Sunday, April 6, 2008

Reposted: Notes on Globalization: Brecher and Costello's "Race to the Bottom"

Notes: Brecher and Costello’s “The Race to the Bottom”

Thesis: Contrary to the claims of its proponents, globalization is not making life better for everyone around the world. In fact, globalization is making everyone (besides the relative handful of movers and shakers of the global economy) worse off.

The argument often given for the beneficial nature of globalization: As we turn the whole world into a giant free market capitalist economic system (i.e., in every country, the means of production are privately owned, governments do not interfere with the market via tariffs, regulations, etc.), market competition will lead to (a) countries specializing in the products that they can make the best, and at the cheapest rate; (b) the most efficient companies will win out. Since, by definition, the efficient companies have the best products at the lowest prices, (c) the consumers benefit as well. For (a) affordable, high-quality products and (b) a surplus of jobs created by globalization translates into a higher standard of living for everyone. Therefore, everyone benefits - both companies and consumers - from globalization.

Brecher and Costello’s basic reply: Actually, only a few benefit, and the rest of the world becomes worse off, from globalization. Although many factors contribute to this result, here are two of the main factors:

(I) The market forces of globalized free market capitalism (especially the fierce and un-policed competition among corporations) lead companies to minimize production costs. This translates into “forc[ing] workers, communities, and countries to compete for lower labor, social and environmental costs – force them to a race to the bottom.” (p. 16) The idea is that, for large multinational corporations to stay competitive in a de-regulated free market, they must reduce costs as much as possible. Ultimately, and in actual current practice, this cashes out in terms of finding (i) a work force that is both (a) cheap and (b) unable to insist on fair treatment (treating employees fairly – respecting their rights, compensating them with reasonable pay and benefits in return for hard, quality work - is costly), and (ii) cheap natural resources/materials to make products, in an area with (iii) the least amount of government-imposed (a) costs and (b) regulations of various sorts (e.g., environmental regulations) on businesses. There is little that non-corporate citizens, or even governments, can do to resist such corporate behavior in such circumstances. For corporations can (nearly) effortlessly close down factories and move plants elsewhere, where people, communities and countries are desperate enough to put up with such treatment.

(II) Large, multinational corporations aren’t the only one’s involved in this inequitable process. Unaccountable international institutions like the International Monetary Fund (IMF) and the World Bank are also part of the problem. For they go into economically and politically struggling countries with false promises of curing their problems. In fact, the countries become worse off as a result of their “help”. For, in exchange for their intervention, such countries have to sign-on to “structural adjustment programs.” These involve such things as (a) selling off their natural resources to privately owned companies, (b) de-regulating their markets (i.e., integrating them into the global free market), and (c) taking on huge, hopelessly unmanageable interest rates from the loans they provide.

(III) Therefore, while it is clear that business owners and other high-level executives “win” in such circumstances (minimum costs, maximized profits), it is equally clear that employees, communities and even countries “lose”.

Outline of the paper:

I. Introduction and thesis

A. The popular view of globalization: everybody wins
-the argument (see above)
B. The authors’ reply and thesis: (see above) No. It leads to a “race to the bottom”
C. Examples of the manifestations of the race to the bottom:
i. The BMW case:
ii. The British Department of Trade case:
iii. The London International Group P.L.C. case:
iv. The Nike case:
v. The Johnson Tombigbee case:

II. The New World Economy (aspects of globalization)

A. The rapid change from a nation-based to a global economy
i. Companies are no longer based in, or identify with, any particular country
ii. Advanced technology (computer, communications, transportation) and low tariffs foster the globalization process
B. The bulk of the world’s wealth and natural resources are owned by a handful of multinational corporations
C. Alliances of corporations internationally: giant international conglomerates
D. The “global factory”: international division of labor for products
E. Globalization of capital and financial markets
F. The rise of international economic institutions: The International Monetary Fund (IMF), the World Bank, the European Union (EU), and the General Agreement on Tariffs and Trade (GATT)
i. Have powers formerly reserved for countries
ii. Largely beyond the control of national governments
G. Disempowerment of national governments with respect to controlling multinational corporations, their own economies, etc.
H. Economic globalization as part of a wider trend: “The growth of a realm beyond the control of individual nations”.
i. Pollution
ii. Massive immigration
iii. Satellite and international media/communications
iv. Multinational corporations
I. A worry: the loss of democratic control with respect to this “realm”

