The whole Greider article

[Sid Shniad <shniad@xxxxxx>]

The Nation						December 15, 1997

SAVING THE GLOBAL ECONOMY

	By William Greider

	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
wage problem, the need for capital controls and other reforms. If bankers
spurn these proposals, let them eat their own losses.
	A U.S.-financed rescue of the deeply corrupt Suharto regime in
Indonesia seems especially obscene. His bloody record runs from
massacres in East Timor to the brutal smashing of Indonesia's independent
labor movement. At the moment, the heroic leader of Indonesia's
independent labor federation, Muchtar Pakpahan, is in prison and gravely
ill, charged with "subversion," a capital offense. His movement has been
crippled, perhaps beyond recovery, but he refuses to give up. Will our
Treasury Secretary ask Suharto to free Pakpahan when he signs off on the
loan? Will our President? (In fact, Representative Bernie Sanders charges
that the I.M.F. loan being speeded to Indonesia is illegal. A 1994 law
sponsored by Sanders and Representative Barney Frank requires the United
States to insist that labor rights be an element considered in all I.M.F.
workout loans.)

Capital Controls: Restoring Stability

	Whatever happens next, the globalizing financial markets will continue
to produce panics and collapses until some moderation is imposed on the
lightning-quick flows of capital across borders. How many times must the
world flirt with breakdown before governments recognize that unregulated
capital is dangerous? Rescuing reckless investors with periodic bailouts
does not produce either stability or equity.
	The desire for national controls has growing support among developing
countries held hostage by the quirky enthusiasms of foreign capital. But
even the largest developing nations, like Brazil, dare not express their
anxiety--not in the present crisis. If they did, they would be savaged by
global finance for apostasy.
	So, Americans have to open this subject for debate because it is our
orthodoxy that rules; our bankers who are demanding that other
governments surrender sovereign control of their domestic financial
systems. Reviving controls on foreign exchange might include modest
transaction taxes that will yield enormous revenues while nicking the
profits of speculators. At a minimum, poor nations need the right to impose
temporary controls on capital when they are faced with panic flight or
speculative assaults. Capital controls would not stop development and
foreign investment but would restore some accountability to the system.

Corporate Loyalty: The Buried Contradiction

	Americans already know that premier multinationals--I.B.M., Boeing,
General Electric and others--are determined to become known as "global"
corporations rather than U.S. ones. Yet it is still U.S. taxpayers who pony
up billions in direct subsidies and tax breaks for these same companies,
even as they shed ever more U.S. workers. Leading exporters have even
demanded that the Export-Import Bank relax or abolish its U.S.-content
rules so that they can use more foreign labor in their "U.S. exports."
	It's time to force a showdown on this issue: Target the various forms of
public subsidy for these corporations and abolish them, perhaps shifting the
aid to smaller domestic enterprises. If the multinationals want to offer a
compromise or alter their globalizing strategies, that's fine, let's talk. But
the old claim that exports translate into general prosperity should no longer
be believed, because it no longer matches reality.

Confronting the 'Dark Satanic Mills'

	Lurid examples of the random inhumanity in global production are
abundant and not restricted to sweatshops. We are talking about
elementary matters like fire protection in factories and control of toxic
chemicals, or simply obeying labor laws. None of the abusive behavior by
major corporations is necessary to global commerce or to anyone's
prosperity. It continues because no one stops it. Americans can.
	We can start by imposing some firm rules on U.S.-based companies--
stipulating what we expect in their behavior, what we will not tolerate from
toymakers or shoemakers or auto and aircraft manufacturers. Then we can
incorporate those principles in our trading terms  --as penalty tariffs if
necessary--and finally in the global system's trading rules. At each stage,
business will predict dire consequences, just as it did a century ago when
humane standards were written into U.S. law to curb similar abuses.
	An important precedent was established by Congress last summer when
it authorized U.S. Customs to police the new labeling system activists have
created for India's rug exports--consumer labels that guarantee no
indentured children were used in their manufacture. This example can be
expanded to other imports, product by product. Like any other regulation,
it shifts the cost of antisocial behavior from the victims to the perpetrators.
	There are more issues to discuss, a lot more. But my essential point is
that Americans already know the bad news. We are laden with insecurities,
doubt and resentment. We are told repeatedly there is nothing we can do
except passively accept whatever the global system deals out. Yet
progressives should be proclaiming a different message: one of optimism
with an agenda for positive action. The defeat of fast track shows the way.
Once people win a few victories, the global problems will not seem
insurmountable, the established powers will no longer seem invincible.