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Capitalism Under Fire

by TGeraghty Wed Apr 5th, 2006 at 02:37:38 AM EST

The International Herald Tribune's William Pfaff has written a couple of trenchant columns on the global economy in the past two weeks.

For my money, he is the best English-language opinion journalist writing on the issues of security, globalization, and the clash of cultures. Forget Tom Friedman, this guy is the real deal.

Summaries of the two columns, one on the French protests, another on the lessons of US airline deregulation for Europe, follow, along with some recent suggestions for reform.

Promoted by Colman


On the French protests -- what are they really about? It's not just preserving the job security of the privileged. It's about what kind of society and economy France is going to have:

Capitalism Under Fire

The crowds in the street contest a certain form of capitalist economy that a large part, if not the majority, of French society regards as a danger to national standards of justice and, above all, to "equality" - that radical notion of which France is nearly alone in proclaiming as a national cause, the central value in its republican motto of "liberty, equality, fraternity."

The essential question is, what capitalism are we talking about? Since the 1970s, two fundamental changes have been made in the leading (American) model of capitalism.

The first is that the "stakeholder," post-New Deal reformed version of capitalism (in America) that prevailed in the West after World War II was replaced by a new model of corporate purpose and responsibility.

The earlier model said that corporations had a duty to ensure the well- being of employees, and an obligation to the community (chiefly but not exclusively fulfilled through corporate tax payments).

That model has been replaced by one in which corporation managers are responsible for creating short-term "value" for owners, as measured by stock valuation and quarterly dividends.

The practical result has been constant pressure to reduce wages and worker benefits (leading in some cases to theft of pensions and other crimes), and political lobbying and public persuasion to lower the corporate tax contribution to government finance and the public interest.

In short, the system in the advanced countries has been rejigged since the 1960s to take wealth from workers, and from the funding of government, and transfer it to stockholders and corporate executives.

Are corporations simply going to be vehicles for enrichment of top executives and shareholders? Or are we going to reform them so that they operate in the interests of all? It's the difference between opportunism and enlightened self-interest.

Pfaff has a second column that warns what not to do:

Deregulation Gone Mad

A man who played a key role in the deregulation of the U.S. airline industry in 1980, Tom Allison, at the time chief counsel to the U.S. Senate Commerce Committee, says that if senators had known then what they know now about airline deregulation, they would never have passed the measure.

Allison says that by lifting restrictions on airline competition, and on where airlines could fly, Congress unintentionally created unending disruption and cost to both industry and consumers, with gross accompanying inefficiencies.

In an interview given to the International Herald Tribune in February, intended to influence the current debate in Europe over airline deregulation, he said the human and other costs of U.S. airline deregulation outweighed benefits to consumers . . .

Some of the costs of airline deregulation in the U.S. include:

  • Small-city air service, typically provided in the United States by single carriers, has greatly increased in cost, or has simply been abandoned;

  • Cut airline salaries, slashed retirement benefits, forced job cuts;

  • Bankrupted many formerly great airlines or forced them into bankruptcy protection;

  • Ruined standards of airline service;

  • Raised fares on most non-mainline services;

  • Resulted in a "massive shift of airline debt to the public," via a federal corporation established to pay the pensions (or a part of them) of the employees of airlines driven out of business or forced into bankruptcy.

Again there is a broader lesson here:

. . . an example of the economic and human harm that has been caused in recent years by unthinking submission to the prevailing ideologies of deregulation and privatization.

What needs to be done? In the U.S. context there are some very good proposals here:

Will Your Job Survive?

So, here are three immodest suggestions:

  • We need to entice industry to invest at home by having the government and our public- and union-controlled pension funds upgrade the infrastructure and invest in energy efficiency and worker training.

  • We need to unionize and upgrade the skills of the nearly 50 million private-sector workers in health care, transportation, construction, retail, restaurants and the like whose jobs can't be shipped abroad.

  • And, if America is to survive American capitalism in the age of globalization, we need to alter the composition of our corporate boards so that employee and public representatives can limit the offshoring of our economy.

Taming Global Capitalism Anew

One of the greatest achievements of the twentieth century was a social contract that provided far more economic security and prosperity for working Americans than had existed in any previous period. But successive waves of changes in the world economy, together with the ascendancy of a strain of economic philosophy that puts the freedom of capital above the interests of society, have placed enormous strain on the postwar social contracts of all Western countries, resulting in stagnating wages, greater insecurity and levels of income and wealth inequality not seen since the early 1900s. And even more far-reaching challenges arising from the current pattern of globalization, with its emphasis on the outsourcing of service as well as manufacturing jobs, may lie ahead.

Developing a strategy for taming global capitalism anew therefore constitutes the overriding challenge of our time.

