 1, 2005 at 9:06 PM

Heartland,

  The Prestowicz article was quite interesting and enlightening.  He is absolutely right about everything he says.  I don’t know that his assertion “globalization is broken” is very accurate.  It seems the conflict over trade is part and parcel of the global restructuring of capital led by TNCs.  The world is in a very difficult transition period and without proper “global governance” and reforms, the old nation-state forms of organization cannot adapt well enough in a short time to TNC globalization strategies for foreign direct investment which now centers on China, India, and a few other places.  By the way average annual rates of FDI inflow to the US is down and declining because most capital inflows are buying T-bills to finance import consumption as both you and Clyde P. suggest.  Bush’s policies really are enriching a few big TNCs (including Walmart) at the expense of both a healthy economic development policy for the US and the US working and middle classes in general!  It is getting worse all the time!  A revaluation of the Yaun is no answer, however.  All this will really do is penalize Chinese investors who help us by investing in our T-bills and jeopordize further investment while not fixing our structural economic problems.  As usual GWBush seeks easy “sound-bite” solutions to difficult, complex, deep-seated problems.  The real focus should be TNCs, not China.

Posted by steve on Jun 2, 2005 at 6:32 AM

The real focus should be on capital controls; that is, on public regulation of all cross-border investment.  That would curtail trade-related unemployment, give national governments more leeway to spend money and regulate the economy, and offer more stability and bargaining power to the less-developed countries.

Posted by Matthew.Klauber on Jun 2, 2005 at 9:18 AM

Matt, I wholeheartedly agree that the issue is really about capital controls considering the hyper-mobility of capital in the global era.  Some impressive figures for the year 2000 with regard to FDI, global capital mobility, and TNCs is available from UNCTAD and related sources. They estimate that in 2000 alone there were some 69,000 TNCs with about 690,000 foreign subsidiaries with trillion’s in sales!  The top 100 economies in the world in that year included the gross sales of close to 50 TNCs! The value of cross-border M&As; has been in the Trillion’s every year for the past 5 years.  These TNCs’ collective book value is in the Trillions and they increasingly account for the majority of global GDP.  In 2000, the top 300 global TNCs had sales of over $5 trillion and accounted for 25% of the global GDP!  At this point the world economy is probably even more concentrated!  No wonder the Chinese Trade Minister can resist WTO demands for export taxes on Chinese textiles and clothing and also for a revaluation of the Yaun.  The TNCs have the power to support China’s new and expanding role in their investment strategies.  These TNCs are very powerful because it is truely their era and they are shaping the dynamic and face of global capitalism.  It will be difficult to counter their political and economic hegemony!

Posted by steve on Jun 2, 2005 at 12:20 PM

I wish to correct an error made above.  The sentence should read in 2000, the top 300 TNCs owned 25% of the worlds productive assets with a total value of $5 trillion.  Five trillion US dollars in sales for the top 300 in 2000 is beyond quaint as an estimate.  Walmart alone was over $200 billion.  It was typical in that year for any of the top 100 to have gross sales in the tens of billions if not greater! The book value of productive assets in adjusted US dollars yields far less dramatic figures given that TNC spending on buyouts and M&As; is always necessarily far less than gross sales figures!

Posted by steve on Jun 2, 2005 at 2:47 PM

China, India, Russia to join forces to boost regional security
http://news.yahoo.com/s/afp/20050602/ts_afp/russiachinaindiasecurityenergy_050602043043

VLADIVOSTOK, Russia, (AFP) - China, India and Russia will join forces to boost regional stability and energy supplies, foreign ministers of the three countries declared at the outset of a summit in Vladivostok in Russia’s Far East.

“We look forward to having a fruitful dicussion of trilateral cooperation of our countries especially as it relates to promoting regional and international stability,” Russian Foreign Minister Sergei Lavrov said.

The three countries have long held trilateral talks but the Vladivostok summit is the first to be held outside an international forum.

On Wednesday, Lavrov held one-on-one talks with his Chinese counterpart Li Zhaoxing to discuss ways to avoid “destabilisation” of Central Asia where Kyrgyzstan and Uzbekistan have experienced considerable unrest in recent months.

“Though informal, this meeting is as important as any formal meeting… for maintaining the common interests of the three countries’ people as well as making pour own contribution to… world peace and international stability,” Li said before Thursday’s meeting.

“We attach great importance to this particular meeting. We together have a population of 40 percent of the world and we are, I think, 20 percent of world   GDP,” India’s Foreign Minister Natwar Singh pointed out.

“Our requirements in the realm of energy are” considerable “and we look to your country for… assistance,” he added, addressing Russia.

China and India with their economic and demographic boom have long wanted access to Russia’s vast oil and gas resources.

The Indian and Russian ministers are also due to hold bilateral talks

Posted by heartland on Jun 4, 2005 at 5:29 AM

Looks like GWBush’s plans to stabilize Afghanistan and the Central Asian Republics had the opposite effect.  We will use our military power and hegemony in the region to try and determine the outcome of events there! Bushes policy is causing great concern and countries are rushing to safeguard their interests against a USA that is like a loose cannon on the deck of a ship! The Chinese and the Indians also have big energy security woes! 
Growing economies like theirs need energy and China is actively seeking it everywhere.  By the way, wasn’t the whole idea of supporting the Taliban, than crushing them part of a ploy to bring Caspian Sea oil and Gas overland to the Indian Ocean via a long pipeline traversing Uzbeckistan, Afghanistan, and Pakistan in order to avoid the less stable and more adverse Iran?!  We told the Taliban “accept our offer of a carpet of gold or we will bury under a carpet of bombs!”  I guess we kept our promise!

Posted by steve on Jun 4, 2005 at 5:48 AM

The growing economic and geopolitical rivalry to the United States posed by the development of China, and India is a real problem, one that will probably consume the attentions of foreign policy planners of the next generation.  It will be interesting to see if they can accommodate the new power of these nations without undue friction.  Patience and respect will be required by all sides.  At any rate, the day when either China or India can actually pose a real threat to the United States or her interests is still a long way off.

