Rogue Nation: American Unilateralism and the Failure of Good Intentions (2003) (11 page)

As this model produced an estimated 33 percent productivity growth and seemed to have repealed the business cycle in the 1990
s
, it lent powerful support to the aforementioned Washington Consensus, which had emerged as the dominant view of a developing country’s best path to riches. From this perspective, developing countries should open their markets to free trade; liberalize their financial systems to encourage a free flow of capital; privatize, deregulate, and maintain high levels of savings and investment; and keep exchange rates stable in order to attract foreign investment. When crises arose like those in Asia in 1997, the IMF’s first instinct was to try to maintain currency values by imposing austerity and high interest rates as a condition for emergency loans. Far from providing system stability, the IMF had become the enforcer of the market fundamentalist views of the Washington Consensus. Globalization clearly meant Americanization, and what was wrong with that? As Tom Friedman noted in 1996, no two countries having McDonald’s restaurants have ever gone to war.
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(This, of course, is no longer true.) Globalization as Americanization was assumed to lead to rising standards that would lead to democracy that would lead to global peace and stability.

BACKLASH

D
uring the week of November 29, 1999, in Seattle, a lot of things were happening but peace and stability were not among them. I stood on Spring Street choking on tear gas and watching antiglobalization protesters shatter shop windows and taunt police; meanwhile, most of the world’s trade ministers were gathered in the Seattle Convention and Trade Center trying to launch a new round of international trade talks. This was the first major meeting of the new World Trade Organization (WTO), created as the successor to the GATT at the end of the last round of trade talks in 1994.

In the past, only a few aficionados had even known when trade talks were taking place. But globalization had become such an important issue that some 50,000 protestors had converged on this meeting to voice their concerns. A disparate gathering of unlikely bedfellows passed in front of me. Burly workers from the docks and nearby Boeing plants shouted ‘Teamsters love turtles’ to environmentalists dressed in Save the Turtles outfits. College students looking for a cause joined professional leftists in condemning corporate exploitation, even as their Nike shoes betrayed their lack of commitment. Quite committed, on the other hand, were representatives of developing countries who complained that the global system had been unfairly tilted toward the interests of the developed countries. One Third World trade minister noted bitterly that he and many of his colleagues could not even get into most of the negotiating sessions. The meeting eventually foundered on the issue of developed country agricultural subsidies, but not before it had made the world aware that the road to globalization could be very rocky.

Although developed countries are widely thought to be the great beneficiaries of globalization, some of the strongest opposition to it comes from organized labor. Unions see globalization as threatening their hard-fought gains by enabling capitalism to evade the rules and institutions that national governments have established over the years to tame it. The fact that a country may benefit from globalization in an overall sense does not mean there are no losers. For example, inexpensive clothing imports into the United States are a boon to consumers and the overall economy, but they come at the expense of workers in the U.S. apparel industry. These are largely minority women like Maria Consuelo Garcia, who lost her $4.75 per hour job after fifteen years of stitching Polo jeans at the Sun Apparel plant in El Paso, Texas, when the company announced it would move much of the work to Mexico, where seamstresses are paid about $1 per hour. Although American consumers benefit from this move, the United States has no effective method for compensating women like Maria for the loss of their jobs. Not surprisingly, she and her colleagues and their unions are not cheerleaders for globalization. Particularly galling is the fact that these jobs often go to places like the Qin Shi plant in China, where the National Labor Committee found guards beating workers if they were late in turning out Kathie Lee Gifford handbags for Wal-Mart.
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Labor in the advanced countries thus demands compensation for the costs of globalization, and the incorporation of basic labor rights in the international trade agreements.

