Straight talk from William Greider

[valis <valis@xxxxxxxxxx>]

Appearing in The Nation:


SAVING THE GLOBAL ECONOMY

By WILLIAM GREIDER
December 15, 1997


Converging events in U.S. politics and the global economy have created
a watershed moment, I believe: a time to teach and agitate but also to
think anew about what is possible--and not just for Americans but for
those distant others who make the goods we buy.

The House Democrats' defeat of fast-track trade authority for
the President demonstrates that, given the muddled condition of
America's party alignments, the liberal-left-labor minority has real
political leverage, if it clearly understands the principles it is
defending. Minority leader Richard Gephardt, A.F.L.-C.I.O. chief
John Sweeney and the others who joined to thwart Clinton and
the financial-business elites have reignited our optimism.

The fast-track politics resonates like a loud warning bell for the
establishment because it coincides with the gathering crisis in
the global system itself. Multinational commerce and capital are
beginning to grasp that they are at a perilous moment, as
financial markets deteriorate in Asia and Latin America,
pulling once-vibrant economies down with them.

The apologists' initial claim that this is some strange "Asian flu"
--and thus no concern to Americans--is both condescending and
ludicrously wrong. Americans will pay, dearly and directly,
in multiple ways. The contagion of collapsing currencies and stock
markets is vivid confirmation of the new interconnectedness that
globalizing corporations and financiers have fashioned.
But it is also the logical consequence of their reckless,
unregulated global system.

The system's political stewards (headed by Federal Reserve Chairman
Alan Greenspan, Treasury Secretary Robert Rubin and President Clinton)
are trying, once again, to patch over the damage before it degenerates
into something far worse--a worldwide deflationary meltdown. No one
can be sure they will succeed this time. What we do know is that they
are proceeding with the same banker's mentality they applied to
previous crises: Bail out endangered financial institutions and
investors, punish innocent bystanders with austerity measures and
continue to ignore the underlying economic and human contradictions
that make the global system so vulnerable to breakdown.

This is morally wrong, for sure, but it's also potentially dangerous.
Forcing the usual financial remedies upon the troubled developing
economies may simply feed the imbalances that already exist,
aggravate instabilities and possibly set off a chain reaction of
collapsing credit and economic activity that not even the
Federal Reserve Chairman will be able to reverse.
No one knows where these events are leading, but the world
is flirting with a historic disaster while U.S. leaders
indulge in self-congratulations.

The first great task is to begin explaining these things clearly.
And the first message that should be delivered is this: Like it or
not, we are all in this together now, rich nations and poor alike,
all riding on the same runaway train. Globalization of markets
means there's no place to hide. Americans are not going to get out
of this--the continuing loss of good jobs, the long-term depression
of wages--until they learn to think globally, and to devise remedies
that do not depend on throwing poor people over the side.

I emphasize this because, as things get worse and Americans are asked
to bail out more players (rival trading nations, corrupt dictators,
global banks and investors), the natural impulse to withdraw from
the world and defend hearth and home will intensify--and will be
encouraged by nostalgic, right-wing protectionists.
But even if pulling up the bridges were a plausible course, it would
be profoundly unprogressive. Think, instead, of the grand new vistas
that have been opened for human relations around the world.

The great strategic opportunity before us is to target the
fundamental fissure that already exists within conservative ranks
(free-market reformers versus working-class cultural conservatives)
and break it wide open. The natural majority of citizens in this
country are already opposed, in varying degrees, to the status quo
regime. The challenge is how to mobilize their potential leverage
over political decisions. When you think about it, many Americans
have already done pretty well at sorting things out for themselves.
After all, popular skepticism about the free trade mantra is why
fast track lost. What follows are suggestions for a progressive
offensive.


The Economic Rationale for Labor Rights

Labor rights is about saving U.S. jobs and about human freedom,
for sure, but people also must understand that labor rights is
fundamentally about saving the global economy from its own
threatening excesses. If workers at the bottom of the global
industrial system don't win the freedom to organize and bargain
for a fairer share of the returns, then the depression of U.S.
wages will continue. Why? Because the global economy is choking
on its own productive overcapacity--too many factories chasing
too few consumers. (The global auto industry, for example, will
soon be able to produce 80 million vehicles a year for a marketplace
with fewer than 60 million buyers, meaning that many more factories
must close, here and abroad.)