In the meantime, the main concern should be regulating globalization.  Tariffs and other protectionist tools are blunt instruments.  As Alexander Hamilton, the great American tariff advocate, was quick to point out, protectionist measures are really only justified to shelter “infant industries” from better-established foreign rivals, and even then should be used judiciously and temporarily.  (In other words, they should be used only by countries like India and China!)

Instead, we should either shred the existing regime of multilateral treaties and institutions, replacing it with a string of bilateral agreements and national regulation of cross-border investment, or create powerful regional trade confederations in place of free-trade areas like the EU and NAFTA.  Either of these proposals would allow national governments to better smooth balance-of-payment problems, curb harmful currency speculation, provide social services, and pursue full employment policies.

Posted by Matthew K. on Jun 4, 2005 at 5:54 AM

Steve—

It is true that the United States does exercise a rather heavy-handed imperial presence in Central Asia (a site of Great-Power rivalry during the notorious “Great Game” period), and that we did initially support the Taliban for reasons having much to do with a planned oil pipeline in the area.  However, I would tend to shy away from conspiratorial language such as “ploy” to describe the whole of American foreign policy in Afghanistan. 

While we do have an imperialist foreign policy, and have done much evil in executing it, it should be remembered that much of our foreign policy is improvised, like that of any other nation.  Also like that of any other nation, security concerns are paramount.  The point to knocking over the Taliban (after having lent them our support), if you recall, was because they were harboring—and receiving money from—the al Qaeda terrorist organization, which had just attacked our country.  Though I feel the use of American air power was somewhat excessive, I did support this campaign, feeling it necessary for self-defense.

This is not to say everything we have done in the war on terror is morally justified.  Most of it is not.  But let’s not get carried away with conspiratorial language.  I won’t say the people running our country right now don’t have an evil master plan, but it is certainly true that not everything goes according to plan.

Posted by Matthew K. on Jun 4, 2005 at 6:08 AM

I really didn’t mean to give offense with the use of the word ploy but I am very accustomed to hyperbole!  I also supported the initial attack on Afghanistan. I was suprised that many of my comrades on the left didn’t when in fact they supported the Soviet invasion 22 years earlier for similar reasons plus the need to eliminate a destabilizing and reactionary regime!  I realistically feel that it will be very difficult to solve Afghanistan’s long-term problems.  Centralized control of the diverse country will be difficult.  The Bush Administration is really very stingy with nation-building aid and never gives such projects a sustained chance to succeed.  Related to the drug problem and the issue of rural impoverishment is the maldistribution of land. At the time of the invasion of Afghanistan, about half the land was controlled by the top 5% of the landholders most of whom were clerics and shieks.  This class controlled most of the poppy production and sale the proceeds from which funded the anti-Soviet war and later the drive for political power of the Taliban. They hold all the political power! There is a minscule medium holding class and while nearly 85% of the population make do with make due with about one quarter of the land most of which is of very poor quality.  It is tough for people to survive and the poppy trade was attractive to the poor who struggles to preserve it for lack of alternatives!  The progressive forces are crushed in that country.  Hamid Kharzi really has little power outside Kabul.  I don’t believe this concerns the Bush Administration since the threat of terror seems to be gone and now the concern seems to be getting energy deals lined up with a government stable enough to ensure its authority and be recognized by most of the country.  I never really thought there was much of a war on terror since we let Bin Laden off the hook.  Its more of a war on democracy. Islamic Terror exists mostly with the help of us and our allies Saudi Arabia and Pakistan.

Posted by steve on Jun 4, 2005 at 6:56 AM

In 1997, Zbigniew Brzezinski laid out the agenda in his book The Grand Chessboard.  Of interest from said tome is the following:
“The exercise of American global primacy must be sensitive to the fact that political geography remains a critical consideration in international affairs. Napoleon reportedly once said that to know a nation’s geography was to know its foreign policy. Our understanding of the importance of political geography, however, must adapt to the new realities of power.

For most of the history of international affairs, territorial control was the focus of political conflict. Either national self-gratification over the acquisition of larger territory or the sense of national deprivation over the loss of “sacred” land has been the cause of most of the bloody wars fought since the rise of nationalism. It is no exaggeration to say that the territorial imperative has been the main impulse driving the aggressive behavior of nation-states. Empires were also built through the careful seizure and retention of vital geographic assets, such as Gibraltar or the Suez Canal or Singapore, which served as key choke points or linchpins in a system of imperial control.”

“In that context, how America `manages’ Eurasia is critical. Eurasia is the globe’s largest continent and is geopolitically axial. A power that dominates Eurasia would control two of the world’s three most advanced and economically productive regions. A mere glance at the map also suggests that control over Eurasia would almost automatically entail Africa’s subordination, rendering the Western Hemisphere and Oceania geopolitically peripheral to the world’s central continent. About 75 per cent of the world’s people live in Eurasia, and most of the world’s physical wealth is there as well, both in its enterprises and underneath its soil. Eurasia accounts for 60 per cent of the world’s GNP and about three-fourths of the world’s known energy resources.”

Posted by BQH on Jun 5, 2005 at 2:22 AM

It was Ziggy, as National Security Advisor to President Carter, who was behind the push for the US support of the Taliban forces in the 1970’s. 
Worthy of note, too, would be the number of interests held in the region by Union Oil.  Altruism seems to have player little part in our Eurasian adventures.

