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Do The "Seattle Protestors" Have A Point?

In other words, is their uncoordinated, often inconsistent message about the dangers of " globalization" completely removed from reality, as many insist? Or is there some core of truth that the industrialized economies should carefully heed?

The Seattle demonstrators exposed an important danger: one-model extremism that would sacrifice all for the sake of efficiency.

EDWARD N. LUTTWAK Senior Fellow, Center for Strategic and International Studies.

Those who believe that the Seattle demonstrations are only a disturbance because environmentalists, trade unionists, and assorted protectionists are too diverse to form a coherent opposition to globalization in their respective countries miss the point: The protest's incoherence was significant and even appropriate, unlike the pro-WTO side which could conceive of only one truth and one model. After all, it was once the Bolsheviks who proposed a single Leninist model for all countries. Ignoring all differences of culture, religion, and economic and political structures, they attempted to impose their model everywhere.

Today, the new Bolsheviks are the advocates of "turbo-capitalism," as I call it. They believe all sectors of all economies should be opened to all forms of competition by privatizing everything, abolishing all commercial regulations, and removing all barriers to international commerce. Again, fundamental differences between countries are ignored. The privatization of public services, for example, works well when a dynamic and fearless anti-monopoly unit of government attacks emerging monopolies, as the U.S. Department of Justice is now destroying the power of Microsoft. Privatization then ensures that services improve and tariffs go down. But without an antitrust counterforce, privatized public services merely become private monopolies, enriching a few while imposing high costs on the entire economy. This happened in England with the privatization of water and railway services, as well as in Italy, where one man monopolized all private television networks.

Likewise, financial deregulation works well when strictly enforced laws prevent the abuse of power and when financial police like the U.S. Security and Exchange Commission prosecute both big fish like Michael Milken and countless stock exchange manipulators.

By contrast, the weak committees that are supposed to police financial markets in London, Paris, and Milan are hopelessly outmatched, though it was Southeast Asia that paid the greatest price for deregulation without supervision.

In other words, the Ferrari engine of a fully privatized, deregulated economy requires brakes just as powerful. In Britain, Bill Gates would be the untouchable Lord Gates of Windows. A French Microsoft would be sacred, and the official who dared to investigate would find himself on a oneway flight to French Polynesia. In Russia, Gates would have his own office in the Kremlin. In Italy, he would buy himself three political parties to govern with his own coalition.

The still larger question is the relationship between culture and commerce. To stop European subsidies for wheat production would not only help the wheat farmers of the world, it would also stop the destruction of the environment in northern France and elsewhere. To open the Japanese rice market, however, would destroy the entire culture of rural Japan with its festivals and folklore. In other words, opening the Japanese rice market would destroy the Japanese part of Japan.

Just like the Bolsheviks ignored all structural differences between countries, today's turbocapitalists do the same when they insist that all trade barriers are inefficient (true), that a globalized world economy would be more productive (true), and that all impediments to free trade should therefore be abolished (not true). This conclusion is a giant nonsequitur because impediments may protect not only inefficiencies but also cultures and societies. That was the real significance of the Seattle demonstrations. Through their very diversity, they exposed the one model extremism of the new Bolsheviks who would sacrifice everything for the sake of efficiency.

The point they made was unintended.


Reginald Jones Senior Fellow, Institute for International Economics.

The protestors at Seattle made a point, but not the points they intended. Variously, the protestors tried to show that free trade and free investment -- all that "globalization stuff" -- was bad for workers, bad for human rights, and bad for the environment. They argued the evil empire has been reincarnated in the Palais des Nations in placid Geneva under the innocent sounding but truly sinister World Trade Organization. Lori Wallach, the Madame Lafarge of Seattle, pointedly asked, "Whose Trade Organization?"

Those were their intended points. But the point that everyone else at Seattle carried home was entirely different: The free ride for tree trade is over. If the advocates of free trade and free investment want to keep these great engines of world growth firing, they have to go to work. And go to work they did. Not only for the big China Permanent Normal Trade Relations vote, but also for the modest Africa-CBI trade bill.

Thank you, Seattle protestors, for waking up a lot of well-meaning but downright lazy folk who thought that trade legislation took no more effort than a highway bill.

Some of what they said rang true.

DANIEL K. TARULLO Former Assistant to the President for International Economic Policy, now Professor of Law, Georgetown University Law Center.

Having a logical argument is not the strong point of mass demonstrations, even those with substantial political efficacy. In Seattle there were almost as many messages as protestors. But some of what they said rang true. Globalization policies focused exclusively on market access and deregulation entail real risks. Left unaddressed, these risks may undermine political support for globalizing measures that increase allocative and productive efficiencies.

