Globalisation – The Nature of the Beast

from Belgium, alias-- Spirit Across The Sea

Preamble

A month or more ago, after I came out of hibernation, Freeacre asked me to do a political post. At that time I had neither the time nor a subject to write about. Now I have decided to tackle arguably the biggest subject which is presently affecting all of our lives – Globalization. This is the first of a three part series. In this first part I want to explore the nature of the beast and then see what effects this has on the macro level. Part two will deal with the effect globalisation has on the individual level by looking at the daily life of a Chinese sweat shop worker. We will then go on to see how the product she makes is marketed world wide. Part three will begin by looking at how the biggest single player in the global market conducts its business (Can you guess who it is – clue, it is a US company) and we will end by discussing some measures organizations are taking to redress the balance point in the direction of the majority of the population.

This first part draws on extracts of a paper by Kevin Danaher "Globalization and the Downsizing of the American Dream".

The Nature of Globalization

If we listen to those in the vanguard of the globalization movement we would be led to believe that all peoples of the world are being integrated into one great happy brotherhood of mankind. Growth and efficiency will provide happiness for all, well if only governments would stop interfering and just let market forces just get on with doing the job properly.

On the other side we see that manufacturing in industrialised countries of the west is being transferred to second and third world countries with corresponding loss of jobs. It is only too plain that if industrialists can cut their cost of sales by employing very much cheaper labour with small reductions in prices then they can pocket the difference. Nations with non existent safety and emissions standards are systematically poisoning a rape victim, mother earth. We see refugees and economic migrants by the millions roaming the planet seeking jobs and protection from armed conflict. We see large corporations like a cancer, eating up smaller companies and leaving the body of world society leaner and less able to cope. Gone are the days when a man could go out to work and support a household and large family. Now both partners have to work just fend off foreclosure. We are left with the gut feeling that it has all gone terribly wrong but it has happened so imperceptibly it is difficult to put your finger exactly on the where or when. The decline in our standard of living can be seen in numerous ways.

As US corporations have extended their global reach they have put the western work force in direct competition with second and third world countries so increasing their profits whilst at the same time driving down our wages and general standards of living.

Instead of technology providing the 'leisure society' where everybody enjoyed greater benefits whilst working fewer hours, corporations have used it to reduce their workforces thus causing anxiety over job security.

As global corporations become less-dependant on any particular nation, they have less interest in supporting any particular nation with taxes. This reduction in the fiscal tax base causes government expenses to outrace revenues.

By using the rationale of global competition to drive down the living standards of the majority, the corporate class has transferred more money from our pockets to theirs. This growing inequality is causing resentment and serious disquiet amongst those who are loosing ground.

The gradual wing clipping of labour unions who were always accused of "Holding the country to ransom" whenever they stood up for themselves has rendered them an ineffectual force making it easier for industrialists to do as they please.

Big Business Prefers to Deal with Dictatorships

Corporations have become so mighty that many of the Fortune 500 companies now have annual revenues greater than the GNP of most Third World countries and some in excess of industrialised Scandinavian and Baltic countries. For example, in 1995 General Motors received revenues equivalent to 19 million Americans earning the minimum wage. Such companies are making decisions with little regard for national boundaries and are therefore less dependent on any particular workforce. This does not stop them wanting to have their cake and eat it. Any subsidies offered will be snatched out of governments hand before the next corporation can get it but when it comes to any measures of reciprocation such as governmental or labour control, big business preaches free trade; deregulation and the downsizing of government. A truly democratic state is one of the greatest threats to big business and this is borne out in practice. Dictatorial states such as China and Indonesia are winning the battle for US export orders over the new democracies like Poland and South Africa. The New Economy Information Service (NEIS – a think tank set up to gauge the effects of globalisation), reported that at the end of the cold war in 1989, 53.4% of all US imports from Third World countries, excluding oil came from democracies. Now with more democracies to choose from, that figure has reduced to 34.9%. Speculating on why this should be so, NEIS said lower wages in dictatorships gave corporations an advantage. Also dictators can give quick decisions, deliver results and stamp out opposition. This is obviously a meeting of minds with many CEO's. Dictators', who have to answer to neither voters nor a legislature, can deliver investment incentives such as tax breaks, freedom from environmental laws and a docile work force. These are powerful lures for foreign corporations and whilst dictatorships are gaining market share, democracies are going steadily downhill.

After the fall of communism and whilst the former Yugoslavia was picking up the pieces following its various wars, the CEO of an automotive wiring loom company related that it was his companies intention to quit the UK, move to Romania for two years, collecting whatever subsidies it could get along the way and then dump the Romanians to relocate in Bosnia. This is just one example of corporate thought processes.

Having said this, not every large corporation which outsources is intrinsically disreputable. Airbus, the plane maker, wanted to keep its operation within Europe but has been forced to obtain components from further afield because its international contracts are priced in dollars and with the steady tanking of the dollar it must either outsource or renege on its contracts. This is a little bit self-inflicted since the devaluing of the dollar had been predicted for some time. If others knew the dollar was on a slide how did the smart accountants and lawyers of Airbus overlook this? The clever thing would have been to peg a dollar / Euro rate for the date each contract was signed, a bit like a fixed rate mortgage. They might not have made so much as they might have but at least they would have been safe. This is always a danger for companies who manufacture relatively small amounts of high value articles. It is reassuring to know that the big guys can sometimes come unstuck, although it is large sections of the workforce who have again been handed the dirty end of the stick.