Posted by BQH on Jun 5, 2005 at 2:32 AM

June 4, 2005, 11:27PM
‘Rumsfeld criticizes China’s priorities
Political and economic freedom, not a buildup of military, should be the focus, he says’

SINGAPORE - Pentagon chief Donald Rumsfeld said Saturday that U.S. pressure for political and economic change in China is not intended to undermine the Beijing government.
He criticized China for increasing military spending despite the absence of a threat from another country and said the Asian power risks diminishing its global influence unless it opens up its political system.
Political and economic freedoms are in China’s best interests, the U.S. defense secretary said.
“The implication that freedom means destabilization, I believe, is incorrect,” Rumsfeld said in response to a question from a participant in an Asian security conference.
“Economic success depends on increasingly freer economic systems. That will put pressure on a political system that is less free,” Rumsfeld said. “The task for China is to resolve that issue.”
Rumsfeld said the Pentagon’s annual assessment of China’s military capabilities shows China now has the world’s third-largest military budget, behind the United States and Russia. He did not say how large the United States thinks China’s military budget is.
CUI TIANKAI, THE DIRECTOR OF THE ASIA BUREAU OF CHINA’S FOREIGN MINISTRY, QUESTIONED RUMSFELD:

“Do you truly believe that China is under no threat by other countries?” Cui asked. “Do you truly believe that the U.S. is threatened by the emergence of China?”

Rumsfeld said he does not think any country threatens China and that the United States does not view China as a threat. But he did question why China has stationed hundreds of missiles within range of Taiwan.
” ... I have to ask the question: If everyone agrees the question of Taiwan is going to be settled in a peaceful way, why this increase in ballistic missiles opposite Taiwan?” Rumsfeld said.
China has said it will attack Taiwan if the island tries to declare formal independence.

Posted by heartland on Jun 5, 2005 at 2:42 AM

As Chuck Reid once observed, “In theory there is no difference between theory and practice; in practice there is.”
It is all well and good to sit around, count beans, speculate, and pontificate at length upon the macrocosm.  However, the real world has its way of intruding upon our bliss.  Divorced from much of the discussion on these boards is any authentic concern for the impact events are having on the real world lives of average everyday souls struggling to make ends meet.  Their real buying power over the last three decades has been diminishing.  As the dollar is devalued even more buying power vanishes.  Life savings and retirement plans are being devastated… 
Our big picture image seems distorted, almost as though we a looking through the wrong end of binoculars—-what is at hand appears far away.  Ought we not attend to that which is close by and within our sphere of immediate influence first?  I’ll share some more Chinese philosophy with you:
“What is well planted cannot be uprooted.  What is well embraced cannot slip away.  Your descendants will carry on the ancestral sacrifice for generations without end.
Cultivate Virtue in your own person, And it becomes a part of you.
Cultivate it in family, And it will abide.
Cultivate it in the community, And it will live and grow.
Cultivate it in the state, And it will flourish abundantly.
Cultivate it in the world, And it will become universal.
Hence, a person must be judged as person; A family as family; A state as state; The world as world.
How do I know about the world?  By what is within me.”  Lao Tzu

I question the degree to which our policies have achieved harmony and well being within our own state, let alone offering global panacea.
Our focus is backwards.  We need to have our affairs in order at home before we foist our beliefs abroad.

Posted by heartland on Jun 5, 2005 at 4:08 AM

Steve:  Once again, you make an excellent analysis of events, though on occasion slightly prone to hyperbole.  (Your opinions don’t offend me, by the way.)  I would take issue with you on two minor points.  One, I don’t know that many people on the Left in this country actually supported the Soviet invasion of Afghanistan, since this was actually a viciously imperialist enterprise, the “Soviet Vietnam.”  Some people may have been eager to keep the superpowers out of the initial revolution in Afghanistan, before the Soviets interfered. 

Second, while we did indeed let Bin Laden “off the hook,” and support many ruthless dictatorships in the War on Terror, and in fact the whole focus of the enterprise seems to have shifted to the recolonization of Iraq, it would be a mistake to say that “Islamic terror exists mostly with the help of us and our allies Saudi Arabia and Pakistan.”  So far as I know, the Islamist movement is a reaction against secular despotisms and oil monarchies supported by the West.  Although the United States did support fundamentalists like Bin Laden during the war in Afghanistan, it should be remembered that Islamists in most countries—like Iran, for example—remain opposed to the American neoimperial presence in the region, and its support for dictatorships like Saudi Arabia and Pakistan.

Posted by Matthew K. on Jun 5, 2005 at 4:43 AM

Although most conflicts throughout history have been over scraps of land, it should be remembered that different societies wanted land for different reasons.  Feudal elites, for example, wanted peasants to harvest crops for them, while the high bourgeoisie of 19th century Europe was interested in markets and natural resources.  Religion and ideology have also played a role in fomenting conflict. 

Interestingly, territorial conflicts are less important since the collapse of European collonialism than they ever have been before. Today, we have a fairly stable system of nation-states with internationally recognized (though frequently contested) borders, sovereign rights, diplomatic relations with neighbors, treaties, seats in the UN, currencies, flags, anthems, etc. 

That’s so for a variety of reasons.  Foremost, nuclear weapons have made the prospect of direct confrontation among the Great Powers a very expensive proposition.  For another, many of the traditional goals of capitalist nation-states have been met through multilateral trade agreements—for example, the European Union replacing colonialism as a source of markets and raw materials for its members.  Yet another reason is that, as Vietnam and Afghanistan showed us, an entrenched, popular, and determined national resistance by scrappy Third World fighters can thwart well-funded, technologically savvy Great Power imperialism (particularly when funded by a rival Great Power).

The main concern of American foreign policy in this era, as far as I know, is to maintain our economic and military hegemony in the world, to prevent a credible rival from stepping into the power gap left by the collapse of the Soviet Empire, and to promote free-market capitalism all over the world.  I think “Troubled in the Heartland” is right.  We should be more concerned with providing good jobs and social services for all our people than world domination.  Let the UN finally do the job it was supposed to, put nuclear weapons under international control, and start talking about disarmament.  Let’s stop all this nonsense.  (Not that that will actually happen…)

By the way, does anyone remember the Central American Free Trade Agreement?  Thoughts, opinions?

