Driving Forces and Perversions of Ultra-Liberal Globalization

passet portaitRené Passet


September 2001


Globalization, as it is at present, depends on the conjunction of a technological and a political mutation: the technology is a given; the politics are the result of an ideological choice that needs revising and that does not belong – in spite of what we are led to believe – to the “nature of things,” but depends on the will of men.

The technological mutation is represented by the advent of the computer and the information technology, which allows all the people in the world to be in immediate contact with each other – in real time, as the phrase goes – displacing development forces from the energy field to the field of information. Following the break-up between the US dollar and gold in 1971 and the free fluctuation of currencies in 1973, the policy has been the free circulation of capital in the world, starting with Reagan’s deregulation in the 80s. Not only has the world space been unified, but also the network of private interests – especially financial – can now be freely deployed. The concept of “globalization,” in both the British and French meaning of the word (respectively, “extended on a global scale” and “taken as a whole”), expresses this reality.

If Marx, in his time, was able to declare, “give me the windmill and I will give you the feudal society,” today we might say “give me the computer with the neo-liberal deregulation and I will give you the realm of finance and all the perversions derived from it.” Two series of consequences flow from that concurrence:

Firstly, the transformation that has taken place in the functioning of economic mechanisms. Emerging from computer-related information and virtual reality, there appear two overall phenomena, which are going to influence the functioning of all the economic mechanisms. At the outset, there is a generalization of interdependencies within the economies. Information is a relationship, and it favors network-like organizations; it gives rise to new modes of economic management. Let’s see a single example to illustrate this: the continuous-flow management – also called “just in time” – in which the company eliminates its stock management costs by having raw material delivered according to its needs. It is obvious that its performance depends then not only on its management, but also on the timely delivery of the materials that are indispensable to its correct operation, and on the regularity of deliveries; thus, it also depends on non-economic factors such as the extension of the road system (political choice), and its maintenance (administrative management). In short, production becomes a social phenomenon. This consequence is strengthened because one of the main production factors of the immaterial economy is knowledge, i.e. something that belongs to the whole of humankind, fruit of the effort of past and present generations.

Secondly, an integration phenomenon derived from the fact that in the advanced-technology sectors, the preliminary costs of training, research, marketing, placement of the productive equipment, etc. acquire vital importance; these are fixed costs that do not vary with the production volume and that may represent up to 80 % and 90 % of the aggregate costs. The corporation is therefore an integrated system that is well established and produces all the factors at the same time, without allowing for a distinction of the role given to each factor when considered independently (it is the whole theory of marginal calculation that is proven false). Besides, its production has a constant global cost, i.e., a decreasing unit cost: in software production, for example, it is the production of the first unit that is costly; the additional costs inherent to the production of the units that follow is generally limited to the diskette price and, the higher the cost of production, the lower the unit price, since the fixed charges are distributed among a greater number of units.

As a result of these phenomena, a significant transformation takes place in the modus operandi of the economic systems. This can be demonstrated in all areas: - in the area of production where, if the phenomenon becomes collective, the role of individual profit as an incentive is being questioned;

- in the area of regulation, where unit cost decrease frustrates the regulatory role traditionally attributed to the market;

- in the area of distribution where, if the notion of a manufacturer’s productivity loses its sense, his remuneration can no longer be explained by his productivity;

- in the area of international trade which, deprived of its inter-national character, is overtaken by the transnational character of the networks...

We will only examine the example of regulation, in which the market, far from playing its appointed role, becomes an amplifier of inequalities. According to Theory, whenever supply exceeds demand prices decrease and this reduction discourages less competitive suppliers stimulating the demand... until balance is recovered. However, in the case of constant global costs, the fall of prices combined with a supply surplus strengthens competitiveness. To preserve their market share – and all the more so to increase it – all suppliers must reduce the selling prices, therefore also their costs. Only by increasing production volumes can this be done - this is true for everyone. The operation of the market, far from absorbing the supply, has only increased it – overproduction leads to super-production... this is true for automobiles, air transportation, the pharmaceutical industry, etc.

And further, there is a shifting of the economic power from the public sphere of the national States toward the sphere of international financial interests.

If the free movement of capital at a global scale does not modify at all the existing amount of capital, it nevertheless opens the world space to capital and therefore multiplies the possibilities of investment. Capital supply becomes the rare factor – hence the dominant factor – with regard to the demand. From there on, capital will be able to impose its logic: a logic of fast increase of financial patrimonies, essentially embodying two imperatives: a dividend as high as possible, coupled with price stability so that inflation does not eat away the real value of this dividend. The ensuing consequences can be found at all levels of the economy.

At the corporate level, pension funds impose their demands through their participation in corporate governance.

