The Nation, April 10, 2000 Shopping Till We Drop by WILLIAM GREIDER During the past two decades, as random financial crises visited various fast-growing economies, we have become familiar, after the fact, with the profile of a developing country that's headed for trouble. A booming, modernizing industrial system expands so robustly that it's described as a "miracle" (Mexico, Korea, Indonesia, Brazil, to name a few). Its financial markets soar as foreign capital rushes in to invest and share in the bountiful returns. The country takes on short-term foreign debt at a disturbing pace--much faster than national income is growing--but no one pays much attention because the exuberant lending seems to confirm the bright prospects. Then, one day, investors redo the arithmetic and realize their expectations are wildly exaggerated. As they rush for the door, taking their capital, the currency collapses. Deep recession follows. The miracle is exposed as illusion. In present circumstances, oddly enough, the country that fits this profile is the United States, where surging economic growth is also portrayed as miraculous. The United States is unlikely to experience a full-blown currency crisis like Mexico's or Indonesia's, since the dollar is the hard currency everyone relies upon as the anchor in global commerce. But the fundamentals are more similar than American triumphalism will acknowledge, and America's prosperity can vanish just as swiftly if foreign investors decide to take back their money. An abrupt exit by foreign capital would be a disaster for the United States but also for the world as a whole. That's because the United States has used the borrowed money mainly to sustain its unique role as buyer of last resort--keeping the system afloat by mopping up the world's excess output. As a result, surging US imports are producing record trade deficits--nearly $300 billion last year, almost triple the deficit of 1995. The authorities acknowledge that the imbalance is unsustainable and must be adjusted, but they blandly advise us not to worry. After all, America has been running persistent trade deficits--buying more than it sells in the global system, a lot more--for more than two decades, and nothing terrible seems to have happened (if one ignores millions of lost manufacturing jobs). Swollen imports from Asia and elsewhere, it is said, reflect heroic efforts by US consumers to revive economies smashed by the global financial crisis that unfolded in 1997. America's anachronistic role as backstop purchaser for the trading system originated in the cold war. The twin objectives of ideological triumph and commercial advance were always intertwined in US policy and mutually reinforcing at a deep level. Washington provided the capital, foreign aid and military procurement to rebuild Europe and develop Asia's miraculous tigers; it granted easy access to the US market and even awarded shares of US production to far-flung allies. That was the glue that held the alliance together, keeping nations from "going red," while it also extended the reach of US multinationals and investors. "The US de-emphasized savings and encouraged consumption, even to the point of providing tax deductions for consumer credit interest expenses," Robert Dugger of the Tudor Investment Corporation explained in testimony before the US Trade Deficit Review Commission. "This policy supported the evolving export-led growth strategies of US allies.... The United States cold war economy won because it essentially outconsumed the USSR and China." When the cold war ended a decade ago, the ideology disappeared but the economic strategy remained in place, stripped of the patriotic fervor for liberating people and now nakedly devoted to commercial/financial objectives. But this cannot continue. Since early 1998 the United States has provided roughly half the total demand growth in the entire world, according to the International Monetary Fund. The more ominous fact is that America's status as a debtor nation has deteriorated rapidly during the booming prosperity of the past three years. The cumulative net obligations to foreign creditors from the many years of trade deficits reached an astonishing 18 percent of GDP by the end of 1998 and by now may be 20 percent or higher. That compares with 13 percent of GDP in 1997. Ten years before, it was zero. In short, the hole is deepening at an accelerating pace. Sooner or later, foreign investors will react with alarm. I dwell on these unfashionable facts because I believe they provide the starting point for thinking about economic reforms in the global system. When the reckoning does arrive, there's a danger of confused, reactionary backlash among innocent bystanders who get hurt, but the moment will also expose the fallacies of the reigning orthodoxy, particularly the so-called Washington consensus, which imposes the neoliberal straitjacket on developing nations. That will be a rare opening in itself. More important, the social ideas and moral values already being advanced by the new movement against corporate-led globalization should gain greater respect because their relevance as economic solutions will become clearer. Labor rights, corporate accountability, the sovereign power of poorer na- tions to determine their own destiny--these and other reform causes involve more than fairness. They also provide essential answers to the economic maladies and instabilities embedded in the present system. In a previous article ["Global Agenda," January 31] I described some modest first steps toward building new global rules for social and moral equity. Reforming the economics of globalization is obviously more daunting, but it starts with a simple proposition: The pursuit of common human values--what people around the world recognize as justice--is not in conflict with our economic self-interest; in fact, the two can be mutually reinforcing. * * * The core contradiction in the global economy--enduring overcapacity and inadequate demand--is usually obscured by the more visible dramas of financial crisis because it is located in the globalizing production system, the long-distance networks of factories and firms that produce the goods and services flowing in global trade. Corporate insecurity--the fear of falling behind, the need to keep driving down costs, including labor costs--is what generates globalization's greatest contradiction. Alongside energetic expansion and innovation, the system generates vast and growing overcapacity across most industrial sectors, from chemicals to airliners. My favorite example is the auto industry, which in the spring of 1998 had the global capacity to produce 80 million vehicles for a market that would buy fewer than 60 million. This excess sounds irrational (as it is), considering that the multinationals are esteemed for sophisticated strategic management. Yet each corporation decides (perhaps correctly) that it has no choice but to disperse and expand production for survival--moves that seem smart and necessary in their own terms but that collectively deepen the imbalances of overcapacity and quicken the chase for new markets. So we witness the recurring episodes of giddy overinvestment by firms, investors and developing nations, followed by financial breakdown. Then the process regains momentum and repeats itself somewhere else. The overcapacity is further deepened by the "Washington consensus" enforced by international lending institutions. The doctrine pushes more and more countries to pursue the export model of development pioneered by Japan, except without any of Japan's equalizing features--the social guarantees, full employment and minimized income inequality--or the protective measures that insulated its infant domestic industries from foreign competitors. The global system instead encourages countries to ignore or actively suppress labor rights and regularly opposes public-sector investment as a wasteful impediment to growth. Unlike developing Japan, South Korea or Taiwan, which shielded their producers, the new exporting nations are told they must keep their borders and financial systems wide open to foreign interests--that is, hostage to the global system--so they are unlikely to achieve the earlier success of Japan or the "tigers." The plain fact is that too many poor nations are now betting their futures on export-led growth--too many for most of them to succeed. These pro-capital, wage-retarding policies contribute substantially to insufficient demand worldwide, the flip side of overcapacity or overinvestment. One can now appreciate why the US market is so essential: If America taps out, who will buy all this stuff? The immediate pain would probably be felt most severely in poorer countries, which would lose their meager shares in global trade. Full article at: http://www.thenation.com Louis Proyect (The Marxism mailing list: http://www.marxmail.org)