Posted by Matthew K. on Jun 5, 2005 at 5:12 AM

excerpted from:
Indigenous Uprising: The Rebellion Grows in Bolivia
http://www.democracynow.org/article.pl?sid=05/06/03/1347232

...
JUAN GONZALEZ: We’re talking right now on the phone with Jim Shultz, the Executive Director of the Democracy Center in Cochabamba, Bolivia, about the crisis in Bolivia. Jim, could you talk to us a little bit about the U.S. role in the current crisis and in Bolivian politics, in general, and that of the I.M.F.? You have been writing quite a bit about that on your blog that can be found at DemocracyCtr.org <http://www.democracyctr.org>. Can you talk to us about that?
JIM SHULTZ: Well, Juan, it’s important to put the story in the context both of sort of U.S. and I.M.F. policy but also in what’s happening in Latin America more broadly. Bolivia has for the past 20 years been the lab rat for the I.M.F. and the World Bank’s economic policies. Bolivia did it all, privatization of water, privatization of oil and gas, relaxation of labor standards, all of the deficit reduction coming in from the backs of the poor. All of this has been done at the command of the I.M.F. and the World Bank. And Bolivia doesn’t have a lot of choice. When the I.M.F. and the World Bank tell Bolivia, “Thou shalt privatize your water” or “Thou shalt privatize your oil and gas,” those are commandments that are very difficult for a poor country like Bolivia to say no to. The fact is it hasn’t worked. I mean, this is a country that has had two major civic uprisings over water privatization, both of which have kicked big international companies out of the country, and now it’s having this uprising over gas privatization. It just hasn’t worked.
I think this is related to what’s happening all over Latin America. If you think about the last 30 years in Latin America, South America in particular, you know, we went in the period in the 1960s and 1970s of right-wing dictatorships and left-wing insurgencies and then we went through a period of elected governments that were very conservative, very tied to the United States and very dedicated to the policies of the World Bank and the International Monetary Fund, and what’s happening now is this movement from the left to, you know, take over governments in Brazil, Argentina, Venezuela through the political process, and in the streets in Bolivia, it is a practical rebellion against a practical failure of the economic policies imposed on these countries from abroad by the International Monetary Fund and the World Bank.
We just released a report in April called Deadly Consequences, which people can find in its entirety on our website. It’s a small book. It traces very clearly how the International Monetary Fund’s demands in this country two years ago for tax increases to reduce its deficit to pay its foreign debtors off more quickly, how that descended into 34 people being killed in the country’s capital, a shooting war between the police and the army in front of the national palace, directly, directly the result of I.M.F. economic policy. So what’s happening in Bolivia is not just the story of Bolivia. It is absolutely the story of Latin America and South America and it is the story of indigenous peoples rising up against a set of economic ideologies imposed on them completely against their will, completely without their consent from institutions abroad.

Posted by heartland on Jun 5, 2005 at 8:32 AM

The history of US intervention in Afghanistan begins in the Summer of 1979 with Carter and NSC advisor Zbigniev Brezhinski already arming and training the Mujihaddin Rebels through Pakistan and even some in bases established in the North from Soviet Territory (according to British Journalist John K. Cooley)! ZB confirms much of this in an interview with Le Monde sometime in the late 1990s. This was not done purely to exhaust and bring about the militarly collapse of the old USSR. The former NSC advisor (who now criticised Bush for his policies in Iraq and elsewhere) reveals much of his motivation in attempting to draw the Russians into a pointless conflict in Afghanistan in his new book where he acknowledges the global economic and demographic tilt toward EurAsia in the current epoch! So US imperialism IS bipartisan! One thing we’re hearing now is how the Caspian sea might possess over 60 billion barrels of oil (about half of Iraqi reserves) and hundreds of billions of cubic meters of natural gas reserves.  CentGas, a consortium formed in the late 1990s, want to build multiple piplines bringing these fossile fuel supplies east overland through Afghanistan and Pakistan to tankers in the Indian Ocean.  The goal is not merely to avoid running strategic resources through pipelines in Iran, our mortal enemy, but to control the vast supplies of fossile fuels to the growing and highly energy intensive economies of both China and India! This would give Bush the policy leverage he is currently seeking in the region.  Also we are building up India as a counterwieght to China militarily by contracting to sell dozens of advanced F18/A fighter planes which will not only net Lockheed huge contracts and create long-term production relations with India who will install the jets computer systems, but create a new “security arc” for the new era running across SouthAsia from the Persian Gulf east to the Indian Ocean.  Here is the nexus where Transnational corporate globalization and US geo-strategic hegemony meet!

Posted by steve on Jun 5, 2005 at 10:41 AM

Well, it’s certainly true that the United States has commercial interests that are distinct from strict security concerns, particularly with regard to lucrative commodities like oil.  But even our interest in oil is mainly centered around security concerns.  In the modern world, economic power is military power.  The capacity to win a war or an arms race depends on one’s ability to outproduce one’s enemies. 

After the Second World War, foreign policy planners in the U.S. government identified five areas of the planet which, due to their productive power, were key to global balance-of-power politics, and hence U.S. national security.  These were: the “Steel Belt” of the United States; the Ruhr Valley in Germany; the Ural Mountains in the Soviet Union; the great industrial cities of Japan; and, of course, the Persian Gulf.  If more than one of these areas fell into the hands of a nation or allied group of nations hostile to the United States, the global balance of power would be upset against our favor. Thus, our concern in the Middle East is not simply to hand over a vital and extremely valuable substance to well-connected corporations—though in the event, such largesse tends to mesh nicely with our main goals—but to prevent the oil from being used to purchase or manufacture weapons that could be used against us.

Posted by Matthew K. on Jun 6, 2005 at 5:41 AM

That was a great piece about Latin America, Heartland.  I’ll see that and raise you this, excerpted from a recent article in the Nation Online. 

The Trouble With CAFTA

by MARK ENGLER

[posted online on January 16, 2004]

On December 17 officials from Guatemala, Honduras, El Salvador and Nicaragua finished negotiations with the United States on the Central American Free Trade Agreement (CAFTA). CAFTA is a bad deal, one that promises to extend the harmful impacts of NAFTA to Mexico’s weaker southern neighbors.

At the same time, boosters like US Trade Representative Robert Zoellick are premature in declaring victory for their hemispheric “free trade” agenda. A week of intense negotiations in Washington demonstrated that developing countries are not as easily browbeaten as in the past. And the coming fight to stop ratification of the agreement will likely show opponents of corporate globalization to be in a stronger position than ever.

