In the 1960s, U.S. corporations changed the way they went after profits
in the international economy. Instead of producing goods in the U.S. to export,
they moved more and more toward producing goods overseas to sell to consumers in
those countries and at home. They had done some of this in the 1950s, but really
sped up the process in the ’60s.
Before the mid-1960s, free trade probably helped workers and consumers in the
United States while hurting workers in poorer countries. Exporters invested
their profits at home in the United States, creating new jobs and boosting
incomes. The AFL-CIO thought this was a good deal and backed free trade.
But when corporations changed strategies, they changed the alliances. By the
late 1960s, the AFL-CIO began opposing free trade as they watched jobs go
overseas. But unionists did not see that they had to start building alliances
internationally. The union federation continued to take money secretly from the
U.S. government to help break up red unions abroad, not a good tactic for
producing solidarity. It took until the 1990s for the AFL-CIO to reduce (though
not eliminate) its alliance with the U.S. State Department. In the 1990s, unions
also forged their alliance with the environmental movement to oppose free trade.
But corporations were not standing still; in the 1980s and 1990s they were
working to shift the architecture of international institutions created after
World War II to work more effectively in the new global economy they were
creating. More and more of their profits were coming from overseas — by the
1990s, 30% of U.S. corporate profits came from their direct investments
overseas, up from 13% in the 1960s. This includes money made from the operations
of their subsidiaries abroad. But the share of corporate profits is earned
overseas is even higher than that because the 30% figure doesn’t include the
interest companies earn on money they loan abroad. And the financial sector is
an increasingly important player in the global economy.
Financial institutions and other global corporations without national ties now
use governments to dissolve any national restraints on their activities. They
are global, so they want their government to be global too. And while trade used
to be taken care of through its own organization (GATT) and money vaguely
managed through another organization (the International Monetary Fund), the new
World Trade Organization erases the divide between trade and investment in its
efforts to deregulate investment worldwide.
In helping design some of the global institutions after World War II, John
Maynard Keynes assumed companies and economies would operate within national
bounds, with the IMF and others regulating exchanges across those borders. The
instability created by ruptured borders is made worse by the deregulation sought
by corporations, and especially, the financial sector. The most powerful
governments of the world seem oblivious to this threat in giving them what they
want.
This is a world-historical moment in which it is possible to stop the corporate
offensive, a moment when the ruling partnership composed of the United States,
Europe and to a lesser extent Japan is fracturing, as the European Union reaches
its limit on the amount of deregulation it will take and Japan’s economy is in
turmoil. This may allow those opposing the ruling bloc — Third World governments
(which may be conservative), labor, and environmentalists worldwide — to build
alliances of convenience with sympathetic elements within the EU to guide the
reshaping of the global institutions in a liberatory manner.
What follows is a primer on the most important of those institutions. We hope in
the near future to publish primers on other aspects of the global economy:
regional trade agreements and alternative visions of how to regulate it. Stay
tuned.
— Abby Scher
The World Bank and International Monetary Fund
Where did they come from?
The basic institutions of the postwar international capitalist economy were
framed, in 1944, at an international conference in the town of Bretton Woods,
New Hampshire. Among the institutions coming out of the conference were the
World Bank and the International Monetary Fund (IMF). These two are often
discussed together because they were founded together, because countries must be
members of the IMF before they can become members of the World Bank, and because
both practice what is known as "structural adjustment" (where borrower countries
unable to obtain credit from other sources must change government policies
before loans are released).
At both the World Bank and IMF, the number of votes a country receives is based
on how much capital it gives the institution, so rich countries like the United
States enjoy disproportionate voting power. In both, five powerful countries
(the United States, Great Britain, France, Germany, and Japan) get to appoint
their own representatives to the institution’s executive board (with 19 other
directors elected by the rest of the 150-odd member countries). The president of
the World Bank is elected by the Board of Executive Directors, and traditionally
nominated by the US representative. The managing director of the IMF, meanwhile,
is traditionally a European. The governments of a few rich countries, obviously,
call the shots in both institutions.
Why Should You Care?
Just after World War II, the World Bank mostly loaned money to Western European
governments to help rebuild their countries. It was during the long tenure
(1968-1981) of former U.S. Defense Secretary Robert S. McNamara as president
that the bank turned towards "development" loans to Third World countries.