Some proposals:

  • Make taxation more progressive in order to offset the economic forces increasing inequality;

  • A redesign of our unemployment insurance program to make it more of an integrated lifetime social insurance program;

  • A true commitment to full employment;

  • Enhancing savings among lower-income individuals, including by matching grants;

  • Enhancing public investment in research, education, technology and infrastructure;

  • Fight for workers' rights to form unions and bargain for decent wages and working conditions;

  • Affordable and equitable healthcare and retirement security systems that do not create competitive disadvantages for domestic companies;

  • A complete overhaul of our corporate tax system to address its subsidies to the offshoring of jobs;

  • Global trade rules need to be rewritten to insure that workers have a voice at their workplaces and in national political debates;

  • Support for open-sourcing, the public dissemination of knowledge and the fair distribution of access to information;

  • Trustbusting against excessive corporate power;

  • Introduction of nationwide vote-by-mail (the Oregon system) to ensure elections where all votes are cast and counted;

  • A high minimum wage;

  • Crackdowns on international tax havens and the arms trade;

  • A stabilizing international financial system and an end to the debt peonage of poor countries;

  • A North American Bill of Rights . . . that would reassert the primacy of civil protection of individuals and democratic government over the extraordinary privileges NAFTA gives to corporate investors.

  • A New North American Continental Deal, in which Canada and the United States commit substantial long-term aid to Mexico while Mexico commits to policies that assure a wider distribution of the benefits of growth.

  • A North American Continental Development Strategy that shifts the economic policy objectives of all three countries to greater industrial self-sufficiency, resource conservation and increased investment in health and education.

  • A progressive North American Customs Union would manage modest levels of balanced trade with the rest of the world.

  • Worker-training and skill-certification programs that increase productivity while capturing it in income;

  • Use of union pension funds to stabilize and grow distressed local economies while generating returns on investment;

  • "Smart growth" policies that reduce commuting times and lower real housing costs while improving the environment;

  • Living-wage and allied efforts to raise standards on company performance while increasing productivity;

  • The Apollo Alliance program for good jobs and energy independence;

  • Add value in communities and regions by improving education and worker training; increasing research and commercialization capacity; providing the marketing, financial and other business services that are beyond the capacities of individual firms; and helping to cluster firms to realize complementary strengths while enlisting workers in their upgrading;

  • Reduce waste by establishing markets and making direct investment in renewable energy and more resource-efficient--and, with accurate accounting, much cheaper--energy, housing, transportation and consumer durables;

  • Improve government efficiency by democratizing elections, applying the private sector's metrics revolution to its operations and engaging citizen organizations in open-source problem-solving and regulatory enforcement.

  • A new international monetary regime that can open access to international trade and investment for all nations on equal terms by allowing all currencies to be used in cross-border as well as domestic transactions.

  • A resumption of the demand-led growth policies that are a necessary support for a new, global social contract.

Whew! That's a long list!

Europe is already doing some of these things, and should keep doing them and not allow institutions like strong labor unions, codetermination, and social partnership to be dismantled. There may be other ideas here that can be applied to Europe as well. There are further things - reforms of international economic institutions - that we must do together.

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This is excellent stuff. I have to say, with regard to the airlines, I have never seen the impact of mindless de-regulation as visible as I am seeing in the airline industry today in the U.S. Companies have realized that by catering to the lowest common denominator, they can still keep their planes full. Big carriers decided they have to be just like the Southwests and JetBlues of this world and slashed costs everywhere they could. As a result, everybody is pissed off, they are still not able to match the low-cost carriers, and there is really no premium-service segment in the industry. What good is a company that provides no benefit to any stakeholder?

Mikhail from SF
by Tsarrio (dj_tsar@yahoo.com) on Tue Apr 4th, 2006 at 08:20:18 PM EST
Excellent post..excellent list of "to do's"...it would be interesting to see what now exists in Europe, and what is trying to be done away with in the name of "reform".

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia
by whataboutbob on Wed Apr 5th, 2006 at 05:50:37 AM EST
I'm pretty amused to see that, of this very long list, is missing the most basic mechanism to assert political control on the economy: tariffs. It must be a reflection of how much the globalized ideological dogma of globalized trade has been internalized, even by its detractors.

What most people don't realize is that when you open trade to other countries, what you import is not simply goods and services but also the political and social choices of your trading partners.

The conflict can be fairly benign. A good example is the latest tug of war between France and the European Commission regarding anti-takeover protections and energy markets. France has a long history of state control on industry and infrastructures which is fairly difficult to sustain if you let operators from other countries that don't have the same goals. It can be far less benign when you let in quasi-fascistic countries where the notions of workers rights, democracy or social solidarity are simply inexistent. When you trade with China, you import China's atrocious social policies and political mores. Private interests can use this country not just as a source of cheap labour but also as a foil to undermine their own government and pressure their domestic workforce. And given the absence of democracy, there is no reason to believe that narrow economic development will translate in social improvements.