To begin with, the results will be the disappearance of all “virtuous circles” of Fordist or Keynesian type. Maximum dividends imply that from the point of view of financial capital there is an excess of revenues of any other kind: too much spent on wages, (hence, wages and personnel flexibility); too many social and public expenses (hence the reduction of welfare and the role of the State); even too much productive investment (and there are pension funds denouncing certain companies that have the “poor taste” of favoring the building up of productive capital to the detriment of dividend distribution). Patrimonial capitalism only allows “vicious circles.” Another implication is the quest for truly deranged productivity rates, such as the 15 % equity capital yields that pension funds currently impose on companies. Hence, a true productivity race is unleashed among capitals.

At the national level, capital has enough “striking force” to impose its will: a single day of currency speculation is equivalent to the reserves of all the world’s central banks; the volume of capital collected in the whole world by all the speculative or fund management institutions amounts to 30 000 billion dollars, i.e., more than the world produce (estimated at 25 000 billion dollars). No nation in the world can resist such “fire power.” Therefore the priority that is attributed everywhere to the imperatives of budget balancing, which in Europe is embodied in the Maastricht and Amsterdam criteria. An unacknowledged criterion, the so-called NAIRU, “non accelerating inflation rate of unemployment,” determines the underemployment rate that, if lowered, may lead to inflation acceleration. Thus in France the first version of the report on the retirement plan was based on the hypothesis of a lasting unemployment rate of 9 %, which represented the NAIRU of that time (1999), a fact that was not being openly admitted. It seems therefore that, in spite of the official discourse, the true priority for many governments is not the reduction of unemployment, but the stability of prices and the protection of the purchasing power of income. At the global level, the free circulation of capital leads to deeper inequalities and instability. Inequality, since capital is concentrated in the regions that are more favorable to its prosperity: 80 % of the FDI (Foreign Direct Investment) prefers the Triad (United States, European Union, Japan) and 80 % of the residual capital destined to poor countries concentrates on ten of them, China being the preferred destination. By forcing the poorest debtor countries to sacrifice their deferred-return basic investment (health, education, infrastructures...) in favor of financial equilibrium, the SAP (Structural Adjustment Program) of the IMF and the World Bank, jeopardizes all possibilities of growth for those countries. The free flow of capital generates instability by pouring in at the prospect of gain and by reversing the tide at the smallest doubt, thus destabilizing the real economies, bringing about the brutal effects experienced in South-East Asia between 1996 and 1997. The result of this logic can be expressed by what may be defined as a perversion of the promises of technology:

- Although the computer links the whole world, the poorest countries are unable to keep up with the productivity race imposed by the demands of the financial institutions: the ratio between 20 % of the richest countries and 20 % of the poorest ones has evolved from 30/1 in 1960 to 78/1 in 2000. According to the UNDP, even though world production has been multiplied by 6 in half a century, 80 countries have suffered a decrease in their production per inhabitant during the last decade.

- Even though the machine complies with its function of work elimination, the productivity benefits are confiscated by capital and transform this phenomenon into “worker elimination,” i.e. unemployment, social exclusion, poverty and inequality: companies like Renault, Moulinex, Marks & Spencer, Danone etc., have been closing profit-making facilities, but not profitable enough from the point of view of the demands of capital.

- Although technical progress allows to produce the same unit of a national product with less raw material and less energy, the productivity race exhausts nature: despite the fact that it has been common knowledge since 1960 how to produce an automobile using 40 % less energy, the production of automobiles in the world has quadrupled; living beings, including human beings, become objects of trade. A new commercial criterion, the LTV (“Life Time Value”) measures, for each sector, the revenue that a man is likely to provide during his lifetime. 

What strategies could be conceived to address this situation?

With regard to these problems, the attitude towards neo-liberal economy is based on both the levels of theoretical questioning and of political measures. Even though the theoretical discourse of neo-liberalism is just a façade for a true demonstration of power, it must be refuted. Ideas are an important element in the balance of power and, furthermore, we need to cast light on our own path. The evolution of contemporary sciences changes our outlook on the world and the economy:

- Equilibrium as it emerges from the Newtonian concept, is substituted today by the notion of creative destruction: the world is in perpetual evolution. If the sun’s radiance weakens and fades a bit each day, reducing its energy, this same radiance is translated into a contribution of energy to our planet that made life possible, allowing for its development and complexity. In economics, as in any other field, reality is evolution: as Schumpeter said, the transport revolution is not derived from an accumulation of stagecoaches but by the disappearance of a way of transport that became obsolete (destruction), and was replaced by the railway, the automobile and the airplane... (creation). The problem of economic policy is not to reestablish non-existent balances, but to find an orientation for an evolutionary movement;

- This is only possible if man becomes an actor of history instead of a passive object. This is the notion that the contemporary sciences imply: evolution is achieved by the branching off at the so-called critical points (where the smallest influence can change the course of history, to make it follow one path or another) and by propagation through a carrier medium. In social sciences, this means that the action of a small group, even of a single man, may redirect (for better or for worse) the course of history and this underlines the significant role of minorities (whereby the role of actors is reserved to a few people). However, if action at the critical point is not taken by a carrier medium

