Special Report
U.S. Leadership in the Global Economy

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icon.gif (4355 bytes)A New Alternative

Many free trade proponents begin their critique of opposition views with a ringing condemnation of the alternative: protectionism. The Globaphobia book of Brookings, the Progressive Policy Institute, and the Twentieth Century Fund is typical; it suggests that "protectionist remedies" are the only alternatives posed by critics.21

Again, the public is more sophisticated. In a November 1996 poll by BankBoston, only 23% of Americans labeled themselves "protectionists," and only 25% accepted the label "free traders." More people--45%--called themselves "fair traders." And in that poll, 73% said that "labor and environmental issues should be negotiated as part of trade agreements."22

Figure 5

U.S. Imports and Exports
(billions of $U.S.)

. 1991 1994 1998
U.S.  Exports to Asia 130.6 161.0 187.6
U.S. Imports from Asia 210.2 291.3 367.7
   U.S. Trade Balance with Asia -79.6 -130.3 -180.0
      U.S. Trade balance with China -12.7 -29.5 -56.9
      U.S. Trade Balance with Japan -43.4 -65.7 -64.0
U.S.  Exports to Western Hemisphere 148.6 207.0 298.8
U.S. Imports from Western Hemisphere 153.5 216.4 318.2
   U.S. Trade Balance with W. Hemisphere -4.9 -9.3 -19.4
      U.S. Trade balance with Mexico 2.1 1.4 -15.8
      U.S. Trade Balance with Canada -5.9 -14.0 -16.7
U.S. Exports to Africa 8.8 9.2 11.2
U.S. Imports from Africa 14.0 14.1 15.8
   U.S. Trade Balance with Africa -5.2 -4.9 -4.6
U.S. Exports to Europe 123.5 123.5 170.0
U.S. Imports from Europe 104.0 136.6 202.9
   U.S. Trade Balance with Europe 19.4 -13.1 -32.9
Total U.S. Exports 421.7 512.6 682.1
Total U.S. Imports 488.5 663.3 911.9
   Total U.S. Trade Balance -66.7 -150.6 -229.8
Source: Compiled from data from U.S. Department of Commerce, International Trade Administration, May 1999.

With the crumbling of the elite consensus and widespread popular discontent, there is a vibrant debate over what the U.S. posture toward the global economy should be. Many positions advanced are far from protectionist. Ironically, one of the elite critics, World Bank chief economist Joseph Stiglitz, has attempted to steer the debate in a broader direction, even as his institution operationally remains more cautious. Stiglitz encourages the development of a post-Washington Consensus that moves beyond the narrow goal of economic growth to the more expansive goals of sustainable, equitable, and democratic development, but his institution, the World Bank, has yet to move in this direction.

In the United States, as in other Northern and Southern forums, unions, environmental groups, farmer organizations, and others are sketching the outlines of a new U.S. role in the global economy. Central to these efforts is the reorientation of U.S. policy away from the Wall Street-Treasury complex toward a broader definition of national interest. Mindful of the needs of U.S. workers, consumers, farmers, and others at home, this redefined vision recognizes that the greatest threats to the security of all of us are the wealth disparity, erosion of labor standards, and environmental degradation around the world--bred by corporate-led globalization.

Although critics both North and South share many concerns about the direction and impact of economic globalization, there are oftentimes sharp differences about the remedies. Within the South, both among citizen groups and governments, there is deep concern, for example, that Northern governments, environmental groups, and labor activists may use noneconomic standards to maintain an unequal playing field in international trade, to restrict Southern exports, and to protect jobs in the North.

A broader internationalist agenda requires a varied approach to globalization. Some aspects should be stopped, including trade in such harmful products as arms, toxic wastes, and drugs. Other aspects should be curtailed, such as speculative capital flows and agreements that give new rights to corporations without commensurate responsibilities. And some facets of globalization should be reshaped, such as antitrust laws, enforceable corporate codes of conduct, and tougher enforcement of internationally recognized labor and environmental rights.

A broader agenda also requires a thorough rethinking of U.S. policy in the realms of trade, investment, and finance. With respect to trade, the goal should be to craft a policy that helps U.S. workers and communities while advancing the rights and health of workers and communities abroad. There will be tensions as jobs shift both within countries and across borders. But if the United States and other countries managed trade relations to advance certain common principles, then trade and investment could better serve viable communities, a healthy environment, and dignified work. When feasible, managed trade should grant consumers choices that offer good quality and low prices, but not at the expense of the other goals of viable economies.