Like labor, environmentalists see in globalization an environmentally catastrophic return to an era of raw capitalism. They fear that the inexorable pressure to reduce costs will inevitably result in production’s moving to environmentally unregulated regions. This fear is not unjustified. I have been involved in many cases in which a factory location decision was to some extent influenced by the nature of the environmental regulations and their enforcement. Some analysts note that China’s export-led growth has come at a cost of environmental degradation equivalent to 8 to 12 percent of China’s GDP.
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In Indonesia’s tropical forests, an area the size of Connecticut is cut down every year to feed the flooring, furniture, and office stationary markets in Japan, China, the United States, and Europe. This trade, 80 percent of which is illegal, will entirely eliminate Sumatra’s lowland forests along with the orangutan and Sumatran tiger in the next ten years.
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In Brazil, the great mahogany forests are melting away for similar reasons. Then there are the turtle and the fish stocks, which according to marine scientists are already suffering catastrophic collapse worldwide as a result of subsidized over-fishing.
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While voluntary efforts like the UN-backed Global Compact have made progress in getting multinational companies to endorse environmental principles, environmentalists remain pessimistic in the face of comments like those of the first President Bush, who noted before the Earth Summit in Rio de Janiero in 1992 that ‘the American way of life is not up for negotiation.’ His son’s decision to keep the United States out of the Kyoto Treaty on Global Warming because ‘it would be bad for the U.S. economy’ only confirmed environmentalists in the view that globalization needs to be drastically changed.
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For the professional left and for college students looking for a cause now that communism and socialism lost their cachet, antiglobalization is merely another way of attacking the same capitalist target. Another factor is an element of cultural homogenization that causes resentment, the more so because it is often the result of ambivalent surrender to temptation. Bambang Rachmadi knows a lot about this. The owner of eighty-five McDonalds restaurants spread throughout Indonesia, he quickly put up signs in the wake of September 11 saying: ‘In the name of Allah, the merciful and the gracious, McDonalds Indonesia is owned by an indigenous Muslim.’ Mr. Bambang believes his restaurants are good for Indonesia, but he also knows they symbolize a shift away from a stable, predictable lifestyle for which there is much nostalgia.
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Added to this sense of loss is the feeling on the part of many that this shift is occurring in a most undemocratic way. As the Indian economics professor Kaushik Basu argues, globalization means that even if individual countries are becoming more democratic, the sum of global democracy is shrinking because under globalization peoples and nations exert asymmetric influence.
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Korea, for example, had little choice during the financial crisis of 1997 but to accept a U.S.-crafted rescue package that required it to open up its banking sector to acquisitions by foreign banks. Poor countries and small countries have little say about the terms of globalization, which, as it spreads, increasingly eliminates their freedom of choice.

The biggest problem, however, is simply that many do not see American-led globalization as working for them. While many of the countries of East Asia and the Pacific, including most recently China, have dramatically raised their standards of living over the past fifteen years, much of the rest of the developing world has not. Per capita GDP in the Middle East, North Africa, and Latin America has grown at only about 1.5 percent per year. In sub-Saharan Africa, central and eastern Europe, and central Asia, per capita GDP has actually shrunk.
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While a good deal of this failure is due to inappropriate domestic policies and lack of openness to the outside, the forces of globalization have also played a role.

Furthermore, some important countries are failing despite apparently following the prescribed globalization regime. Take Mexico, for example. The conclusion of the NAFTA treaty brought Mexico fully into the global economy, with reduced trade barriers, open financial markets, and full adherence to measures like protection of intellectual property that are thought to attract foreign investment. Mexico also became democratic after seventy-one years of one-party rule. Of course, NAFTA had no provisions for infrastructure construction, special development funding, or labor mobility such as the European Union has typically implemented when bringing less developed countries into the EU. But America’s faith in free market solutions made those seem costly and unnecessary. On the one hand, NAFTA has spurred dramatic increases in Mexican exports and in foreign investment in Mexico. Between 1991 and 2001, Mexican exports increased by $120 billion, and FDI increased by $16 billion. And yet few in Mexico feel better off. After twenty years of free market reforms and ten years of NAFTA, 50 percent of Mexicans live on about $4 per day.
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When I worked in Mexico in the 1970
s
about 60 percent of the population could be considered middle and working class. Today, the proportion is 35 percent and falling. Of many domestic problems, a major one is that jobs are leaving Mexico as factories close and move to countries with lower labor costs. In the summer of 2002, for example, Callaway Golf Club cut its Mexican employment in half as it shifted production to China.
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Later that fall, I met with Mayer Zaga, one of Mexico’s leading textile manufacturers, who told me it was becoming extremely difficult to compete with imported Chinese textiles in the Mexican market.