In a liberal market economy, government pursues four broad functions: It establishes private property rights that restrict state intervention. It regulates private economic activity that threatens negative effects on the polity as a whole (for example, antitrust, food safety laws, environmental regulation). It creates a legal framework for private, consensual transactions. Finally, government provides a social safety net, ranging from modest measures in the United States and Japan to extensive measures in some European countries. International arrangements of the last several decades, by contrast, have generally involved only the first of these functions. Trade agreements, in particular, have been concerned chiefly with restricting the prerogatives of national governments.

The resulting reductions in tariffs, quotas, and other non-tariff barriers to trade have surely contributed substantially to economic growth during this period. But the neglect of the other three functions of government in an international context has given rise to some significant problems. The events of 1997-98 revealed the inadequacy of international mechanisms for preventing and containing financial crises. International disputes over mad cow disease, beef treated with hormones, and genetically modified organisms revealed the disquiet of citizens with a system that seemed to favor market access over consumer safety. The absence of agreed legal principles for electronic commerce retards the expansion of this revolutionary change in business, and leaves citizens fearful over the impact on their privacy. And in the United States, resistance to globalization at a time of historically low unemployment underscores how little has been done to help workers affected by job loss from trade and technology.

Seattle has slowed the pace and limited the scope of trade agreements in the near term. If international economic liberalization is to proceed efficiently and fairly in the medium term, more attention must be paid to the neglected tasks of government in an international market economy. We need international initiatives to stabilize the financial system and ensure that governments can take reasonable steps to protect their consumers. In the United States in particular, we need more serious commitments to policies for goals such as lifelong learning, wage insurance, and accessible health care. Without these efforts, what may have seemed a cacophony in the streets of Seattle will strike a harmonious chord with broader segments of the public.

Yes, they have a point in saying globalization produces losers. No, if they mean the losses outweigh the gains.

MELVYN KRAUSS Senior Fellow, Hoover Institution, Stanford University.

Of course, the "Seattle protestors" have a point in their opposition to "globalization." There are winners and there are losers with any act of public policy. Globalization is no exception. And a wise nation tries to balance gains and losses in deciding whether or not a policy is good for the aggregate community. Those who perceive themselves as "losers" have every right, even a duty, to make their opinions known. One must assume the more "serious" Seattle protestors were doing this. Needless to say, dubious groups of rabble-rousers who salivate at the prospect of street protests no matter the cause were mixed in with the "serious" crowd. Naturally, the irresponsible group will show up on the evening television news and morning newspapers.

Among the serious opponents of globalization, there are two types: those that represent causes or institutions adversely impacted by globalization, and those that think they are adversely impacted but are mistaken. (There is a third type who knows their cause is not adversely impacted but opposes globalization because globlization's allies are their foes.) An example of the first group is U.S. trade unions. An example of the second is the U.S. environmental lobby.

Labor unions are right to fear globalization because it radically reduces their influence over the marketplace. Despite years of unprecedented boom, the U.S. economy continues to enjoy relatively modest wage-cost pressures, not only because of increases in labor productivity, but because of free-ish trade and increased immigration. None of this makes organized labor in the United States happy. John Sweeny and his union cohorts figure if they can bamboozle the American public into restricting imports and immigrants, they can maintain their power to stick it to the U.S. consumers. But so far, the U.S. public has wisely resisted the protectionist entreaties of the trade unions, recognizing in its inimitable intuitive fashion that while globalization may be bad for U.S. trade unions, it is good for the overall U.S. economy.

Globalization also robs the few to help the many by causing governments to compete. In a globalized world economy, capital is free to locate in the most congenial local setting available. This produces a world-wide "race to the bottom" in anti-competitive domestic measures, and a "race to the top" in economic growth rates. Either restrictive governments must moderate their excessive regulations, or they will face the probability of strong capital outflows.

That, at least, is the promise of globalization. Real life is more complicated. For example, U.S. environmentalists opposed NAFTA on the grounds that the free trade agreement would provoke a "race to the bottom" in North American environmental standards. But so far the degradation of environmental standards has not occurred. Only a handful of U.S. firms exited this country to take advantage of Mexico's less restrictive environmental regulations.

What explains this sluggishness? If U.S. firms did move south of the border, they might save a few dollars on Mexico's more lenient environmental rules. But they would spend a few on costs that are higher in Mexico than in the United States. Indeed, the NAFTA experience clearly demonstrates that free trade is consistent with differential environmental standards among trading partners. This is an extremely important point. Moreover, environmentalism is what economists call a "luxury good" -- as income rises, the proportion of income spent on the good rises. Because free trade raises income among trading partners, it will likely increase environmental standards throughout the free trade area.