Raising this issue is not just a tactical shift in rhetoric to dodge
the media's usual slurs (losers, Luddites, big-labor protectionists)
but a way to focus on economic fundamentals. The widening gap between
an expanding production base worldwide and the inability of consumers
to buy all the new output is the central subtext of the present crisis.
The multinationals know the reality of overcapacity because they
contend with it daily.

In different ways, labor incomes are suppressed on both ends of the
global system--usually by labor-market forces (including mass
unemployment or temp jobs) in the advanced economies, often by
government edict and brutal force in developing ones.
Meanwhile, companies must keep building more production
or relocating factories to keep up in the cost-price chase.

As an alternative, our economic imperative should be to create
more buying power--rising real wages and stable employment--
not just for the United States and Europe but globally.
Overcapacity drives down prices and wages (and eventually
profits), so banks and stock markets find themselves wildly
overinvested. Even conservative commentators are now
acknowledging the danger that overcapacity could lead to
a general deflation--the horrendous downward spiral better
known as depression.

Any healthy economy, including the globalized marketplace,
will sooner or later be undermined if the broad ranks of
consumers lack the wherewithal to keep up. It's what Henry Ford
grasped in 1914 when he decided unilaterally to raise his assembly
workers' pay to $5 a day: An industrialized system, he said, cannot
possibly flourish--or even endure--if the mass of workers can't buy
what they produce. F.D.R.'s Federal Reserve Chairman, Marriner Eccles,
made the same point, as did Keynes.

Insisting on freedom for the exploited workers--"bringing the bottom up"
instead of knocking higher wages down--is only one of many stimulative
measures needed to reverse the negative cycle now gaining visible
momentum. The Fed, Germany's Bundesbank and other central banks need to
start dropping interest rates, right now. Governments obsessed with
cutting spending to appease bondholders need to re-examine the reigning
orthodoxy, right now.

We are, in other words, approaching a great ideological turning point.
This may sound premature, but I think the current turmoil signals an end
to the supply-side era that has ruled the world since Reagan's election
in 1980. The doctrine was straightforward:
Cut taxes (and government) to benefit the wealth holders and corporations
so they will make new investments, that is, build new supply, more output.
Wage inequalities, we were told, do not matter. Neither does the demand
side of the economy. But now the truth has trickled down: This is wrong
not just for people but for economies.


Trade's Dangerous Imbalances

The persistent, lopsided U.S. trade deficits did not go away after the
eighties. Governing elites simply stopped talking about them. Now the
unbalanced trade, in which America plays "buyer of last resort" for
surplus production elsewhere, is swelling again and will likely explode
in the next year or so, as Asian economies try to export their way out
of the mire. Economist David Hale of Zurich Kemper Investments figures
the U.S. trade deficit could nearly double, to as high as $300 billion
a year.

The competitive currency devaluations sweeping across Asia and Latin
America more or less guarantee this result: Their goods become
automatically cheaper in trade, our exports more expensive for them
to buy. But the ticking time bomb is Japan, stuck in its own financial
downdraft and stagnation. If Japan further devalues the yen against
the dollar, as many now see happening, that could revive the
deindustrialization that closed so many U.S. factories
and drove manufacturing jobs overseas in the eighties. This is one of
several ways Americans will pay for the crisis.

This is the moment to revive the argument made a decade ago by labor-
friendly politicians like Gephardt. Only the problem is more diffuse
now because it's not just Japan running a swollen trade surplus with
the United States but also China, Mexico and a long list of others
(some of which run trade deficits of their own).

The established wisdom teaches, first, that our trade deficit is
a function of the federal budget deficits and, second, that national
trade deficits don't really matter. Both propositions are about to
be pounded by reality. If the federal budget deficit is shrinking
and about to vanish, why is the trade deficit ballooning instead of
subsiding? Because it is a function of the unequal access to markets.
Ours is wide open, theirs aren't.

