Opinion pieces and speeches by EPI staff and associates.
THIS PIECE ORIGINALLY APPEARED IN THE WINTER 2001 EDITION OF DISSENT MAGAZINE
How Should the Left Respond to Globalization
by Jeff Faux
Our relentless evolution toward a global economy will clearly require new institutions both to regulate unstable markets and to protect ordinary citizens from the brutalities of worldwide, dog-eat-dog capitalism. Eventually, like national economies, the global marketplace needs the equivalent of a central bank, securities regulation, enforceable labor and environmental rights, and the other institutions of modern social democracy.
But the social democratic left has little leverage at the level of global politics. So it is caught in a Catch-22: a global social democracy requires stronger international institutions. Stronger institutions increase the power of international capital, which further undercuts efforts at global social democracy. Rather, the left’s leverage is in national politics. It is on that base that it must build its alternative program for the global economy.
Given this, the democratic left should not waste its time doing the work of the corporate right: decentralizing the organization charts of international agencies, creating new ones with more sophisticated powers, adding advisor committees of nongovernmental organizations, and so on. Instead, social democrats should concentrate on proposals that appeal to the needs of working people across borders, linking national and global economic questions in ways that build toward a social democratic vision of the global economy.
Here are three such proposals, in ascending order of difficulty:
1. Coordinated lowering of interest rates
It is a measure of the timidity of today’s social democratic parties that there is little political agitation over high real interest rates in an era in which the core inflation threat is close to zero. High interest rates are a crushing burden on indebted developing economies, and they have made a major contribution to slow growth in Europe. Even in struggling Japan, signs of recovery are greeted by the central bank as a reason to raise the cost of money. As Federal Reserve Board head Alan Greenspan slows down the U.S. economy, it will be essential that Europe and Japan loosen monetary policy — for their own economies and — to maintain global momentum.
A parallel demand from progressives around around the world that central banks lower rates, would begin to challenge the hegemony of finance — particularly the bond-holding class — whose interests have been favored over poor debtors everywhere. Such campaigns also have the potential of creating alliances with the small- and medium-sized producers of goods and services in all countries, whose survival depends on cheap money.
2. Financial transactions tax, a.k.a. the “Tobin Tax”
The purpose of such a tax, whether applied domestically or internationally, is to slow down the destructive short-term, speculative movement of capital. It has the virtue of being easily understood, administered with minimal bureaucratic discretion, and already supported by many influential people around the world. Several years ago, for example, the government of Canada proposed a discussion of the Tobin Tax for the agenda of a G-7 meeting in Halifax. The U.S. Treasury quickly squashed the idea, although a domestic version was endorsed by the current secretary of the treasury, Larry Summers, a decade ago.
Social democrats around the world should campaign for a global transaction tax that would use the proceeds for long-term investment in education and health in poor countries. In the advanced nations, the left could also extend the idea into their own national economies, where financial speculation is a waste of scarce capital and a major driver of increasing inequality.
3. A “grand bargain” on social standards and development
Efforts to make labor rights and environmental standards part of international trade and finance agreements have been blocked by an alliance of multinational business and developing country elites. Some of the latter use globalization as a rationale for exploiting their own workers. Others are progressive nationalists opposed to ceding any more authority to Western-dominated global institutions. To overcome this resistance, the left
should propose a “grand bargain” between working people of developed and developing nations, in which the former would provide guaranteed commitments for long-term development aid, radical debt relief, and an enlarged developing world presence in the governance of international agencies. In return, the developing world would agree to enforceable labor rights and environmental standards — appropriate to each nation’s stage of development — as part of international trade and financial agreements.
Because the United States is by far the most influential nation in these matters, one way to move forward would be to start close to home with a campaign by progressives in the three member countries of the North American Free Trade Agreement (NAFTA) for a North American version of the grand bargain. The proposal of the newly elected Mexican president, Vicente Fox, to expand NAFTA along the lines of the European Union provides a possible political opening for such a campaign. His specific call for open borders is a political nonstarter. But the United States and Canada could provide aid to Mexico, and relief some of the most onerous conditions of the original NAFTA imposed on Mexico, in exchange for a continent-wide system of enforceable labor rights and environmental standards. Such a positive proposal would put progressives in Canada, Mexico, and the United States in a posture of shaping the future rather than defending the past.
Jeff Faux is president and co-founder of the Economic Policy Institute in Washington, D.C.
[ POSTED TO VIEWPOINTS ON MARCH 6, 2001 ]