So you need to add one item to the list
  • Score potential trading partners on democracy and social conditions and bind trade and access to financial markets and technological resources to this score, from total openness to embargo.

[Another good thing about that is that we would have to score ourselves and it would make plain quite a few of our own failings]
by Francois in Paris on Wed Apr 5th, 2006 at 06:43:06 AM EST
A lovely idea and theoretically very fair. How would you fight off the accusations of "cultural imperialism" and so on?
by Colman (colman at eurotrib.com) on Wed Apr 5th, 2006 at 06:48:21 AM EST
[ Parent ]
It's not cultural imperialism, it's "I don't have to trade with you if I don't like what you do". Sort of like popular boycotts on corporate responsability grounds.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Apr 5th, 2006 at 06:59:50 AM EST
[ Parent ]
The problem, though, is that this effectively amounts to government-enforced boycotts when people may not care. You would have a substantial fraction of the population advocating free trade, or demanding fresh fruit in winter, or cheap clothes. Plue, we'd have to pull out of the WTO [can it be reformed from within?].

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Apr 5th, 2006 at 07:06:30 AM EST
[ Parent ]
I'd happily take away their right to vote from people who live and breath by Walmart's or Tesco's latest and greatest bargain :>

As I always say, "Mort aux cons!"

More seriously, 1) I don't think people are actually stupid, 2) I don't think that the lack of cheap clothes would translate into votes, 3) for fresh fruits, there were privileged trade mechanism that used to work decently well like the ACP agreements, and 4) they are a lot of fledging democracies in the Third World that would benefit from privileged trade with us, give us cheap labot and where economic development would actually translate in social and political progress.

And yes, we need to pull out of WTO and destroy this abomination. By its bureaucratic nature, this institution is intrinsically flawed and corrupt and no amount of "transparency" can solve that. And that's true of any supranational institution with any amount of power. So it's not a matter of replacing it with something better but a matter of doing without.

The Clintonian bargain of free trade is a crooked deal. The only way is democracy then trade, not the other way around. And btw, democracy is much better off with strong trade barriers to grow and establish itself. Main exhibit is again India which, for 40 years, has traded economic growth for internal stability with quite a bit of success. But you could even say the same for the US of A during the 19th and early 20th centuries.
by Francois in Paris on Wed Apr 5th, 2006 at 07:46:17 AM EST
[ Parent ]
Mort aux cons, at aux neocons!

So, are we going to advocate dismantling the WTO, WB, and IMF? I think we'd need replacements because we would need globalized institutions to assert some measure of political control over the globalized economy.

The fact that these institutions are currently rigged to give the US by itself a blocking minority does not help. Just like the UN, really, where the General Assembly cannot do anything substantive without Security Council agreement.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Apr 5th, 2006 at 07:54:01 AM EST
[ Parent ]
The fact that these institutions are currently rigged to give the US by itself a blocking minority does not help. Just like the UN, really, where the General Assembly cannot do anything substantive without Security Council agreement.
Eeeeeek! Horror and lightning bolts!

The UN is not "rigged" by the US but equally rigged by all five of the Permanent Five. And rigged is the way I lile it. That's about the only feature I like about the UN (even if it means China can block any action in Darfur, gasp). Can you imagine an institution where countries like Libya, Saudi Arabia, Belarus or Burma (Myanmar) would have an equal say to France, or the UK? I don't want those countries to have a say about anything that affects me. I don't want to give those countries a voice. I don't want to bring those countries in the circle. I don't even want them in the doghouse. I want them out, somewhere behind the woodshed.

So, are we going to advocate dismantling the WTO, WB, and IMF? I think we'd need replacements because we would need globalized institutions to assert some measure of political control over the globalized economy.
I don't think we need replacements anymore than I see "globalized economy" as a fatality. I want to deglobalize because I don't think supranational governance can work.

Narhhh, let me rephrase: Because I know that supranational "governance" cannot work.

Look how clunky, counter-productive and anti-democratic the European Union currently is. And that's within a very coherent region, culturally, economically, politically and that's after 50 years of mostly good-faith efforts. In the case of Europe, I believe we can make it work, especially now that the European Parliament starts to take its job seriously and that the "Constitution" fiasco has given a (tiny) bit of pause to the bureaucrats and to national governments. But, unless a very improbable European super-legitimate "Great Man" arises to drive the beast hard, we're still in for at least 40 or 50 years of hard slog, weakness and frustration.

Overall, that's the big issue that gets under my skin in that diary's laundry list. It takes the "globalization" claptrap as a given, an unconquerable mountain. In other words, it concedes defeat before the fight. It doesn't dare repudiate it clearly even though many of its proposals amount to that. A very "Democrat" refusal to confront the prevalent rhetoric. How do you want to address a problem if you are not even willing to call a spade a spade?