Serious economic analyses and the NAFTA experience both indicate environmentalists have little to fear from globalization. But they often act as if the opposite were the case. (This may be explained by the political coalition argument. Trade unions are major contributors to environmental causes).

Perhaps the most hysterical overreaction to globalization has been led by Ralph Nader's consumerists. Their fear of, and hostility to, the World Trade Organization have been so over the top that arch-leftist Nader formed a mind-boggling coalition with arch-conservative Pat Buchanan. Nader fears that his influence in U.S. politics will be lost as the government cedes more and more power to international bodies like the WTO, over which he believes he has little influence. Of course, this charge has a kernel of truth. But the amount of authority ceded by the U.S. to the WTO is so small, and the benefit of the WTO to U.S. interests is so large -- particularly in terms of fair treatment of U.S. exports in foreign markets -- the overall net benefit of the WTO cannot be doubted.

Nader has done good work to help consumers in the past. But his refusal to concede that certain consumerist legislation must be adjusted to neutralize its unintended protectionist effects vis-a-vis foreign imports, casts considerable doubt on whether he is fit to lead the consumerist movement in the twenty-first century. Like environmentalism, consumerism is perfectly compatible with globalization. To argue the opposite, as Nader does in a most intemperate manner, only sullies the good name of consumerism by turning it into a Luddite movement. The Luddites wanted to destroy the machines that create wealth. The Naderites want to destroy international trade that creates wealth.

Do the "Seattle protestors" have a point? Yes, if that means globalization will produce losers. No, if that means globalization's losses outweigh its gains

They have valid points, but no real point in their opposition to globalization.

ROBERT SHAPIRO Undersecretary, U.S. Department of Commerce.

The demonstrators in Seattle and Washington did have valid points to press, even if there was no real point in their opposition to globalization itself. Globalization is not a program or policy that public or private leaders or protestors can change. Rather, globalization is shorthand for numerous economic, political, and social forces that increase the exchanges among companies and countries of goods and services, capital, labor, technology, and ideas.

While governments cannot much affect the underlying forces driving globalization, they do take steps that promote, support, or even accelerate international exchanges of specific categories of goods, technology, capital, and the rest. Governments around the world have reduced tariffs, deregulated their telecommunications sectors, liberalized aspects of investment, and extended intellectual property rights. Soon enough, they may agree to enforce common privacy standards across borders and perhaps even antitrust rules. Even the most undemocratic regimes have increasingly opened themselves to foreign goods and influences.

As ardent advocates of many policies associated with globalization, the IMF, WTO, and World Bank are obvious targets for anti-globalizers. Yet the demonstrators didn't focus on improving these institutions or, for that matter, on raising total global welfare. The process used to determine the IMF's early response to the Asian crisis is a matter of serious debate, but not among the recent protestors. There was also not very much talk on the streets of Washington or Seattle about debt relief for poor countries, a matter on which the IMF and World Bank have just about agreed.

Instead, the demonstrators offered a guerrilla-theater-style critique of these institutions as insensitive to the inequalities inherent in globalization, focusing particularly on how certain globalizing forces tend to economically displace some workers and expose less-developed economies to more violent shocks than mature economies. There are points worth making on these matters. Sensitivity to the dynamics which displace some workers may not be the mission of the IMF or WTO, but addressing inequality is part of the job of the governments that run these institutions. In the United States, the three major globalizing forces that benefit most Americans -- technological advance, U.S. investment abroad, and foreign imports -- also tend to displace some workers. It is the U.S. government's job to address inequalities associated with forces that strengthen the economy, for example, by providing opportunities for workers to be retrained. The protestors could have made the point by demanding Internet training for textile workers.

They also miss the mark in protesting that developing nations are more vulnerable to global shocks than advanced nations. The globalizing forces that played a role in the financial crisis that struck many Asian countries -- international capital flows and technology trade -- were also essential to their decades of high growth preceding the crisis. But there are issues worth discussing here and, for those so inclined, perhaps demonstrating about. The reasoning behind the IMF's responses to the crisis as it played out in different countries should be reviewed, as our government and others are now doing. The protestors could also have made their point by demanding that developing countries receiving inflows of foreign capital also receive technical assistance to strengthen their banking systems. After all, sound banking practices have helped limit the impact of global financial shocks on advanced economies. These approaches may lack the edge and media appeal of a good, righteous condemnation. But they might help reduce some of the human toll of globalization.

The protestors raised some hard questions that deserve better answers.

JEFF FAUX President, Economic Policy Institute.

Every economic system develops a set of politics around the rules by which it is governed. The economic system now being created by the merging of world markets is no exception. The protesters in Seattle represent the beginning stage of a mass global-politics made possible by the same Internet technologies, declining travel costs, and rising education levels that expand the reach of global capitalism beyond the capacity of individual governments to regulate it.