The CAFTA text itself exhibits signs of a delicate political compromise. Zoellick’s office has emphasized the decline in tariffs on consumer and industrial products that would go into effect with the agreement. But the United States and Central American countries alike exempted their most sensitive goods from immediate competition. The United States maintained protections for sugar and textile industries in exchange for exceptionally laggard phase-out periods of up to twenty years for tariffs on Central American corn, dairy and other farm products.

For activists, other aspects of CAFTA should provide greater cause for concern than the hotly contested trade provisions. The removal of investment barriers will further open public enterprises in Central American countries to privatization. Moreover, the deal contains dispute-resolution mechanisms similar to NAFTA’s Chapter 11, which allows corporations to sue governments for regulations (including the enforcement of local environmental laws) that they believe infringe on their rights.

CAFTA stipulations defending intellectual property threaten to move AIDS treatment beyond the reach of many Central Americans in need. “Generic competition has lowered HIV drug costs,” says Asia Russell of the nonprofit Health GAP. “If Bush gets his way, CAFTA will lock countries into tough new patent rules that will drive the cost of life-saving drugs up and delay or obstruct generic competition.”

Finally, Thea Lee, assistant director of the public policy department at the AFL-CIO, notes that CAFTA will diminish pro-worker safeguards present in the Caribbean Basin Trade Partnership Act. “Zoellick says that this agreement includes unprecedented protections for labor. That’s a flat-out lie,” she argues. While the previous initiative mandated that participating countries uphold internationally recognized labor norms, the new agreement only requires that governments enforce their own laws, which are often far weaker.

For these reasons, a ratified CAFTA would represent a clear blow to poor and working people in the Americas. This outcome is anything but certain, however. The Bush Administration has stumbled through a series of trade setbacks in past months—the collapse of WTO talks in Cancún, the dilution in Miami of plans for a Free Trade Area of the Americas and the delay of bilateral trade negotiations with Australia and Morocco—leaving supporters of such deals in desperate need of forward momentum.

http://www.thenation.com/doc.mhtml?i=20040202&s=engler

Posted by Matthew K. on Jun 6, 2005 at 5:50 AM

The reason I think free trade between developed nations and developing nations is such a bad idea centers around certain problems in neoliberal economic theory.  Neoliberalism is the school of economic thought taught in every mainstream economics department in the country.  (Interestingly, most students of economics are not told they are learning “neoliberal theory,” but simply, “economics.”)  One of its oldest dogmas is the notion of comparative advantage developed by David Ricardo.

Comparative advantage holds that trade between a rich nation and a poor nation will benefit both.  How?  Let’s take a simplified example:  England and Portugal both produce wool and wine.  England, as the richer and more productive country, has an ABSOLUTE advantage producing both.  That is, because of its higher productivity (due to labor-saving machinery), England can produce BOTH wine and wool at a clear cost advantage over Portugal. 

Wouldn’t free trade then lead to the destruction of the Portugese wine and wool industries?  No, said Ricardo.  For a temporary period, Portugal will run a current accounts defecit with England, as one would expect, but then the magic of money steps in. 

As money flows from Portugal to England, the quantity of money in England will go up, while that in Portugal will go down.  Thus, AVERAGE PRICES IN ENGLAND WILL INCREASE, WHILE THOSE IN PORTUGAL WILL DECREASE by an amount exactly proportional to the ABSOLUTE ADVANTAGE England had in producing goods.  Poof, no more ABSOLUTE ADVANTAGE. 

Now that average prices in both countries are roughly the same, each can specialize in producing the good in which it has a COMPARATIVE ADVANTAGE.  Portugal, being a Mediterranean climate suitable to the cultivation of grapes, will specialize in wine; while England, being a temperate climate better suited to the grazing of sheep, will specialize in wool.  There is now a more productive international division of labor.  Prices for each good will be lower overall.  Free trade benefits everyone.

What’s wrong with this cheerful analysis?  You’ll notice the key assumption is that average prices in a nation’s economy are regulated solely by the QUANTITY OF MONEY.  This is actually a theory devised by Mr. Ricardo himself (drawing work by the great empiricist philosopher David Hume), called, appropriately enough, the QUANTITY THEORY OF MONEY. 

But what if the QUANTITY THEORY OF MONEY is wrong?  What if average prices are regulated as much by LABOR PRODUCTIVITY as by the QUANTITY OF MONEY?  In fact, much of Ricardo’s own work on LABOR PRODUCTIVITY leads us in this direction.  It is a curious, and unresolved, contradiction in the great economist’s work.  But if the LABOR PRODUCTIVITY theory is true, and COMPARATIVE ADVANTAGE false, what would we expect to see in free trade agreements between rich and poor nations?

We would see chronic accounts deficits on the part of poor nations, a lurching from one crisis to another, chronic underdevelopment interspersed with only sporadic progress, and the exploitation of the poor nations by the rich nations.  And, lo and behold, that’s precisely what we do see.  (Incidentally, it’s also true of England and Portugal, who did in fact have a free-trade agreement.) 

And that, in the broadest terms, is my problem with CAFTA and all similar arrangements.

Posted by Matthew K. on Jun 6, 2005 at 6:17 AM

“In Ricardo’s world the state was receding in importance and power.  It was the continuing lesson of Adam Smith that it should.  Intervention by government would not, as noted, help the poor.  But it would limit economic freedom and the pursuit of self-interest and thus make everything worse.  David Ricardo was not, by his own lights, a cruel man.  In a naturally cruel world he merely urged against contending in a futile way with the inevitable and for accepting the least bad.  He did provide the rich with a very satisfactory formula for suffering the misfortunes of the poor.”—-J K Galbraith

When resurrected by Laffer in the 70’s, Ricardo’s economics were termed neo-classical.  Today you choose to term it neo-liberal.  No matter, it is still the same trickle down bull shit and continues to serve as the Libertarian mantra.  Progressive?  Progressive Libertarian is more like it.  You should be ashamed of yourself.