McNamara brought the same philosophy to "development" that he had used in war –
more is better. Ever since, the Bank’s approach has drawn persistent criticism
for favoring large, expensive projects regardless of their appropriateness to
local conditions. Critics have argued that the Bank pays little heed to the
social and environmental impact of the projects it finances, and that it often
works through dictatorial elites that channel benefits to themselves rather than
those who need them (and leave the poor to foot the bill later).
The most important function of the IMF is as a "lender of last resort" to member
countries that cannot borrow money from other sources. The loans are usually
given to prevent a country from defaulting on previous loans from private banks.
Funds are available from the IMF, on the condition that the country implement
what is formally known as a "structural adjustment program" (SAP), but more
often referred to as an "austerity plan." Typically, a government is told to
eliminate price controls or subsidies, devalue its currency or eliminate labor
regulations like minimum wage laws — all actions whose costs are born by the
working class and the poor whose incomes are cut.
The conditions imposed by the IMF and the World Bank, which places similar
conditions on "structural adjustment" loans, are motivated by an extraordinary
devotion to the free-market model. As Colin Stoneman, an expert on Zimbabwe, put
it, the World Bank’s prescriptions for that country during the 1980s were
"exactly those which someone with no knowledge of Zimbabwe, but familiarity with
the World Bank, would have predicted."
The IMF and World Bank wield power disproportionate to the size of the loans
they give out because private lenders take their lead in deciding which
countries are credit-worthy. Both institutions have taken advantage of this
leverage, and of debt crises in Latin America, Africa, and now Asia, to impose
their cookie-cutter model (against varying levels of resistance from governments
and peoples) on poor countries around the world.
— Alejandro Reuss
The Multilateral Agreement on Investment (MAI), Trade Related Investment
Measures (TRIMs), and the Interna-tional Movement of Capital
Where did they come from?
You’re probably not the sort of person who would own a chemical plant or luxury
hotel, but imagine you were. Imagine you built a chemical plant or luxury hotel
in a foreign country, only to see a labor-friendly government take power and
threaten your profits. This is the scenario which makes the CEOs of footloose
global corporations wake up in the middle of the night in a cold sweat. To avert
such threats, ministers of the richest countries met secretly at the
Organization for Economic Cooperation and Development (OECD) in Paris in 1997
and tried to hammer out a bill of rights for international investors, the
Multilateral Agreement on Investment (MAI).
When protests against the MAI broke out in the streets and the halls of
government alike in 1998 and 1999, scuttling the agreement in that form, the
corporations turned to the World Trade Organization to achieve their goal. (See
"Rage Against the MAchIne" by Chantell Taylor, Dollars & Sense,
September/October 1998.)
What are they up to?
Both the MAI and Trade Related Investment Measures (or TRIMs, the name of the
WTO version) would force governments to compensate companies for any losses (or
reductions in profits) they might suffer because of changes in public policy.
Governments would be compelled to tax, regulate, and subsidize foreign
businesses exactly as they do local businesses. Policies designed to protect
fledgling national industries (a staple of industrial development strategies
from the United States and Germany in the 19th century to Japan and Korea in the
20th) would be ruled out.
TRIMs would also be a crowning blow to the control of governments over the
movement of capital into or out of their countries. Until fairly recently, most
governments imposed controls on the buying and selling of their currencies for
purposes other than trade. Known as capital controls, these curbs significantly
impeded the mobility of capital. By simply outlawing conversion, governments
could trap investors into keeping their holdings in the local currency. But
since the 1980s, the IMF and the U.S. Treasury have pressured governments to
lift these controls so that international companies can more easily move money
around the globe. Corporations and wealthy individuals can now credibly threaten
to pull liquid capital out of any country whose policies displease them.
Malaysia successfully imposed controls during the Asian crisis of 1997 and 1998,
spurring broad interest among developing countries. The United States wants to
establish a new international discussion group -– the Group of 20 (G-20),
consisting of ministers from 20 developing countries handpicked by the U.S. — to
consider reforms. Meanwhile, it continues to push for the MAI-style liberation
of capital from any control whatsoever.
Why Should You Care?