In the nineteenth century, technology and business organizations in the United States created continental corporations that outgrew the ability of state governments to regulate their markets. Fortunately, the political struggle over rules for the new continental marketplace could take place safely within the context of a democratic U.S. constitution. Over time, the power of corporate capital was balanced by protections for small business, labor, and the environment. The result was a sustained, broadly-shared prosperity.

The global economy has no such constitution. Instead, its promoters insist that it be ruled by "free trade." This is disingenuous. If the WTO or NAFTA agreements were free trade contracts, they could have been written on one page calling for elimination or reductions in tariffs and quotas. But they contain hundreds of pages protecting the property of global investors and supporting policies that undercut social standards. Add IMF conditionality which reduces the power of labor and democratic decision-making, and a global economic regime is created which runs roughshod over ordinary people in both developing and developed nations. And the regime is clearly trying to extend its reach. Last year, the outgoing director-general of the WTO was explicit: "We are no longer writing the rules of interaction among separate national economies. We are writing the constitution of a single global economy."

The question being raised in the streets is: "Where in this constitution are the rules that protect the rest of us?"

So far the global policy elite has simply dismissed those who pose this question as marginal -- isolationist unionists and overzealous environmentalists who do not understand Economics 101. The benefits of expanded trade are said to be so great they should overwhelm concerns over exploited labor and land. Yet during the last two decades of trade and finance liberalization, global growth has slowed, inequality has gotten worse, and the world economy is less stable. People might have reasonable differences about the meaning of these facts, but the facts do not lead to an airtight case for continuing the present pattern of globalization.

If those who manage the global institutions of the twenty-first century do not want international politics to turn into a global version of late nineteenth-century class conflict, they will have to find better answers to the tough questions which have been posed.

Capitalism, the greatest source of wealth, is also one of the greatest sources of pain.

DOUGLAS RAE Professor, Yale School of Management.

Capitalism is both the greatest engine of growth known to human history and one of the greatest sources of pain. Its very source of strength is also its weakness. What makes capitalism a great engine of growth is its utter disregard for the past -- for existing technologies, local customs, working habits and folkways.

Other economic systems like feudalism, socialism, and traditional society give a major advantage to established ways of producing, distributing, and consuming. They even tilt the field toward defensive play. Capitalism alone enables offensive play. And the destruction of the past by successful offensive players such as often global corporations is immensely painful: Factories turned to rubble, jobs abolished, artisan skills made outdated, and older cultures crowded out by the onrushing torrent of popular media. What was largely false when Marx and Engels wrote it in 1847 has become mostly true in the year 2000:

"[Capitalism] has drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries ... that no longer work up indigenous raw materials, but raw materials drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe. In place of old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes."

For those people experiencing the pain of an increasingly global capitalist system, the WTO has become the name to which complaints are addressed. The organization has been remarkably cooperative in positioning itself as a scapegoat. With more than 130 member-states, ranging from the United States to Cuba and Nigeria to France, no one is shocked by its bureaucratic double-speak. For instance, the WTO's latest annual report says this about its own "activity on transparency and scope of dialogue with representatives of civil society": "Transparency with respect to WTO documents has been improved by accelerating the de-restriction process as well as by making all de-restricted documents available on the WTO website." Far from promoting transparency, this serves to cloud our understanding of the forces of global trade around the world.

Globalism's payoff is an increase in GWP -- gross world product. This means greater total wealth and greater average consumption across the planet. The concepts of the eighteenth century were sufficient to understand this: exploitation of comparative advantage, economies of scale, more efficient capital markets, and upward spiraling commerce. This global capitalism also bears the main feature of less expansive capitalism: While total gains exceed total losses, they fall on people at very unequal rates. Some make great fortunes, others make small ones, but most make none at all. Many gain higher wage incomes, sometimes at the price of horrendous working conditions. Some lose what they had, and are deprived of opportunities enjoyed by generations before them, for example, in traditional agriculture or artisan textiles. Some watch their national cultures spread to the ends of the earth. Others will see their traditions obliterated in the space of a single generation.

The lion's share of gain will go to investors and those with advanced skills in the developed world, and perhaps a handful of the most advanced emerging market countries. The lion's share of pain will fall on less developed countries, as well as on the less-skilled in advanced systems. Many will gain in the short run. Many will achieve prosperity in the long run. But many will also lose-out in the present.

All this will go forward in the coming century, even in the unlikely case the WTO does not survive. It's a pity the world is focused on the idea and symbols of globalization and not on its realities.
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Title Annotation:danger that one-model extremism would sacrifice all for efficiency
Publication:The International Economy
Geographic Code:1U9WA
Date:Jul 1, 2000
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