- in this case a social tissue - nothing happens. This explains the difference between the lack of durable effects of the Krouchtchev attempt, and the amplitude of the consequences of the same policy when carried out by Gorbachev, consequences that certainly went well beyond the intentions of the latter. In this sense, all men can be actors of history, since all of them, no matter how humble their role, make up the social tissue through which the action of the small number of decision-makers spreads, and everybody may contribute – with words or action – to the modification of the social tissue to which they belong. To the rationality of a discourse based upon the logic of things, we must oppose the rationality of a discourse based upon the human purpose of economics. From the point of view of things – capital or merchandise – an object is an object and there is no reason to establish differences according to their origin. It is in fact important from this point of view to reach conditions of strict equality in the competition that confronts these objects in the market. However, from our point of view, the object is inseparable from the men and women who have produced it, the conditions under which it was produced and the territories where it was produced. The same agricultural product may be the result of the activity of a highly capitalist and mechanized system, with very high productivity and its sale or non-sale meaning simply a little more or a little less income for the exporting country; it may also be the vital product of the effort of men working under harsh conditions in an underdeveloped economy, with very low productivity. The trading competition between both activities spells doom for the latter, and extreme poverty for the people who practice it, due to simple profit considerations to the benefit of the former. Awareness of human reality leads us to acknowledge an unequal treatment, matched by special protections in favor of disadvantaged populations. It is important to emphasize that it is not simple generosity, but pure rationalization of an activity that only makes sense with regard to its human objectives. All the decision criteria of the dominating liberal economy may thus be questioned in view of these considerations. At the action level, the preceding analysis implies a strategy that seeks to give economic power back to the citizens, i.e. to wrench it from the control of the financial sphere. We believe that the whole society is in the grip of a logic exclusively inspired in the exigency for productivity of financial capital, and that it is responsible for the problems that we have discussed, so it is at that level that we must attack. To begin with, we must reestablish man as the core of economic decision-making. This means concretely:

- at the corporate level, to give to workers their due position at the administrative level (as producers of wealth and not only through the saving of wages, as stockholders); to give equally to the citizens their due position in all matters that concern them (neighbors and neighborhoods, for example, in cases of pollution);

- at the global economy level, (national or international): to subordinate trade law to the achievement of a social project democratically chosen by all citizens; to subordinate it also to social and environmental standards defined by major international conventions (Rio, Agenda 21, Kyoto...) or by the ILO. To reestablish economy to its due position as a servant to society, and finances as a servant of the economy, that is:

- to challenge the autonomy of the central banks, which is nonsensical, as finances do not constitute an end by themselves,

- to control the global movement of capital (Tobin tax in case of recurrent, very short-term speculation forms), and to equally control exchanges and investments in case of massive speculative movements such as those that affected the European monetary system in 1992-1993 or South-East Asia in 1997...; to combat “dirty” money and tax havens. To attack directly the consequences of the so-called 'patrimonial' capitalism:

- to reaffirm the solidarity of the peoples of the world by means of the cancellation of the international debt, the reinforcement of the international public aid system, and the creation of a development fund inspired by the Marshall Plan,

- to reestablish solidarity among men of all nations, by the sharing of employment through the reduction of working hours, a better distribution of wealth by the progressive establishment of a citizenship income warranted to everyone, and by the respect of the fundamental rights of the people,

- to maintain the solidarity of generations over time, through an authentic policy of sustainable development, subordinating economic optimization to the respect for the reproduction mechanisms of nature and the biosphere. And finally, to accomplish all this, to expand the political power of control to the global level of the economic powers it must control. This would include the reform of international institutions (WTO, IMF, World Bank...) and the creation of a truly international economic and political system. This would certainly be a long-term effort. While waiting for the reform implementation, the international dialogue among governments and the coordination of their actions in all the domains that are crucial for the future of mankind (global pollution, control of the movement of capital, struggle against dirty money and tax havens...) becomes an urgent need. However, neither the G7, nor the G8, and even less the G20, have fulfilled the role that could legitimately be expected from them – far from it. That is why several proposals are oriented towards the definition of the 20 or 30 crucial issues of our times, be discussed at major international conferences that should no longer be limited to governments, but gathering all the actors of the economic and social life (corporations, workers, NGOs, citizen movements) hoping that the resolutions taken by and under the control of civil society participants will have better chances to become effective. That is also why the uprising of the peoples, whose awakening was demonstrated against the MAI (Multilateral Agreement on Investment), and was confirmed at Seattle, Milhau, Nice... took a decisive turn and entered the phase of firm proposals. Together with the world social Forum of Porto Alegre, they represent a major reason to have faith in the future of humanity.

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