Global Labor Strategies

A Global Program for Hard Times

[This is the second in a series of three posts on the Beijing Declaration’s proposals and next steps in implementing its vision.]

The times they are a-changing.  US government officials long known as market fundamentalists seize banks, buy mortgage and insurance companies, and commit $7.7 trillion – half of the US annual product -- to government intervention in financial markets.  The Clintonite “moderates” who once gutted the social safety net and sacrificed commitments to jobs programs in order to build up budget surpluses now propose vast public works programs financed by budget deficits.  The IMF, scourge of “irresponsible” countries that didn’t balance their budgets, advocates a trillion-plus dollars in global government deficits and claims to have replaced “structural adjustment conditionalities” with condition-free loans.      

These programs may well fail in halting the downward spiral of the global economy.  But they open the door to new forms of more social and public economy.  That’s one reason conservatives normally oppose them – and one indicator of how serious the present crisis really is.  The economic crisis it possible to put proposals on the table that have long been ruled inadmissible.   

While economists have asserted with great confidence that one after another trillion dollar “solution” would save the global economy, one after another has failed, raising the specter that it cannot be saved in its present form.  Peter Boon and Simon Johnson of the website baselinescenario.com recently raised that possibility in the Wall Street Journal.   They note that economists generally believe even the Great Depression of the 1930s could have been stopped by proper monetary policy.  But, Boon and Johnson argue, governments may simply not be able to prevent such huge deflationary spirals.  “Perhaps the events of 1929 produced an unstoppable whirlwind of deleveraging which no set of policy measures would truly be able to prevent.”  Their implication seems evident: The same could be true today.

The multi-trillion dollar rescues and bail-outs so far just attempt – possibly futilely -- to save the status quo.  But what can we do if the status quo can’t be saved?

An excellent starting point for discussion of what to do as present efforts to address the global economic crisis fail is the Beijing Declaration, issued by a group of NGOs and social movements who met in October on the occasion of the Asia-Europe People’s Forum in Beijing.  Many of its proposals would be valid in more normal times – indeed many are already functioning in some parts of the world.  But the present crisis [link to “Present crisis in historical perspective] puts them on the table everywhere. 

Neoliberalism and globalization have been comprehensive in their effect.  They have reshaped the economy at every level from local villages to global markets and institutions.  And they have reshaped every sphere, from private finance to government taxation, from government spending to international trade, from the environment to agriculture and industry.

The Beijing Declaration provides a vision [link to Globalization from below in hard times post] of a similarly comprehensive transformation.  Its proposals would affect local, regional, national, continental, and global economies.  And it makes concrete proposals for finance, taxation, public spending and investment, international trade and finance, environmental protection, agriculture, and industry.

The following account provides a bit of background on the problems in each of the spheres, then summarizes the main elements of the Declaration’s proposals.

FINANCE
With their trillions of dollars of financial bailouts, governments are acquiring new leverage over, and even outright ownership of, banks and other financial institutions.  The conservative officials who are conducting the bailouts hate this and would like to return control to private hands asap.  But once the financial system has proven itself to be so catastrophically dysfunctional, and once such vast sums of public money have gone into rescuing it, the argument for making finance a public utility serving public purposes becomes irrefutable. 

Globalization From Below in Hard Times

The economic globalization that transformed the world at the turn of the century promised, according to its advocates, a glorious vista of prosperity that would provide unprecedented economic growth and raise billions of people out of poverty.  In practice it generated personal and national insecurity, growing inequality, and a race to the bottom in which every community, nation, and workgroup had to reduce its social, environmental, and labor conditions to that of its most impoverished competitor. 

But economic globalization also gave birth to a new convergence of global social forces that opposed this kind of globalization.  People all over the world fought back against this “globalization from above” with their own “globalization from below.”  They used asymmetrical strategies of linking across the borders of nations and constituencies to become a counter power to the advocates of globalization.  They created a movement – variously known as the global justice movement, the anti-globalization movement, global civil society, or as we call it, “globalization from below” -- that some in the media even characterized as “the world’s other superpower.”

The anti-globalization/global justice/globalization-from-below movement developed in response to the expansive phase of globalization and neoliberalism.  Now the global economy has entered the most severe financial crisis since the Great Depression.  The financial crisis has turned out to be the start of a cascade of other economic crises that are reshaping the global economy as definitively as an earthquake reshapes a city.  Current leaders of the world’s nations have utterly failed to develop a solution.   The likely impact of their failure on ordinary people around the world will be incalculable. 

A Vision for Hard Times

The crisis of the global economy provides new challenges, opportunities, and responsibilities for the diverse social, labor, environmental, and other movements that have constituted globalization from below.  It also raises the question of what the role of globalization from below should be in the new situation. 

In October, a group of activists, social movements, and NGOs who were in Beijing for the Asia-Europe People’s Forum met nightly to discuss the crisis.  Their “Beijing Declaration”  provides a brilliant first expression of a globalization-from-below alternative to the failures of globalization from above. 