Managed trade should allow countries to protect their citizens against products manufactured by abusing workers or the environment in other countries. Concretely, it could be argued that the best part of the $57-billion 1998 U.S. trade deficit with China is rooted in the denial of Chinese workers’ basic rights to organize and strike and in the violation of core environmental standards. Hence, the U.S. should encourage China and other trading partners to respect core labor rights, and Washington should attempt to establish international trading rules that incorporate labor, environmental, and human rights standards.

Although critics both North and South share many concerns about the direction and impact of economic globalization, there are oftentimes sharp differences about the remedies.
As the United States and other countries shift toward more managed trade, the management could focus on:
  • promoting food safety and food security in order to protect farmers and peasants;
  • protecting sectors deemed vital to each country’s development strategy, its environment, and its people;
  • providing safeguards when currency fluctuations undermine otherwise competitive industries; and
  • providing safeguards that allow countries to react with tariffs and quotas when domestic industries experience destabilizing fluctuations or when overall trade deficits become unsustainable.

These policies fall under the overall rubric of a "new internationalism," because the overarching goal is not to favor workers or communities in one country over another but rather to strengthen the role of all governments in protecting worker, community, and environmental improvement over narrow corporate interests. U.S. policy should not seek preferential treatment for U.S. workers or U.S. industries, except when there are clear violations of internationally accepted norms, or when one of the above principles of managed trade applies. There will be, under such policies, the displacement of some workers. Here, governments have the responsibility to intervene with far more effective safety net programs of training and education as well as policies to promote domestic investment, full employment, and better labor laws facilitating union organizing.

At the core of a new agenda on global finance is a reorientation of financial flows from speculation to long-term investment in the real economy at the local and national level.23 A premium needs to be put on creating maximum space for local and national governments to set exchange rate policies, regulate capital flows, and eliminate speculative activity. And mechanisms should be installed to keep private losses private.

Such goals require new action at the international, national, and local levels. A priority at the international level is the creation of an international bankruptcy mechanism independent of the IMF. When a country cannot repay debts, this mechanism would oversee a debt restructuring that requires public and private sharing of costs. The United Nations Conference on Trade and Development is examining ways that such a mechanism could prevent liquidity crises from becoming solvency crises. For instance, if Brazil or any other country was teetering on the brink of deep financial crisis, it could go to this facility rather than to the IMF.

U.S. policy should not seek preferential treatment for U.S. workers or U.S. industries, except when there are clear violations of internationally accepted norms, or when one of the above principles of managed trade applies.
With such a facility in place, the IMF could return to its smaller and more modest original mandate of overseeing capital controls, not capital account liberalization, and providing a venue for open exchange of financial and economic information. Citizen groups (led by religious coalitions in many countries) rallying under the banner of Jubilee 2000, have also argued that current debt reduction initiatives should be substantially expanded to cover a sizable amount of bilateral and multilateral debt, and that debt reduction should be delinked from IMF and World Bank conditions.

Finally, at the international level, many are reviving a 1978 proposal by Nobel prize winner James Tobin of Yale, who suggested a tiny global tax on foreign currency transactions as a deterrent to part of the emerging casino of speculative capital flows.24 In today’s flourishing casino, Tobin’s proposal would discourage harmful speculation and could generate revenues that might be deployed to a wide array of needs from environmental cleanup to social investments. Some have suggested shifting part of the revenue back to the tax-imposing governments as an incentive to them for adopting the tax.

At the national level, there is renewed enthusiasm for ensuring that the rules and institutions of the global economy create maximum space for national governments to regulate capital movements. Look at the countries that aren’t getting destroyed in the crisis: India, China, Chile. Each has capital controls that discourage short-term "hot money" while encouraging long-term productive investment. More and more national and local governments are talking about incentives to channel outside capital to meet local opportunities and needs and to direct mutual and pension fund investments toward productive local activity. For example, unions in Quebec and other parts of the world are taking control of pension funds for local investment.

In trade and investment, a multiyear process between U.S. unions and citizen groups and their counterparts across the Americas has begun to craft an "Alternatives for the Americas" framework for a new approach to U.S. policy.25 The goal is to shift integration from an emphasis on exports based on the plunder of resources and the exploitation of workers to sustainable economic activity that roots capital locally and nationally. Such an approach rejects the undemocratic fast track authority in the United States. Instead it supports the development of a democratic and accountable process for negotiating trade and investment agreements in the United States and throughout the hemisphere. Among the many challenges of implementing such a new internationalist agenda is the need to keep the U.S. from using its disproportionate power to advance standards and rules that protect its own citizens and economic sectors while keeping its less affluent trading partners undeveloped and disadvantaged.