It is sometimes said that the widening chasm between the rich and poor is due to
the fact that capital is so easily shifted around the globe while labor, bound
to family and place, is not. But there is nothing natural in this. Human beings,
after all, have wandered the earth for millennia — traversing oceans and
continents, in search of food, land, and adventure — whereas a factory,
shipyard, or office building, once built, is almost impossible to move in a cost
effective way. Even liquid capital (money) is less mobile than it seems. To be
sure, a Mexican can fill a suitcase with pesos, hop a plane and fly to
California, but once she disembarks, who’s to say what the pesos will be worth,
or whether they’ll be worth anything at all? For most of this century, however,
capitalist governments have curbed labor’s natural mobility through passports,
migration laws, border checkpoints, and armed border patrols, while capital has
been rendered movable by treaties and laws that harmonize the treatment of
wealth around the world. The past two decades especially have seen a vast
expansion in the legal rights of capital across borders. In other words, labor
fights with the cuffs on, while capital takes the gloves off.
World Intellectual Property Organization (WIPO) and Trade-Related Aspects of
Intellectual Property Rights (TRIPs)
What are they up to?
One of the less familiar members of the "alphabet soup" of international
economic institutions, the World Intellectual Property Organization (WIPO) has
governed "intellectual property" issues since its founding in 1970 (though it
oversees treaties and conventions dating from as early as 1883). Companies are
finding it harder to control intellectual property in two new fields — computer
software and biotechnology — because it is so cheap and easy to reproduce
electronic information and genetic material in virtually unlimited quantities.
This is what makes software, music and video "piracy" widespread.
In the old days, "intellectual property" only covered property rights over
inventions, industrial designs, trademarks, and artistic and literary works. Now
it covers computer programs, electronic images and recordings, and even
biological processes and genetic codes.
WIPO has been busy staking out a brave new world of property rights in the
electronic domain. A 1996 WIPO treaty, which now faces ratification battles
around the world, would outlaw the "circumvention" of electronic security
measures. It would be illegal, for example, to sidestep the security measures on
a website (such as those requiring that users register or send payment in
exchange for access). The treaty, if ratified, would also prevent programmers
from cracking open commercial software to view the underlying code. This could
prevent programmers from crafting their own programs so that they are compatible
with existing software, and prevent innovation in the form of "reengineering" —
drawing on one design as the basis of another. Reengineering has been at the
heart of many country’s economic development — not just Taiwan but also the
United States. Lowell, Massachusetts, textile manaufacturers built their looms
based on English designs.
WIPO now faces a turf war over the intellectual property issue with none other
than the World Trade Organization (WTO). Wealthy countries are attempting an end
run around WIPO because it lacks enforcement power and less developed countries
have resisted its agenda. But the mass-media, information-technology, and
biotechnology industries in wealthy countries stand to lose the most from
"piracy" and to gain the most in fees and royalties if given more extensive
property rights. So they introduced, under the name "Trade-Related Aspects of
Intellectual Property Rights" (TRIPS), extensive provisions on intellectual
property into the most recent round of WTO negotiations.
TRIPs would put the muscle of trade sanctions behind intellectual property
rights. It would also stake out new intellectual property rights over plant,
animal, and even human genetic codes. The governments of some developing
countries have objected, warning that private companies based in rich countries
will declare ownership over the genetic codes of plants long used for healing or
crops within their countries. By manipulating just one gene of a living
organism, a company can be declared the sole owner of an entire plant variety.
Why Should You Care?
These proposals may seem like a new frontier of property rights, but except for
the defense of ownership over life forms, TRIMS are actually a defense of the
old regime of property rights. It is because current computer- and
bio-technology make virtually unlimited production and free distribution
possible that the fight for private property has become so extreme. By extending
private property to previously unimagined horizons, we are reminded of the form
of power used to defend it.
— Alejandro Reuss
The World Trade Organization (WTO)
Where did it come from?
Since the 1950s, government officials from around the world have met irregularly
to hammer out the rules of a global trading system. Known as the General
Agreements on Trade and Tariffs (GATT), these negotiations covered, in
excruciating detail, such matters as what level of taxation Japan would impose
on foreign rice, how many American automobiles Brazil would allow into its
market, and how large a subsidy France could give its vineyards. Every clause
was carefully crafted, with constant input from business representatives who
hoped to profit from expanded international trade.
