Riders of capitalism's storms

Democracy at Risk - The Memory Bank - The Challenge of Global Capitalism
January 19, 2001

In the past few years, a new phenomenon has come to accompany the gatherings of world leaders: the appearance on the streets of a diverse collection of interest groups united by their mutual dislike of globalisation and their determination to use direct action, if necessary, to oppose it. It was at the 1999 ministerial meeting of world trade leaders at Seattle that this new populist crusade against global capitalism made its first and most impressive display of people power. This motley array of activists included trade unions from developed countries worried about low-wage competition in the developing world, environmentalists concerned with the effects of rapid economic growth on climatic balance and the erosion of environmental standards, church groups and social-justice activists concerned about the problems of third-world debt and increasing global inequality, and anarchist groups seeking to "reclaim the streets" for the people and to smash the citadels of global finance.

For all its colourful display, such popular activism clearly reflects a deeper-seated anxiety on the part of a larger section of popular opinion about the effects of greater globalisation. Jeff Gates's book, Democracy at Risk , is an attempt to articulate the political aspirations of some of these populist tendencies. It goes to great lengths to show how the spread of global capitalism is leading to a widening gap between the haves and have-nots and placing an unsustainable strain on the global environment.

A wealth of factual, statistical and anecdotal evidence is cited to show that our planet is rapidly being changed beyond recognition by the forces of expanding trade and global finance. "The facts are beyond doubt," writes Gates. "We've created a mean economy - a sumptuous heaven for some, an ungodly struggle for most, and a living hell for many." Our democratic system in the western world is imperilled. The only solution is what Gates defines as "a resurgence of grass-roots activism and civil disobedience". There is nothing inevitable about current trends. The rules of global capitalism can be changed, but not by rational argument and persuasion because they are too deeply entrenched. Rebellion, not reform, is the way ahead. The task is to educate public opinion as to the dangers that lie ahead through "a broad array of action-based programmes" that "convert today's cynics into engaged citizens".

Democracy at Risk will be essential reading for those who share Gates's enthusiasm for populist remedies to global ills. Others, who are less persuaded that street battles with public authorities outside international gatherings of world leaders are the way forward, may still identify with the passion of his plea for social justice and respect for the environment. However, those wanting a more thoughtful approach as to precisely how global economic rules and institutions can be changed to address these concerns, will come away disappointed.

There is little in this volume that will be of much practical value to policy-makers seeking to effect change in the global economic architecture. Gates's concern is less with how the forces of globalisation can be harnessed to work for the common good than with how the wishes of the people can prevail over ever more powerful, global corporate and financial structures.

For a cooler and more balanced evaluation of the results of globalisation, the reader should turn to The Challenge of Global Capitalism by Robert Gilpin, emeritus professor of public and international affairs at Princeton University. Unlike Gates, Gilpin is not concerned with whether globalisation is a good or bad thing. To suggest that all is bad is plainly ridiculous, as it ignores the massive increase in income and wealth that globalisation has made possible for the world as a whole. But regardless of whether we "like" global capitalism or not, it is here to stay. The clock cannot be turned back, so the task is to consider ways and means of maximising the gains from globalisation, while minimising the losses.

Written from a political economy angle, the book's focus is not just on the major changes that have occurred in the world trading and financial system. The ending of the cold war and the collapse of communism in Eastern Europe are seen as events that have fundamentally changed the nature of economic relations among the major players in the global economy. With the ending of the political threat to global capitalism in the East, relations between the western capitalist powers have become less close and the policy stance of the major superpowers has become more insular, more regionally focused and more unilateralist.

The result has been a weakening of the political elements on which the open, global economy of the postwar era has rested. A re-commitment of these countries to work together to strengthen these weakened political foundations is seen by Gilpin as being the major challenge of the new century.

Bit by bit and chapter by chapter, Gilpin probes deeply into the different facets of global change and analyses the major challenges posed for policy-makers. On the trading front, the greatest challenge is posed by the increased exposure of national economies to the forces of global competition. This brings individual producers and workers into greater and more frequent conflict with producers and workers in other countries, as sources of competitive advantage shift more rapidly in response to changed demand and cost conditions. The result is increased pressures for protection and more trade disputes, both of which threaten to reverse the gains reaped from trade liberalisation. On the monetary front, the collapse in the 1970s of the adjustable-peg exchange-rate system created at Bretton Woods after the war has left a vacuum unlikely to be filled in the near future by any new system of international rules or policy coordination. Yet, with the US dollar no longer the hegemonic currency of the world, the need for closer cooperation between the dominant powers in policy formulation and implementation has become greater.