Repeat after me : Protectionism.

PRO.TEK.CIO.NEE.ZEMM

Notice how the world "liberal" has lost its cachet as an insult over the past few years? Why? 1) G.W. Bush (heck, that guy makes communism look good) and 2) because more and more people are willing to say out loud "I'm a fucking liberal and fuck you if you don't like it!"

I have many other issues with the laundry list, but I want to remain civil...
by Francois in Paris on Wed Apr 5th, 2006 at 10:05:28 AM EST
[ Parent ]
You are right about this. We have to get past this idea that globalization is necessarily a bad thing. With the right institutional setup it can be made to work for everyone.

So I must say I have a lot of problems with "protectionism" (Fortress Europe? Fortress North America?) as the answer to our economic problems. That kind of thinking produced two world wars and a Great Depression.

by TGeraghty on Wed Apr 5th, 2006 at 05:13:23 PM EST
[ Parent ]
GLobalization (cheap travel, wireless communcations, the global internet village) is what has allowed the "anti-globalization" movement to organize itself. What is needed is to steer it, not to roll it back (which is impossible: trying to roll back historical changes never works and usually backfires).

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Apr 5th, 2006 at 05:19:33 PM EST
[ Parent ]
And yes, we need to pull out of WTO and destroy this abomination. By its bureaucratic nature, this institution is intrinsically flawed and corrupt and no amount of "transparency" can solve that. And that's true of any supranational institution with any amount of power. So it's not a matter of replacing it with something better but a matter of doing without.

The Clintonian bargain of free trade is a crooked deal. The only way is democracy then trade, not the other way around. And btw, democracy is much better off with strong trade barriers to grow and establish itself.

EXCELLENT comment. I have felt for a long time that the WTO is, as you say, an abomination. Abolish it, now. As for Clinton, though in comparison to the Bushes and Reagan, he was so much better...but in his own way he was so destructive with all this free trade stuff.

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

by whataboutbob on Wed Apr 5th, 2006 at 10:04:33 AM EST
[ Parent ]
I have no problem stating that, for all its many failings, European democracy is morally and factually superior to Chinese fascism and that its members have the moral right and duty to assert that superiority through trade (I'm a bit down on colonialism and military adventures, costly and ineffective no matter how glorious they look in movies).

Call that imperialism if you want but I'm not sure you call it cultural imperialism. That is, unless you see democracy as a "white thing", a point of view to which I don't subscribe at all. Exhibit A is of course India, a stable, effective and reliable democracy which is also definitively non-Western.
by Francois in Paris on Wed Apr 5th, 2006 at 07:13:33 AM EST
[ Parent ]
I think the point is if we really do all the stuff on the list (or at least the stuff pertaining to international economic reform) we won't be importing lousy social policies anymore and tariffs and trade restrictions will be far less of an issue.

That's an elephant-sized "if," of course.

by TGeraghty on Wed Apr 5th, 2006 at 05:05:27 PM EST
[ Parent ]
Also, the proposal by Jeff Faux for a "North American Customs Union" probably implicitly means use of tariffs as a means of getting to "balanced trade."
by TGeraghty on Wed Apr 5th, 2006 at 05:07:07 PM EST
[ Parent ]
I believe that airline deregulation is one of the reasons Jimmy Carter won the Nobel Peace Prize.
by messy on Wed Apr 5th, 2006 at 10:46:20 AM EST
I don't know if this was meant to be snarky or not, but for the record here's the press release on Carter's peace prize:

The Nobel Peace Prize 2002

The Norwegian Nobel Committee has decided to award the Nobel Peace Prize for 2002 to Jimmy Carter, for his decades of untiring effort to find peaceful solutions to international conflicts, to advance democracy and human rights, and to promote economic and social development.

During his presidency (1977-1981), Carter's mediation was a vital contribution to the Camp David Accords between Israel and Egypt, in itself a great enough achievement to qualify for the Nobel Peace Prize. At a time when the cold war between East and West was still predominant, he placed renewed emphasis on the place of human rights in international politics.

Through his Carter Center, which celebrates its 20th anniversary in 2002, Carter has since his presidency undertaken very extensive and persevering conflict resolution on several continents. He has shown outstanding commitment to human rights, and has served as an observer at countless elections all over the world. He has worked hard on many fronts to fight tropical diseases and to bring about growth and progress in developing countries. Carter has thus been active in several of the problem areas that have figured prominently in the over one hundred years of Peace Prize history.

In a situation currently marked by threats of the use of power, Carter has stood by the principles that conflicts must as far as possible be resolved through mediation and international co-operation based on international law, respect for human rights, and economic development.

Oslo, 11 October 2002

by TGeraghty on Wed Apr 5th, 2006 at 05:02:56 PM EST
[ Parent ]


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