Posted by heartland on Jun 6, 2005 at 8:39 AM

Good catch, it is called “neoclassical,” not “neoliberal,” as I said.  If you re-read my comment, “Heartland,” you’ll find that I was ARGUING AGAINST David Ricardo.

Posted by Matthew K. on Jun 6, 2005 at 10:41 AM

apologies—
must have shut down at ‘neoliberal’ and not having the patience to wade through a Jack Barnes type of diatribe did not pay close enough attention!
again, my apology
—-heartland

Posted by heartland on Jun 6, 2005 at 11:09 AM

Jack Barnes, shudder.

Posted by Matthew K. on Jun 6, 2005 at 11:28 AM

Early political economy is always very interesting. Marx himself is considered one of the early political economists and, of course, he critiques them all in his early work, A Critique of Political Economy. One of the problems with early political economic ideas from the Scottish/British enlightenment is that neither Smith nor Ricardo nor even J.S. Mill could have forseen the highly globally concentrated transnational corporate driven economy in existence today. It would surely have horriified them and was not in keeping with their neo-classical thinking. They could scarcely have anticipated today’s level of hyper-mobility of capital. To them the modern TNC with its government subsidized production, monopoly power, undemocratic trade agreements made by international fiat, and ability to externalize high social costs and inefficiencies through the state was a mockery of free economies and would surely have reminded them of the old Charter Companies of 17th Century Merchantile Capitalism.  Their purpose in championing free enterprise was to break the economic power of the rich merchants and give more power, economic advantage, and prosperity to small and medium urban and rural communities through free, unfettered, economic interaction.  It was a well intended notion and, as Matt K. implies based on ahistorical quantitative functions abstracted from concrete social realty.  In the end we have this theory in the service, once again, of the rich and powerful as official cannon. This was entirely unforseen and unintended.  The one early political economist who would be suprised by ABSOLUTELY NONE of this is, of course, Karl Marx!

Posted by steve on Jun 7, 2005 at 4:41 AM

Right.  In fact, my criticisms of Ricardian free trade are lifted directly from contemporary Marxist analyses.  Although I am not myself a Marxist, I have a healthy respect for Marxism as a philosophy and social movement.  Although some of Marx’s concepts are specific to his own time, and no longer directly apply to postmodern capitalism, many others are still painfully relevant (and always will be).  The most important of Marx’s observations, for the purposes of this conversation, is the importance of power in human economic life.  Power affects the relations between rich and poor, men and women, white and black—and, of course, rich countries and poor countries.

Posted by Matthew K. on Jun 7, 2005 at 3:06 PM

You’ve hit upon the key to good leftist analysis of everything, Power.  Most bourgeous social science and history REIFIES social processes, dynamics, and agents as having a phantom objectivity or existence, quite independent of the human subject, as amorphous, highly perfunctory forces which adopt a proverbial “life of their own.”  Interestingly, many “New Marxists” like myself discard the notion of the market as a reification or reified construct of unequal power relations between social classes in capitalist society. Instead, we see the market as a structural feature of modernity.  It is a great human achievement which can function as an efficient modern institution to serve ALL of civil society and not just the capitalist elite.  The problem is not the functioning of markets but their perverse function under monopoly capitalism. Here the market has a kind of potential structural autonomy within civil society much like the state according to thinkers like Poulantzas and, perhaps, Gramsci. To clearify and dramatize the point, we advocate a kind of “market socialism” based on the anarcho-sydicalist model of cooperative/small private enterprises based on democratic participatory economics.  Workers’ control would lead to clean, efficient, labor-intensive, locally based economies that use resources in environmentally sound ways and avoid the creation of wasteful, “top heavy” capital intensive economic structures based on non-renewable fuels, polluting automobiles (which encourage urban sprawl, energy waste, and inflation but big profits for the few big firms at the core of this development strategy!  A good market socialist strategy would develop maximal labor-intensive, jobs creating industries to create economic spin-off and local wealth creation through the clean, efficient serving of common human needs for health care, education, mass transportation, good housing, clean renewable energy, and meaningful work!  This means a strategy opposite modern capitalism’s which concentrates wealth and creates massive umemployment to keep the rate of profit high.  Market socialism is oriented toward constant job creation and income equality which are compatible in that the concentration of income below the upper tiers of society creates demand for labor-intensive, maximally income generating industries.  At this point, society’s priorites change, and with this it becomes more democratic.  War becomes relegated to a remote, unlikelihood instead of a constantly looming threat. Income taxation becomes unnecessary due to a reduced need for redistribution and abscence of the state’s role in absorbing capital’s externalization of the social costs of its profitability.  This all seems very “schematic.”  Sociologist Barrignton Moore once cautioned, “a shopping list is not a recipe” and he is somewhat correct. Yet these changes are worth a try. How can things be any worse?!

Posted by steve on Jun 8, 2005 at 7:13 AM

I think market socialism is a swell idea. Cooperatives might work well (with appropriate levels of regulation) for medium-sized enterprises like, for example, shoe companies or beer companies.  But there will always be certain industries, like steel or autos, that require economies of scale and scope.  For these industries, I would advocate something along the lines of the Alaska permanent fund, as political scientist Gar Alperovitz has suggested.  A public trust fund would be set up that would buy up equity in large companies, and distribute an annual dividend to all citizens as a birthright.  (In Alaska, a public fund does this with revenues from the oil companies, to the delight of liberals and conservatives alike.)

To avoid a violent confrontation, funding for these changes in the structure of corporate ownership can be accomplished by redirecting commercial bank loans to the project.  This can be done either through regulations or outright nationalization of large banks.  Will this harm the economy?  There’s no reason it should.  Most corporate investment today comes from reinvestment of profits and stock and bond issues.  According to economist Douglas Dowd, 90 percent of the loans made from traditional banks go to things like speculation, mergers and acquisitions, and stock buybacks—in other words, changes to the structures of corporate ownership!  Six of one.  The banks wouldn’t make as big a profit, but let ‘em eat cake.