Brazil is another example. Pressed to democratize its politics and globalize its markets, it suffered an economic crisis in the middle of its presidential elections in the fall of 2002 as foreign investors withdrew money, fearing that the leftist candidate, Luis Inacio ‘Lula’ da Silva, would win and renege on debt obligations. As Brazil’s ambassador to Washington Rubens Barbosa said to me at the time, ‘It doesn’t seem fair that you should make us pay a price for having a democratic election. Worse, you make it difficult for us to earn the money to pay our obligations by erecting trade barriers against over half the products we want to sell you: soy beans, sugar, orange juice, and steel.’

This issue of barriers and harmful restrictions is echoed in many places. Pakistan is bitter that after its staunch support in the wake of September 11, the United States made only a token increase in the strict quotas it has placed on imports of Pakistani textiles. New Zealand, Australia, and the Philippines complain of strict limits on U.S. agricultural imports.

A different complaint comes from Africa and India, where AIDS is having a devastating effect. Although drugs exist and are used in the rich western countries to enable AIDS patients to live productively with the disease, they are far too expensive for the developing world. Here the problem is that the WTO’s rules protecting patents make it impossible for generic drug producers in developing countries to supply the medicines inexpensively. As a result, some in these countries actually see globalization as a major cause of death.

Beyond these complaints, however, lies a deeper issue of the validity of globalization theory. George Soros recently told me, ‘The conventional wisdom holds that markets are always right, but in my experience they are almost always wrong, although they can validate themselves.’ Mexico’s problem with China provides a telling example. Globalization doctrine holds that if countries open their markets to the free flow of goods and money, privatize, deregulate, institute a strict rule of law, maintain transparency, and practice fiscal and monetary prudence, the world will come crowding to their doors. In fact, however, China is sucking up the lion’s share of foreign direct investment as the world’s producers flock to its shores. Yet China has no rule of law, little transparency, is heavily regulated and has a banking system second only to Japan’s in fragility. The truth is, as the World Bank noted in
The East Asian Miracle: Economic Growth and Public Policy
, the East Asian countries followed a formula for success, pioneered by Japan, that bears little resemblance to the standard tenets of globalization. It calls for enforced high savings rates (Singapore, for example, sequesters nearly half of every worker’s pay check for its provident fund), suppressed domestic consumption, technology transfer conditions on foreign direct investment, government intervention in capital allocation, protection of most domestic markets, and emphasis on exports as the growth leader.

Yet it is doubtful that even this formula can succeed in the face of the China phenomenon. In the past, the pattern was for a developing country to begin making labor-intensive products like apparel and then move up the ladder of sophisticated manufacturing. But China can produce at both the low end and the high and be the low-cost producer at both. That leaves little room for other developing countries.

MAKING IT WORK

I
t has become a mantra that globalization, driven by technology’s shrinkage of time and distance, is unstoppable. Yet this has been said before. In 1910, Norman Angell wrote
The Great Illusion
, a book that proclaimed war to be a thing of the past because the global economy was so integrated at the time. It took over sixty years after the end of World War I for the world to regain the level of globalization it had enjoyed in 1911. For globalization to work this time, it must address in a practical, non-ideological manner the complaints and inconsistencies I have noted above. Calling for free trade and openness is not enough. People don’t hate American-led globalization per se. In fact, hundreds of millions if not billions love it. But if it is to last, it must spread benefits widely and equitably while being sensitive to the social and political needs of many different societies.