The unnerving effect of US workers being placed in direct competition with Third World Dictatorships has had severe consequences at home. Average real wages, corrected for inflation, have been falling since their peak in the early 1970's. By 1992 earnings in the non agricultural part of the economy were 19% lower. One quarter of the US workforce now earns less in real terms than the 1968 minimum wage! On the other side of the coin, massive layoffs have been accompanied by top CEO salaries soaring to 200 times that of an average worker. In 1996 the magazine Newsweek ran a hard hitting cover story entitled "Corporate Killers" in which they said "Something is plain wrong when stock prices keep rising on Wall Street while Main Street is littered with the bodies of workers discarded by big companies. Once upon a time it was a mark of shame to fire your workers en masse. Today the more workers a company fires the more Wall Street loves it and the higher its stock price goes". In recent times transnational corporations have gotten basically everything they wanted: the collapse of communism; free trade agreements; deregulation; lower taxes; the weakening of trade unions and the pushing down of wage rates. Yet while profits and the stock market soar the standard of living for most Americans is plummeting. It should be remembered that it is now commonplace for a CEOs package to be partly made up of stock options so they are financially benefiting from decisions which inflict suffering on great numbers of American families.

Some years ago we were told that automation would benefit all. With machines to do the work and increase productivity we could enjoy higher wages with less input. The leisure society was about to explode on us. But the technology turned against us and now companies see it as a way to dump workers who make demands and question authority and replace them with machines which have never been known to form a union. Over the last 30 years employment in the US manufacturing sector has halved from 33% to 17% of the workforce even though output has steadily increased over the same period.

Will the Service Sector Absorb Jobs Lost by Manufacturing?

Contrary to popular opinion the service sector will not pick up all the jobs lost by the manufacturing sector. Even allowing for the fact that pay is usually lower here, service sector jobs are also being lost to technology. There are many examples of this: Computer program coding, a highly skilled and once sought after profession is now largely done in India and results posted over the internet; optical scanners have eliminated large sections of postal workers and in the ten years following 1983, banks replaced 179,000 human tellers with ATM machines. The result is wide spread insecurity that saps worker morale. Another factor adding to the malaise is that with an increased potential workforce chasing fewer jobs, employers can pick highly qualified people for increasingly menial positions thus simultaneously providing worker dissatisfaction and devaluing the qualification. Consequently, many have asked Uncle Sam to take them as a new recruit; to become a cannon fodder professional. But even though there are no shortages of military adventures to take part in, many are wising up to their leaderships true motives and sitting on their hands.

Like many governments with unpopular news the US government masks the true level of unemployment by defining it away. Instead of defining it as the number of people who want a job but can't find one, it does not count those who are so discouraged they have stopped looking and counts 30million part time workers as full time. In 1994 this brought the percentages down from 15.9% to 6.1%. Every company can justify shedding its workers but when all these drips in the bucket are added up the result is economic stagnation. Many women adversely affected by this economic treading of water are staying home unwilling to take available work at sometimes half their previous salary.

The Casino Economy

Another dynamic in play by those with money to invest, is the shift away from building up the infrastructure of the country, opening factories, hotels, restaurants and the like to investing in the so called casino economy. By buying into in stocks, bonds and other financial instruments a profit can be made without the hassles associated with production. Not only that

but stocks and bonds are more readily converted to cash as more lucrative speculation presents itself. This is not so easily accomplished if you have set up a factory or a restaurant chain. One step further removed from directly investing in financial instruments is the derivatives market. Whereas the working classes bet on horses, dogs or the outcome of football matches, the upper echelons bet on whether one financial instrument or currency will rise or fall in value relative to some other over a given period of time. The annual value of global merchandise trade is about $4 trillion. The global derivatives market equals this dollar value in just two days. The shift of investments away from the real economy to the casino economy has weakened the power of governments to control national economies and protect peoples' jobs.

The US Congress and the media, when it chooses to address such things, have focussed our attention on the spending side of the ledger but monies coming into the government are equally as important. When there are less active workers in the economy the demand for government services such as unemployment benefit and other forms of income support increases in a direct relationship to revenues receivable drying up. Innovations over the years in computerised communication allow financiers to transfer billions of dollars around the world instantly and the next day the same billions of dollars are invested somewhere else in the world. This makes it exceedingly difficult for governments to tax such transactions. Even though the rich are becoming increasingly rich and the poor are becoming increasingly poor, taxes received from companies have fallen from 76 cents for every dollar received from individuals in 1950, to 21 cents today. From this it is clear where monies to support infrastructure are coming from. Even so, the government could not put this entire burden on the collective 'us'. Therefore in order to support the infrastructure; it has borrowed from the capital markets, in other words taxing our children and grandchildren. But here we have a situation which is self compounding. One generation will need to put the next two generations in debt and that generation the next four or so. It is clear that this will never be sustainable. During the 1990's two trillion dollars was redistributed up the social ladder in interest payments to those who own the national debt.

Contrary to what the GOP has been preaching, it is not big government which has been undermining Main Street USA. Rather Main Street is being undermined by the fact that the US government is dominated by moneyed interests and these are increasingly global, owing no allegiance to any particular country.

Sources

Globalisation and the Downsizing of the American Dream:

From Global Exchange - By Kevin Danaher

http://www.globalexchange.org/campaigns/econ101/americanDream.html

Wiring Looms to be made in Romania and then Bosnia:

Related personally by automotive exec seconded to Lucas Industries

Airbus outsources components:

BBC World Service news item

US Corporations Prefer Dictatorships:

From Global Exchange – By R.C. Longworth

http://www.globalexchange.org/campaigns/econ101/survey.html