Those who still believe trade deficits don't matter should re-read the
history of imperial Britain. We are a very rich nation but, like any
other debtor, even the United States cannot play generous benefactor
forever--borrowing from other nations in order to pay for their goods.
Over several decades, the U.S. net-asset position in international
terms has fallen from plus 30 percent of G.D.P. to negative 9 percent.
Someday, the capacity to accumulate this foreign debt will hit a
saturation point; when trade deficits soar, that day is hastened.

If America taps out, it constitutes a crisis for the entire global
system. Who will buy all this stuff, when we can no longer do so?
In that regard, the debt-soaked condition of American consumers
becomes relevant. Despite the celebrating, the Clinton recovery
is distinctive in that median household income has still not
recovered from the last recession and remains below the 1989 level.
And household debt is at a dangerously high level--another reason
the reflation of wages is a necessary part of any cure.

Given the deep problem of the unbalanced trading system itself,
the President should tell our trading partners (once we pull back
from the cliff of the current crisis, that is): The United States
is going to correct its deficit condition, if necessary by
unilaterally imposing a temporary general tariff, as is permitted
under GATT to correct a nation's financial imbalances. Alternative
measures might be considered, but the objective is not subject to
negotiation.

My hunch is that once a U.S. President credibly invokes the threat,
other nations will rush to the table to work out the adjustments.
After all, it's in their interest to keep the U.S. market as open
as possible. If China, say, or Japan considers retaliation, they will
find that a trade war closes their factories first, and many more of
them, since they are the ones who export excess capacity to us.


No Reform, No Bailouts

The obvious opening for maximum leverage involves how Congress
confronts the bailout packages that the Clinton Administration hopes
to execute for Southeast Asia, mainly through the I.M.F. and World Bank
but also directly from the Treasury and the Federal Reserve. Treasury
Secretary Rubin hoped at first to sit it out and let Japan pick up
the tab, but the deterioration has been too vast and swift. Besides,
Japan itself is coming unraveled. Business Week's back-of-the-envelope
calculation is that coming bailouts, from Thailand to South Korea,
will likely total at least $100 billion.

Two big objections should be thrown in the Administration's path.
First, the I.M.F. and Treasury are imposing their usual forced-
austerity terms on poor nations (cut wages and public spending,
raise interest rates so endangered banks can clean up their balance
sheets). This not only induces needless suffering among people who
were themselves innocent of excess, it's also pulling in the wrong
direction--further depressing the global system, adding to the
problem of inadequate demand.

If the I.M.F. and the World Bank refuse to devise a more helpful
approach--that is, stimulating growth and wages while they clean up
bad debts--then we should cut off their money. Block the U.S. funding
needed to rescue more foreign banks and stock markets. (Need I mention
that the banking-business interests getting rescued in Thailand and
Indonesia include the same folks who pumped so much money into
Clinton's re-election?) This requires Democrats to make common cause
with those Republicans who are offended for their own principled reasons.

Second, this new round of bailouts exposes the enduring hypocrisy of
the free-market crowd: People must submit to the dictates of market
forces, but capital need not. Bankers and major investors want a free
run on the upside--that is, no controls whatever--and they expect to be
rescued from their own big mistakes on the downside. Their private losses
are now going to be "socialized," an economist would say, their exposure
shared by government agencies. What is the public getting in return?
Consider the political struggle that would be required to assemble $100
billion in lending for public works projects or an "employer of last
resort" jobs program.

Enough. Americans will be infuriated, I expect, when they grasp what's
happening. Progressives should propose some forward-looking bargaining
demands the public can support. No bailout money until the borrowing
nations undertake concrete reforms on labor rights. No more financial
relief for banking and capital markets unless they concede the centrality
of the w

cdp ignored 5566 excess bytes

[Greider's analysis, as received, stops here and thus.
 Is anyone able to supply the conclusion?
                                                 valis]