The most effective way to level the playing field would be through a substantial reduction of the debts owed by low-income countries.
Highlights of the alternative agenda include the following:
  • Harmonize Labor and Environmental Standards Upward: "The commitment to apply and respect basic workers' rights should be included in any hemispheric agreement as an obligatory requirement for membership in the accord.... The precedence of environmental accords signed by the governments of the Americas should be established in the negotiations around, and agreement on, investment and trade. Environment and sustainability should not be limited to a single area of economic-financial accords, but rather [should] be addressed as an overarching dimension and perspective throughout any such agreements."26 Representatives of citizen organizations in the South accept this call as part of a grand bargain wherein groups in the North agree to advocate measures to close the growing gap between North and South.
  • Close the Gap Between Rich and Poor Countries Through Debt Cancellation Delinked from IMF Conditions: "In the Western Hemisphere, the most effective way to level the playing field would be through a substantial reduction of the debts owed by low-income countries. Therefore the FTAA [Free Trade Area of the Americas] should include the negotiation of a reduction of the principal owed, lower preferential interest rates, and longer repayment terms. Orthodox structural adjustment conditions demanded by the World Bank and the IMF should be abandoned as they have manifestly failed to resolve the debt crisis and have caused enormous hardship for the poorest sectors of the population."27 In fact, a Development GAP study of 71 countries that have adopted World Bank and IMF-dictated structural adjustment programs--in part to reduce their debts--found that debt as a portion of GDP grew on average by nearly 50%.28 The alternative approach, urging that debt reduction be decoupled from IMF conditions, departs significantly from the Clinton administration’s current strategy. The administration is supporting increased debt relief but tying such relief to strict adherence to IMF and World Bank conditions.
  • Strengthen Respect for Migrant Worker Rights: "All governments should sign and/or ratify the 'International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families' (1990), and a similar instrument should be created for the Americas. This convention…must be part of the international legal framework for all trade and financial negotiations."29

Figure 6

Financial Flows to Developing World: 1990-1998

. 1990 1994 1998*
Official Flows 56.9 45.5 47.9
Private Flows 43.9 178.1 227.1
   International Capital Markets** 19.4 89.6 72.1
   Foreign Direct Investment 24.5 88.5 155.0
Net Long-Term Resource Flows 100.8 223.6 275.0
* Preliminary figure. Total flows in 1998 dropped significantly from 1997 due to the global financial crisis.
** Bonds, loans, and portfolio equity flows.

Source: World Bank, Global Development Finance 1999 (Washington, DC: The World Bank Group, 1999)
All of this debate and activity around finance, trade, and investment is reigniting the legitimacy of a state role in development. Whatever comes of the global financial crisis, the widespread fear of an unregulated casino economy able to devastate economies overnight is also destroying the Washington Consensus’ rejection of an activist role by the state. Though most elite participants in the debate allow for a government role only in the realm of short-term financial flows, this concession lets the government genie out of the bottle. If most now acknowledge that governments are needed to check markets in one realm, perhaps there can be a more intelligent discussion about what role governments might play in other aspects of the rapidly globalizing economy.

Citizen groups are growing strong enough to stall the implementation of elite consensus policies, as seen in the fights over fast track and the MAI. In private discussions among think tanks that have been at the center of the consensus, there is a grudging acknowledgment that the Washington Consensus has lost much of its legitimacy with the public, and that there is a need to factor more labor and environmental concerns into the policy. Yet, the growing strength of citizen opposition does not yet translate into their ability to create a new overall consensus. Too much of the elite still clings to the basic precepts of the old consensus.

The emerging era of no overall consensus on the U.S. role toward the global economy can be a healthy and vibrant era, notwithstanding the vast human suffering around the world among victims of the financial casino. If there is any lesson from these past two decades, it seems to be that an elite consensus on the best approach toward globalization is dangerous.

If there is any lesson from the past two decades, it seems to be that an elite consensus on the best approach toward globalization is dangerous.
Most of the new citizen debate over globalization focuses on the theme of democracy. In country after country, citizen organizations are demanding an end to the customary practice of governments consulting primarily with corporate representatives. They are demanding that global institutions--and the negotiations setting their rules--be transparent, accountable, and inclusive. They are insisting that globalization not undermine the democratic prerogative of national and local governments to decide limits and priorities in economic matters. As workers, environmentalists, farmers, women, and others demand to be heard, the contours of the global economy of the 21st century are being redrawn.

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