The GATT process however, was slow, cumbersome and difficult to monitor. As
corporations expanded more rapidly into global markets they pushed governments
to create a more powerful and permanent international body that could speed up
trade negotiations as well as oversee and enforce provisions of the GATT. The
result is the World Trade Organization, formed out of the ashes of GATT in 1994.
What is it up to?
The WTO functions as a sort of international court for adjudicating trade
disputes. Each of its 135 member countries has one representative, who
participates in negotiations over trade rules. The heart of the WTO, however, is
not its delegates, but its dispute resolution system. With the establishment of
the WTO, corporations now have a place to complain to when they want trade
barriers — or domestic regulations that limit their freedom to buy and sell —
overturned.
Though corporations have no standing in the WTO — the organization is,
officially, open only to its member countries — the numerous advisory bodies
that provide technical expertise to delegates are overflowing with corporate
representation. The delegates themselves are drawn from trade ministries and
confer regularly with the corporate lobbyists and advisors who swarm the streets
and offices of Geneva, where the organization is headquartered. As a result, the
WTO has become, as an anonymous delegate told the Financial Times, "a place
where governments can collude against their citizens."
Lori Wallach and Michelle Sforza, in their new book The WTO: Five Years of
Reasons to Resist Corporate Globalization, point out that large corporations are
essentially "renting" governments to bring cases before the WTO, and in this
way, to win in the WTO battles they have lost in the political arena at home.
Large shrimping corporations, for example, got India to dispute the U.S. ban on
shrimp catches that were not sea-turtle safe. Once such a case is raised, the
resolution process violates most democratic notions of due process and openness.
Cases are heard before a tribunal of "trade experts", generally lawyers, who,
under WTO rules, are required to make their ruling with a presumption in favor
of free trade. The WTO puts the burden squarely on governments to justify any
restriction of what it considers the natural order of things. There are no
amicus briefs (statements of legal opinion filed with a court by outside
parties), no observers, and no public record of the deliberations.
The WTO’s rule is not restricted to such matters as tariff barriers. When the
organization was formed, environmental and labor groups warned that the WTO
would soon be rendering decisions on essential matters of public policy. This
has proven absolutely correct. Currently, the WTO is considering whether
"selective purchasing" laws – like a Massachusetts law barring state agencies
and local governments from buying products made in Burma and intended to
withdraw an economic lifeline to that country’s dictatorship – are a violation
of "free trade." It is feared that the WTO will rule out these kinds of
political motives from government policy making. The organization has already
ruled against Europe for banning hormone-treated beef and against Japan for
prohibiting pesticide-laden apples.
Why Should You Care?
At stake is a fundamental issue of popular sovereignty – the rights of the
people to regulate economic life, whether at the level of the city, state, or
nation. Certainly, the current structure of institutions like the WTO allows for
little if any expression of the popular will. Can a city, state, or country
insist that goods sold in its markets meet labor and environmental standards
determined in a democratic forum by its citizens? What if the U.S., for example,
insisted that clothing manufactured for the Gap by child laborers not be
permitted for sale here? The U.S. does not allow businesses operating within its
borders to produce goods with child labor, so why should we allow those same
businesses — Disney, Gap, or Walmart – to produce their goods with child labor
in Haiti and sell the goods here? — Ellen Frank
International Standards Organization (ISO)
There’s at least one global institution shaping commerce that corporations
control completely, with no pretense of public involvement. That is the
International Standards Organization (ISO).
It was founded in 1947 (around the same time as the International Monetary Fund,
World Bank and GATT), with the aim of easing trade by standardizing the
dimensions of industrial products. Most famously, it set the dimensions of screw
threads so that an auto manufacturer in the United States can be confident that
screws it buys in China can be used in its cars. More recently, the ISO trumpets
its success in standardizing ATM and credit card dimensions so they can be used
in machines worldwide.
Without set standards, buyers cannot roam the world in search of the cheapest
deal; the dissimilar products thus act as a "technical barrier to trade." Not
surprisingly, the ISO, although privately run, is intimately linked to the World
Trade Organization with whom it says it is creating "a strategic partnership."
"The political agreements reached within the framework of the WTO require
underpinning by technical agreements" devised by the ISO, according to the ISO.