Today’s Economic Crisis in Historical Perspective

The superlatives of the global economic meltdown of 2008 are, well, superlative.  Professor Noriel Roubini of New York University says the current crisis is “the largest leveraged asset bubble and credit bubble in history.”  The International Monetary Fund says, “In advanced economies, output is forecast to contract on a full-year basis in 2009, the first such fall in the post-war period.”  

The crisis of 2008 is frequently compared to past crises, and increasingly to the stock market crash of 1929 and the Great Depression of the 1930s.  Merrill Lynch Chief Executive John Thain recently said he does not expect the global economy to recover quickly from the credit crisis and that the environment more closely resembles the advent of the Great Depression in 1929 than recent slowdowns.  Long-forgotten images of breadlines and homeless families have sprouted in the media.  60 percent of US voters polled in October said another depression is likely within a year.

Such historical comparisons can help provide perspective on contemporary situations, but they can also be misleading if they don’t include the differences as well as the similarities.  For labor and social movements, there is much to learn at this time of crisis from crises past.  But there are also significant differences which we ignore at our peril – and which may allow us opportunities for action that did not exist in the past.   

Character and extent of the current crisis

A few statistics give a flavor of the depth of the current crisis. 

According to Reuters, between January and September, 2008, the stock market index for “emerging markets” lost nearly 55 percent of its value and the index for “developed markets” lost 42 percent.  The S&P 500 of US stocks lost half its value from its October, 2007 peak, marking what the Financial Times calls "without question, the worst bear market since the 1930s."  It adds that "the only historical precident for the kind of deflation predicted by the bond market came in the 1930s."

Ten million Americans are out of work, nearly 3 million more than a year ago.  The official unemployment rate rose to 6.5 percent in October, its highest rate in 14 years.  Goldman Sachs predicts it will reach 9 percent in 2009.

7.3 million American homeowners are expected to default on their mortgages between 2008 and 2010, with 4.3 million of those losing their homes. As of September 30, one-fifth of American homes with mortgages were “underwater” -- worth less than was owed on their mortgages.

National and global efforts to counter the crisis have included cuts in interest rates, support for money markets, and recapitalization of banks.  Their total cost as of mid-November has been estimated at more than $4 trillion.

Economists predictions – for whatever they’re worth – have lost their once-unmitigated optimistic faith in the economic system.  Martin Wolf of the Financial Times says that despite government efforts, “a long and deep global slowdown is still likely.”  James Kwak of Baseline Scenario says “Wealth is likely to decline further.  Under any scenario, we will see many personal, corporate and perhaps even national bankruptcies.”  Kenneth S. Rogoff, a former chief economist at the IMF and now a Harvard professor adds, “We’re entering a really fierce global recession.  . . .  It’s a very dangerous situation.  The danger is that instead of having a few bad years, we’ll have another lost decade.”

What’s precedented

Capitalism has been the most dynamic economic system in history, but it has a peculiarity:  No matter how great the need for houses, clothes, food, or other products, those who control the means of production won’t produce them unless they can make a profit doing so.  As a result, the history of capitalism has been marked by periods of economic crisis and stagnation in which millions of people suffered unemployment and poverty while the resources that they could have used to produce the things they need lay idle. 

These periods can be long or short, modest or severe.  Capitalist economies have a regular business cycle in which every decade or so economic growth is punctuated by recession.  These can be little more than periods of readjustment that allow a return to growth – part of what the economist Joseph Schumpeter called capitalism’s “creative destruction.”  Some other contractions, however, also stabilize – but at levels that result in massive unemployment of material and human resources.  Such a peculiar state of affairs is possible because markets are regulated only by the pursuit of private profit, not by a matching of resources and human needs.  If production isn’t profitable, the wealthy individuals and institutions who own the means of production have no incentive to produce. 

Since 1900, the US experienced depressions and recessions in 1903, 1907, 1911, 1914, 1921, the whole decade of the 1930s, 1949, 1954, 1957, 1961, 1970, 1982, 1990, and 2002. 

The “gold standard” for economic downturns remains the Great Depression of the 1930s.  From 1929 to 1933, manufacturing output in the US dropped 39 percent and unemployment reached 25 percent.  In the 1982 recession, U.S. unemployment reached 10.8%, the highest since World War II.  In the Asian crisis that started in 1998, 20 million people in Indonesia lost their jobs in a year as the unemployment rate rose from less than 5 percent to more than 13 percent, and the population living in absolute poverty quadrupled to a hundred million.

The G-20 vs. the G-6 Billion

The message from last weekend’s G-20 summit meeting on the global economy must be a parody of Samuel Beckett’s Waiting for Godot:  The game can’t go on.  The game must go on.

In the face of the worst financial crisis since the Great Depression, European leaders had flirted with the idea of actually trying to change something.  French President Nicolas Sarkozy said, "Laissez-faire, it's finished.  The all-powerful market that is always right, it's finished."  As a result, it is necessary to rebuild the entire global financial and monetary system from the bottom up, “the way it was done at Bretton Woods.”