Of course, none of this could be accomplished without a massive public upheaval on the scale of the civil rights movement or 19th-century labor movement.  And none of it is even remotely possible in today’s political climate.  For now, the goal will have to be defending what is left of the welfare state, and creating a grassroots movement to prepare the way for future change.

Posted by Matthew K. on Jun 8, 2005 at 2:05 PM

Any chance of that happening against this background?——

Published on Tuesday, June 7, 2005 Reuters
World Military Spending Topped $1 Trillion in 2004
by Peter Starck
STOCKHOLM - World military spending rose for a sixth year running in 2004, growing by 5 percent to $1.04 trillion on the back of “massive” U.S. budgetary allocations for its war on terror, a leading research institute said on Tuesday.

But world military expenditure was still 6 percent below all-time highs recorded in 1987-88 toward the end of the Cold War, Stockholm International Peace Research Institute <http://www.sipri.org> (SIPRI) said in its annual yearbook <http://yearbook2005.sipri.org>.
With expenditure of $455 billion, the United States accounted for almost half the global figure, more than the combined total of the 32 next most powerful nations, said SIPRI, which is widely recognized for the reliability of its data.
In 2003, U.S. spending stood at $405 billion, SIPRI said.
“The major determinant of the world trend in military expenditure is the change in the United States, with its 47 percent of the world total,” the Swedish government-funded institute said.
U.S. spending “has increased rapidly during the period 2002-2004 as a result of massive budgetary allocations for the ‘global war on terrorism’, primarily for military operations in Afghanistan and Iraq,” it added.
U.S. military spending increased to 3.9 percent of gross domestic product (GDP) last year from 3.0 percent in 1999 but remained well below its Cold War peak of more than 6 percent, it said.
In 2004, the top-15 countries by military expenditure accounted for 82 percent of the global total, according to the institute whose database contains officially reported military spending for 159 countries.
SIPRI said Myanmar, for which it has no data, would probably rank among this group of countries.
The top five—the United States, Britain, France, Japan and China—spent 64 percent of the world total.
Measured by region military spending grew most last year, by over 14 percent, in South Asia—mainly due to “a massive increase” in India’s defense budget to $15 billion.
Growth in China’s military spending slowed to 7 percent—to $35 billion—from on average 11.5 percent per year in the past decade. Russia’s 2004 national defense budget increased almost five percent to $19 billion, SIPRI said.
Based on data for the past five years, Russia has overtaken the United States as the world’s leading supplier of conventional weapons. Russia, the United States, Britain, France and Germany accounted for 81 percent of all conventional weapons deliveries in 2000-2004.
China and India were the two main recipients of conventional arms in 2004, the institute said.

Posted by passingitalong on Jun 9, 2005 at 5:22 AM

Matt, I think you are 100% correct!  The equity fund in an economic democracy would work great for large-scale consumer durables and intermediate, capital goods industries.  They would support a vital part of the economy and create and sustain long-term employment at a living wage. The dividends redistributed from speculative commercial loan capital would bolster effective demand in a more stable and less risky manner than overextending private consumer credit often based on housing equity!  I especially appreciated your information on the use of the overwhelming majority of commercial bank loan capital—as expected it is wastefully consumed in restructuring and concentrating capital often in ways that result in a net loss of jobs, income, and tax base to the home economy!  Our president is scarecly concerned despite his outspoken patriotism.  Political power is the key to change in any society and right now people are to scared and prejudiced to focus on real issues.  They need to get hungrier!  Thanks to “passingitalong” for passing along facts on the major reasons we are in this mess.  As economist Seymour Melman worked for a general understanding of, the “permanent war economy” after a certain point doesn’t stimulate net economic growth in any single national economy but begins to become wildly parasitic and, through ever larger scale taxing and spending, squeezes private investment for civilian industry out of the market by absorbing scarce resources, creates inflation, raises interest rates, and lowers competitive incentives to US industry for R&D investment and for raising the quality of US intermediate goods like machine tools through massive, guaranteed, long-term, lucrative government contracts. In the aftermath of WWII the US, by concentrating and centralizing the majority of the industrial capitalist world’s defense spending and activities in the US itself, actually placed itself well behind such competitors as Germany and Japan who bore none of the defense burden.  This was all at the insistance of the US!  The same is occurring today and we are falling just as far behind if not more so. Again, the secret to real change is for more Bush supporters to feel the negative consequences of their folly and go hungry!

Posted by steve on Jun 9, 2005 at 7:00 AM

Well, I’ll see you all on the ramparts when Bush causes the downfall of society, then!

Posted by Matthew K. on Jun 10, 2005 at 2:06 PM

Matt, You are one of the FEW on this site who really understand political economy and social theory. I like your sources like Gar Alperovitz and others.  Are you involved in the global justice movement or get a degree someplace?  Just wondering.

Posted by steve on Jun 11, 2005 at 4:36 AM

Actually, I have only an undergraduate degree thus far.  I have applied for PhD programs in Political Science for this Fall, but didn’t get in.  I’m trying once more next year, and if that doesn’t work, get just a Master’s and decide whether to pursue a PhD or a JD.  I don’t know how much longer I can last outside of an academic environment!

You seem pretty well informed yourself.  What is your story, may I ask?

Posted by Matthew K. on Jun 11, 2005 at 5:11 AM

Matt, I have an MA in PoliSci from the UW-Madison and want to return to academia myself!  Try going for the MA before the Ph.D that is unless it is a program that collapses the two in succession with the MA as “incidental” (UW-Madison’s PoliSci Dept. still does this as far as I know!) There are other great MAs like sociology or in special interdisciplinary programs like community development; international relations, peace studies and conflict resoliution; ecology and environmental mgmt; urban renewel & planning. These are also good and make one employable especially if you want to obtain a kind of activist career or do social and community work.

Posted by steve on Jun 11, 2005 at 5:43 AM

I’ve certainly thought about it, but a Master’s is an expensive proposition.  I’ve actually gotten into a Poli-Sci Master’s at the New School, but chose to defer for a year, to try to get into a better-funded, moderately ranked program somewhere else.  Failing that, I’ll go to the New School.  But I might just stop at the MA and pair it with a JD at that point.