"From an environmental perspective, the ISO isn’t ideal because it’s captured by
industry," says trade lawyer Stephen Porter of the Washington, D.C. Center for
International and Environmental law. Companies send their expert reps to
national standards organizations, that in turn send reps to the ISO.
That might not be a problem if the ISO stuck to screws, but in the 1990s it
expanded its scope to setting environmental standards, including the process
used for producing organic agricultural products.
"The part that’s most troublesome is when an ISO standard becomes a default
standard under the WTO rules," says Porter. "Does it become impossible to go
beyond that in a practical matter if Austria wants to set an environmental
standard that is 130% of the ISO standard?" And once ISO standards become part
of the WTO, what was a voluntary system receives the force of law, without
public involvement. — Abby Scher
The International Labor Organization (ILO)
Every year it is becoming more obvious that the global economy needs global
regulation to protect the interests of workers and their communities. This was a
central demand of some WTO protesters in Seattle. But who can regulate at a
global level, and how can this regulation be made democratically accountable?
There are no easy answers to these questions, but we can learn a lot by studying
the successes and shortcomings of the International Labor Organization.
Where did it come from?
The ILO was established in 1919 in the wake of World War I, the Bolshevik
revolution in Russia, and the founding of the Third (Communist) International, a
world federation of revolutionary socialist political parties. Idealistic
motives mingled with the goal of business and political elites to offer workers
an alternative to revolution, and the result was an international treaty
organization (established by agreement between governments) whose main job was
to promulgate codes of practice in work and employment.
After World War II the ILO was grafted onto the UN structure, and it now serves
a wide range of purposes: drafting conventions on labor standards (182 so far),
monitoring their implementation, publishing analyses of labor conditions around
the world, and providing technical assistance to national governments.
Why Should You Care?
The ILO’s conventions set high standards in such areas as health and safety,
freedom to organize unions, social insurance, and ending abuses like workplace
discrimination and child labor. It convenes panels to investigate whether
countries are upholding their legal commitment to enforce these standards, and
by general agreement their reports are accurate and fair. ILO publications, like
its flagship journal, The International Labour Review, its World Labor and
Employment Reports, and its special studies, are of very high quality. Its
staff, which is headquartered in Geneva and numbers 1,900, has many talented and
idealistic members. The ILO’s technical assistance program is minuscule in
comparison to the need, but it has changed the lives of many workers. (You can
find out more about the ILO at its website: www.ilo.org.)
As a rule, international organizations are reflections of the policies of their
member governments, particularly the ones with the most clout, such as the
United States. Since governments are almost always biased toward business and
against labor, we shouldn’t expect to see much pro-labor activism in official
circles. The ILO provides a partial exception to this rule, and it is worth
considering why. There are probably four main reasons:
• The ILO’s mission explicitly calls for improvements in the conditions of work,
and the organization attracts people who believe in this cause. Compare this to
the mission of the IMF (to promote the ability of countries to repay their
international debts) or the WTO (to expand trade), for instance.
• Governments send their labor ministers (in the US, the Secretary of Labor) to
represent them at the ILO. Labor ministers usually specialize in social
protection issues and often serve as liaisons to labor unions. A roomful of
labor ministers will generally be more progressive than a similar gaggle of
finance (IMF) or trade (WTO) ministers.
• The ILO’s governing body is based on tripartite principles: representatives
from unions, employers, and government all have a seat at the table. By
institutionalizing a role for nongovernmental organizations, the ILO achieves a
greater degree of openness and accountability.
• Cynics would add that the ILO can afford to be progressive because it is
largely powerless. It has no enforcement mechanism for its conventions, and some
of the countries that are quickest to ratify have the worst records of living up
to them.
On balance?
The ILO has significant shortcomings as an organization. Perhaps the most
important is its cumbersome, bureaucratic nature: it can take forever for the
apparatus to make a decision and carry it out. (Of course, that beats the IMF’s
approach: decisive, reactionary, and authoritarian.) The experience of the ILO
tells us that creating a force capable of governing the global economy will be
extremely difficult, and that there are hard tradeoffs between democracy, power,
and administrative effectiveness. But it also demonstrates that reforming
international organizations —- changing their missions and governance systems —-
is worth the effort, especially if it brings nongovernmental activists into the
picture. — Peter Dorman
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