III. Downward leveling

A. Benign downward leveling (BDL): The lowering of prices of goods and services via improved efficiency, as a result of free market competition. (p. 19)
B. Malignant downward leveling (MDL): “…when corporations and governments lower costs by reducing environmental protection, wages, salaries, health care, and education…” (pp. 19-20)
i. The avoidance of accountability of corporations by moving or threatening to move
1. E.g., the defeat of labor unions and the consequent inability of workers to defend themselves against unfair treatment: corporations can resist such demands by moving elsewhere to do business.
2. “Workers, communities and countries then seem to have little choice but to compete for corporate favor…” (p. 20)
ii. The negative affects also apply to higher level jobs
iii. The negative effects apply to people in all parts of the world: no one is immune
iv. A summary of some of the negative effects of MDL:
1. loss of job security in the U.S.
2. growing unemployment in Europe
3. increasing poverty in third world countries
4. decreasing standards of living in Eastern Europe and the former Soviet Union
5. lack of human and labor rights in most of Asia
6. Quote from Princeton economist William Baumol: “It is not that foreigners are stealing our jobs, it is that we are all facing each other’s competition.” (p. 21)
C. The major symptoms of MDL
i. The race to the bottom
1. Definition: “the reduction in labor, social, and environmental conditions that results directly from global competition for jobs and investment.” (p. 22)
2. Three major driving forces of the race to the bottom:
a. Corporations: threatening to move if workers and/ or governments accept their conditions. (close paraphrase, p. 22)
b. Governments: e.g., diminishing job security regulations to make its workforce more appealing to corporations. (close paraphrase, p. 22)
c. International financial institutions (e.g., IMF, World Bank): denying loans to desperate countries unless they agree to reduce minimum wages and raise food costs as a part of a “structural adjustment program””. (close paraphrase, p. 22)
3. effects in “1st-world” countries
a. decreased wages, salaries and total household incomes
b. drastic reduction in quality of medical benefit packages
c. increased individual employee labor
d. decline in job promotion opportunities
e. loss of job security
f. Slashed social benefits, such as publicly subsidized housing, transportation, education, and health care. (close paraphrase, . 23)
g. Increase in sub-contracting and “flexibility”
h. the replacement of permanent jobs with a cheap “temp” work force: with this also comes the increased likelihood of discrimination and mistreatment of the poor, immigrants, the elderly and women (i.e., the people who make up the temp workforce.)
i. even the permanent jobs that remain require a substantially increased workload for substantially decreased pay
j. mass increase of illegal employment of children under 14
k. drastically reduced health and safety conditions on the job, due to de-regulation
4. effects in “3rd-world” countries
a. 1.3 billion people live in absolute poverty (“too poor to provide the minimum diet required for full human functioning”): globalization isn’t positively helping their condition at all. Quote: “A study sponsored by the International Labor Organization found that in Indonesia – now a favorite spot for companies like Nike and Reebok – 88% of women earning the Indonesian minimum wage were malnourished.” (p. 24)
b. Objection: what about the “success stories” of 3rd-world countries that have benefited from globalization?
c. Reply: Yes. It has helped a handful of elite corporate executives. All others are being exploited, and the environment in such countries is being diminished at levels that aren’t sustainable
5. effects of the race to the bottom on the environment
a. unsustainable destruction rates
b. greenhouse gases
c. ozone depletion
d. toxic pollution
e. over-fishing
f. major source of solid waste
g. over-cutting of forests
h. destructive use of land
i. in general: “over-harvesting of natural resources”; degradation of the world’s air, land and water
j. Example: The Philippines
ii. The Downward spiral:
1. The logic of the downward spiral: downward leveling: gives rise to (a) the necessity of countries, communities, workers to become “competitive” by reducing wages and social and environmental overheads; this leads to (b) reduced public and private spending, less buying power; which leads to (c) recession, stagnation, unemployment; which leads to (d) accumulation of individual and national debt; out of the necessity to pay off such debt, we arrive back at (a). The circle from (a) through (d) and back to (a) repeats over and over without stop. A vicious circle.
2. The effects of the downward spiral are reflected in the exponential slowing of the global GNP growth.
3. A common means by which corporations stay “competitive”: corporate downsizing
a. Massive layoffs
b. This is even true of corporations that are hugely successful, and are undergoing tremendous growth
c. Examples: AT&T, Sears, B of A, GE, Xerox, Proctor and Gamble
d. “loyalty takes a back seat to survival and personal achievement”
4. More education no longer ensures permanent employment at good-paying jobs: 20% of college grads take non-college-level jobs
5. Unemployment on the rise
6. The effects of the downward spiral are global in scope
7. other manifestations of the downward spiral: especially in Eastern Europe/former Soviet Union, Latin America and Africa:
a. higher death rates
b. lower birth rates
c. lower living standards
d. widening inequalities
e. decreased health spending
f. decreased education spending
g. undermining of human relations, traditional life-ways, and social values
h. increased crime
i. social decay
iii. Polarization of the haves and have-nots: depressed wage growth for low-wage workers; increased wage growth for high-level executives
1. in the U.S.
2. in other parts of the world
3. “debtor countries”: make higher debt payments, yet their total debt is increasing exponentially
iv. Loss of democratic control
1. Governments and individuals can’t pursue goals of public goods, because of the threat of corporations to pick up and leave
2. Political movements aimed at furthering the Corporate Agenda: dismantling government institutions for regulating national economies. (close paraphrase, p. 24)
3. Trade agreements (NAFTA, GATT, etc.): further restrict what governments can do.
4. countries no longer have control over their own economies. In effect, they are governed by the actions of the multitude of currency traders around the world. These traders shape and control the monetary and fiscal policies of governments.
5. It’s even worse in 3rd world countries. The IMF and the World Bank “provide” them with “structural adjustment programs”. In response to seeming economic relief, these countries must strictly adhere to a huge list of policies, which amount to (i) turning their economies into capitalist free markets, (ii) allowing the corporations loved by the IMF and World Bank to buy and control all of their natural resources at “bargain basement” prices, and (iii) drastically reducing government “interference” with the market.
6. Such things add up to a near complete lack of individual and government control of their countries – a complete undermining of democratic institutions.
v. Uncontrolled global corporations
1. such corporations are now the most powerful economic forces in the world
2. no real accountability of global corporations
3. no laws or regulations apply to them (or, the few rules that do apply are virtually impossible to enforce with real consequence)
4. corporate scandals and criminal corporate activity
vi. Unaccountable global institutions
1. Growing concentration of power with the IMF, the World Bank, and GATT
2. Powerful organizations with no significant accountability
3. Their decisions have a huge impact on the global ecology
vii. Global conflict
1. trade wars and “global rivalries”
2. corporations using (e.g.) GATT to impose open markets on rivals
3. construction of regional blocs (EU, NAFTA) for corporations and conglomerates to compete against each other
4. these conflicts can easily become militarized
5. The “U.S. empire-building” example: this sort of behavior has led to world war in the past