Posted by Matthew K. on Jun 13, 2005 at 6:27 AM

I thought about and spoke to people at the New School.  They’re unbelievable. Lots of “public intellectuals” to study with.  They’ve had Christopher Hitchens, Robin Blackburn, Anwar Shiekh, Nancy Frasier and whole slew of other greats!  I know it’s expensive but it is worth the money if you can swing it or get aid or loans!  I’m just a lumpenproletariat for now with no real future and I just keep reading on my own. I did publish one article in Nature, Society, and Thought however. Ever hear of it. It’s a Marxist scholarly journal out of the University of Minnesota. Check it out!

Posted by steve on Jun 13, 2005 at 7:53 AM

Hey Matt Klauber,

  I hope you’re out there posting on some thread or another!  I’ve just finished a great short peice by your freind and mine, Anwar Sheikh in a great anthology called NEO-LIBERALISM: A Critique.  It’s called The Economic Mythology of Neo-Liberalism and he argues that the Ricardo Thesis about Price shifts in the terms of trade between surplus and deficit countries evening out the balance of trade through monetary flows is non-sense.  The real focus should be on comparative cost efficiency of production and, especially, labor productivity between the firms of rich and poor countries.  Here he more accurately describes the reality which you did a few posts ago whereby a buildup of capital in surplus countries cheapens credit, lowers interest rates, creates faster growth and thus attracts more FDI and capital flows so that they become net lenders to the poor countries whose deficits are thus worsened by continued borrowing from the rich countries.  This can inflate the economies of the poor countries making their exports less competitive in markets where they already face structural barriers to global market share due to many political and economic factors.  Add to this the ability of the rich countries to continually impose draconian, neo-liberal SAPs supervised by the IMF and you’ve got the real picture of global Core and Periphery or North and South in today’s unequal global economy!  Tell me what you think!

Posted by steve on Jun 22, 2005 at 8:40 AM

I’ve read several essays by Anwar Sheikh for my economics class. He’s terrific.  That sounds like one of his classic critiques of neoliberalism. I must get my hands on it one of these days.  I especially appreciate Sheikh’s Institutionalist approach, which I find more pragmatic and better able to account for contemporary social realities than classical Marxism.  (But then, Marx himself was known to have wearily declared toward the end of his life, “I am not a Marxist.”)  It nonetheless preserves what is best in the Marxist critique, including the Marxist theories of international trade, and Marxist epistemology.  Good stuff.

Posted by Matthew K. on Jun 22, 2005 at 9:05 AM

Matt K.

  Thanks for the quick response!  There is also a new Brookings study out now by Theodor Moran about sweatshops and FDI which tries to debunk the cheap labor “race to the bottom” as a myth by saying that final stage assembly in garments, consumer electronics, and related export platform industries do not draw the highest amounts of FDI and FDI can be a key source of development where cheap labor is not the key motive for TNC relocation.  Have you seen the study? It is called Beyond Sweatshops and it somewhat defends a key developmental role for TNCs in the global south.

Posted by steve on Jun 22, 2005 at 9:24 AM

Heartland,

  I have seen a recent study that shows that in Latin America over 36% of all domestic sales of goods are by wholly owned subsidiaries of foreign TNCs. The proportion threatens to increase by 2010 at current rates of FDI. This actually, eventually, costs jobs by replacing more labor intensive industries in the local market with “lean production”. Eventually, this will weaken the economic position of Latin America through foreign control, chronic unemployment, dependency on foreign capital and loans, and high local prices for many kinds of consumer goods.

Posted by steve on Jun 22, 2005 at 9:32 AM

That Brookings study sounds a bit jesuitical.  Just because the problem of outsourcing to “cheap” foreign labor markets is overblown (it is, because First World labor is more productive), that doesn’t mean that when it does exist it isn’t exploitative.  In fact, it’s all the more likely, since cheap labor is the only advantage that poor nations have in the global economy. 

(Incidentally, Steve, I’d appreciate if in the future you refrained from using my full last name.  There are some creepy people on these web boards I sincerely hope do not get ahold of my name.  Not your fault, of course; you didn’t know.)

Posted by Matthew K. on Jun 22, 2005 at 1:05 PM

Matt K.

  Sorry but I didn’t know abot the name thing. I only know it because I saw it on the posts somewhere but I understand.  The Brookings study is OK but not related to the Jesuits!  Please let me know of any good new articles or studies on economic globalization.  By the way check out counter currents and search out Order 81 to see what the Occupation is doing with regard to agriculture in Iraq.  They are trying to prohibit Iraqi farmers from saving and cross breeding seeds as they have always done so US agribusiness TNCs can flood the market with GM seeds that are protected by intellectual property laws and patents.  The US intends to take over Iraqi agriculture this way and by flooding their market with US subsidized grains.  This is bad for a country already import dependant on food and suffering over 70% unemployment rates.

Posted by steve on Jun 22, 2005 at 2:02 PM

No problem.

Jesuitical - 1 : of or pertaining to the Roman Catholic Society of Jesus founded by Saint Ignatius Loyola in 1534 and devoted to missionary and educational work
2 : given to intrigue or equivocation

I was using the second, figurative meaning of the word.  The Jesuits, at least in Protestant accounts, were given to sneaky, underhanded trickery in rhetoric and debate.  Also known as sophistry or casuistry. 

It somehow does not surprise me that none of the Bush administration’s Big Bads seem to understand that their professed goal of introducing democracy to Iraq is incompatible with our neocolonial policies in that unfortunate country.  Or maybe the more intelligent among them realize this, and simply don’t care.

Posted by Matthew K. on Jun 22, 2005 at 2:35 PM

Matt K.

  I’ve always felt the linchpin of the neo-colonial policies to have been the 100 Bremmer orders introduced by the old CPA by fiat almost immediately after the shooting stopped in May 2003. There is more and more on the specifics all the time. Certain sites are better than others.  Google counter-currents to get one of the best, most complete anti-Bush weblogs out there!

Posted by steve on Jun 22, 2005 at 3:08 PM