British Prime Minister Gordon Brown pointed out a deep contradiction of capitalist globalization:  “We now have global financial markets, global corporations, global financial flows.  But what we do not have is anything other than national and regional regulation and supervision.”  We need “a global way of supervising our financial system.”  He called for “very large and very radical changes,” including turning the IMF into a “global central bank.”

But the Bush administration soon put an end to such wild talk.  “This meeting is not about discarding market principles or about moving to a single global market regulator,” a White House official said.  “There is very little support for that.” 

Indeed, as the leaders of the G-20 countries were winging their way to Washington, Bush announced, “The crisis was not a failure of the free-market system, and the answer is not to try to reinvent that system.”  It would be a “terrible mistake” to allow “a few months of crisis” to undermine faith in free market capitalism.

Astonishingly, no one seemed to disagree.  In the midst of the worst financial crisis since the Great Depression, the leaders of 20 countries gathered in Washington and produced not an agreement to act, but a declaration of principles.

The declaration itself is extraordinarily vacuous, even by the standards of international summits, given that their system (not to mention the livelihoods of billions of people) are at risk.  Their “common principles for reform” are things like “Strengthening Transparency and Accountability,” “Enhancing Sound Regulation,” and “Promoting Integrity in Financial Markets.”  No corporation or investor need lose much sleep over “commitments” like:  “We pledge to strengthen our regulatory regimes, prudential oversight, and risk management, and ensure that all financial markets, products and participants are regulated or subject to oversight, as appropriate to their circumstances.” 

It was eerily reminiscent of another such international gathering, the London Monetary and Economic Conference of 1933.  Sixty nations sent high-level representatives to London to forge a solution to the Great Depression.  Each came with proposals, some of them potentially effective, for halting the downward spiral in which they were all engulfed.  But each was deeply suspicious of the others’ proposals, seeing them as primarily means to advance their proponents’ national interests at the expense of others.  Finally, US President Franklin Roosevelt rejected the agreement his own representatives had negotiated and the conference broke up in shambles.  Trade wars and competitive devaluations followed apace. 

EVERY MAN FOR HIMSELF
The G-20’s failure to accomplish anything is being attributed to the Bush administration’s lame duck status – everything must grind to a halt until Obama’s inauguration ends the “interregnum.”  But the real problem is deeper than that.

In a whirlpool of “deleveraging” and deflation, many fortunes are going to be lost – through bankruptcy, insolvency, plunging stock values, and the like.  Every national and international policy can affect whose capital is to be gored.  If the Big Three US auto companies can persuade the government to give $25 billion from the bank bailout to them, the auto companies will be $25 billion richer -- and the banks $25 billion poorer.

Things Fall Apart

The bill has finally come due for decades of reckless economic policies and utter disregard for the planet. We are now confronted with two intertwined crises of historic proportions—one economic and one environmental.

The economic crisis, which has been smoldering for more than a year, caught fire when the US housing bubble burst nearly taking the entire global financial system down with it. The financial crisis quickly morphed into a general global economic meltdown. The OECD reports that taken as a whole, its 30 country membership—representing the leading economies in the world—is in recession. China’s growth rate is at a 7 year low. Middle income and developing countries are being swept up in the chaos as commodity prices fall and capital flees to safer havens. 

Efforts to avert a climate catastrophe—already fraught with difficulty-- have been made even more difficult by the economic crisis. The immediate steps to achieve the needed reductions in greenhouse gasses will likely cause economic disruptions in parts of the economy, precisely at a time when political will may be flagging. Public money is scarce, private funding is drying up. The only silver lining: as the crisis worsens and unemployment rises, refitting the built environment and shifting to low carbon energy could be a source of employment and an engine of economic growth for decades.

A central problem in dealing with the crises is that markets are global while regulatory regimes and the politics that shape them are national. But no nation—not even the US which remains the richest and most powerful in the world—can address either the economic or the climate change crises on its own.

Averting disaster will require an unprecedented degree of international cooperation to deal with the tangle of vested national economic and political interests. That is why this week’s pledge of coordinated global action by the G-20, which we will analyze in a later post, is short on substance and long on rhetoric.

Traditional national Keynesian stimulus programs, currently proposed by many politicians across the political spectrum, can provide much needed employment for those out of work, but will not work as planned to revive economic growth. These policies were devised during a period of national capitalism very different from today’s global economy.  Keynesian job creation projects are intended to provide the jobs and spending power to increase the consumption of what are assumed to be nationally produced goods and services thus priming the economic pump.  But in globalized economy consumers are just as likely to purchase goods produced abroad, reducing the impact of any stimulus package on national employment.

There is an additional problem with traditional Keynesian programs. Historically, these programs were indifferent to the types of jobs created as long as they created spending power. But today, strict attention must be paid by any job creation programs to the kinds of jobs created to insure that they do not contribute to global warming or they risk dealing with one crisis by intensifying another. What is needed is global stimulus program that focuses on sustainable economic growth if we are to mitigate the effects of the current crises.