The progressive removal of restrictions on capital flows throughout the world has led to their huge expansion. This has left many countries more vulnerable to sudden changes in the mood of investors and conditions on world financial markets, as the East Asian financial crisis of the 1990s amply demonstrated. Moreover, the greater ease with which capital flows can be reversed, the growth in the amount of information about different market conditions that is at the disposal of investors and the emergence of new techniques of trading on financial markets have increased the likelihood that a crisis occurring in just one country may quickly spread to others.

Financial crises may, therefore, occur more frequently in the future and assume a greater severity. The challenge facing global policy-makers is to devise institutional forums for anticipating such crises, preventing them where possible and providing countries that are the victims with the assistance they need to ride the storm. New international regulations may also be needed to discourage destabilising, short-term speculative capital flows.

Likewise, the rise of the multinational corporation and the growing concentration of corporate power in the hands of a comparatively small number of giant firms have left workers and consumers alike with a sense of being overwhelmed by forces outside their control. Problems are compounded when companies abuse their power or act in ways that take no account of the individuals affected. Exposing dominant firms to more competition is the best antidote to such concentrations of power. However, action may also be desirable at a national and global level to combat the worst excesses of corporate power. Tougher national anti-trust laws combined with international agreements imposing strict codes of conduct on multinationals are likely to be the most effective ways of ensuring that the interests of workers and consumers are protected.

A sizeable part of the book addresses the challenge posed by the spread of economic regionalism. Three chapters analyse regionalist tendencies in each of the key zones of economic power in the world - North America, Europe and Asia. Although the author considers it highly unlikely that any of these powers will wish to throw way the gains that they have reaped from having an open, multilateral world trading system, he shares the concern of many that regionalisation has happened at a faster pace in recent decades than most analysts thought possible.

The danger exists that these new regional groupings could become closed and more inward looking, distorting patterns of global trade and leading to more protectionism. A particular concern is the observed tendency for each new regional grouping to beget others. Such a fragmentation of the world economy into a series of regional trading groups would be most damaging to the smaller, weaker nations that are excluded and find their access to fast-growing markets blocked.

Gilpin's solution to these problems starkly contrasts with that of Gates. It is to build up and strengthen global economic institutions to make them more effective in meeting the challenges posed by globalisation. Far from blaming all the ills of the world on the World Trade Organisation, International Monetary Fund or World Bank, the task is to empower these institutions to ensure more effective management of the global economy. The fears of people arising from globalisation are justified and should not be rejected out of hand. However, these fears are best addressed through global economic reform, rather than decrying globalisation itself.

Keith Hart's The Memory Bank strikes a very different note from that of either Gilpin or Gates. It sees a process of transformation taking place in economic relationships that is a direct result of technological change and is wholly benign. Far from technological change leading to ever-greater exploitation, inequality and alienation, many of the new technologies are potentially liberating. More precisely, Hart is concerned with the communications revolution - the telephone, television, computer and internet - which he sees as leading ultimately to a more just and democratic, as well as a wealthier, society. Although this has not happened yet, Hart wants to show that it has the potential to happen. Individuals have the power to process large amounts of information necessary for engaging in economic transactions and to do so at a distance in a way that has not hitherto been possible.

While recognising that the "virtualisation" of economic life has, in one sense, removed people from the economic picture, Hart argues that, in another sense, it has made possible "the repersonalisation of complex economic life". The task facing humanity is to confront this "machine revolution" and to "harness its potential to the purposes of our common wellbeing".

It is clear from reading these three books that how we view globalisation depends very much on what, if anything, we think we can do about it.

Nigel Grimwade is head of economics and finance, business school, South Bank University .

Democracy at Risk: Rescuing Main Street from Wall Street

Author - Jeff Gates
ISBN - 0 738 20326 2
Publisher - Perseus
Price - £15.90
Pages - 400

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