POWER, POVERTY, ECONOMIC INTEGRATION & BRETTON WOODS

PCDForum Article #1,  Release Date April 6, 1993

by David C. Korten

Robert Reich, U.S. President Clinton's most trusted economics advisor, documented in his book, The Work of Nations, the processes by which global economic integration is concentrating power and wealth in the hands of a small group of transnational elites who are absolving themselves of responsibility for the plight of the less fortunate. Reich's conclusion that the gap between rich and poor is growing at an alarming rate was recently confirmed by the widely cited 1992 Human Development Report of the UNDP, which reported that in 1990 the richest 20 percent of the world's population had incomes 60 times greater than the poorest 20 percent, twice the gap that existed in 1960.

The pervasiveness of the phenomena of growing inequality indicates that the forces shaping it are systemic in nature. Unfortunately, these forces remain poorly understood, are largely unexamined in mainstream public debate, and are exacerbated by many of the public policy prescriptions currently favored by most governments, corporations, and the Bretton Woods institutions the World Bank, International Monetary Fund (IMF), and the General Agreement on Trade and Tariffs (GATT).

Ironically, the historical events that have contributed to this situation have emerged in part from well-intentioned attempts to improve human well-being. As World War II came to an end, world leaders were inspired by a vision that the creation of a single integrated global market would bring universal prosperity and that the resulting economic interdependence among nations would guarantee world peace. Creation of the UN provided a symbol of democratic global government. However, the real power was vested in the Bretton Woods institutions, which were given the mandate to create an integrated and interdependent global economy and to advance international trade and investment. Governance of the Bretton Woods institutions was dominated by the executive branches of the G-7 governments. This concentrated control over their governance and insulated them from public transparency and accountability.

While the GATT set about bringing down trade barriers, the World Bank served as intermediary in channeling loans from global financial markets to low income countries. It was assumed that the resulting economic growth would make eventual loan repayment virtually painless. Then in the late 1970s, the commercial banks, awash in deposits from the oil producing countries, rapidly increased their own direct lending to many of these same countries until it became evident that the borrowing countries were seriously over extended and might be forced to default. The World Bank and the IMF, acting as overseers of the global financial system, stepped in to negotiate the terms of financial settlements between virtually bankrupt countries and the international financial system.

They also imposed structural adjustment reforms on the economies of the indebted countries. Some reforms reduced privilege and economic misallocation, others trimmed government spending on social services for the poor. Most reforms were intended to assure the repayment of international creditors and advance the integration of indebted countries into the global economy. The borders of national economies were opened to the free flow of international trade and investment, and the economies themselves were oriented to export production. Numerous measures were introduced to attract international investors, such as holding down domestic wages and benefits, employment conditions, corporate taxes, and environmental regulation. As adjusted economies became increasingly dependent on transnational corporations for credit, technology, export markets, and jobs, the governments used such incentives to compete ever more aggressively for the favor of international investors. The competition to export natural resources drove down prices for basic commodities in international markets, even as it destroyed the environment. The net consequence was to further increase the economic power of the owners of capital and technology over that of the providers of labor and basic materials.

In the late 1980s, the architects of the Uruguay round of the GATT negotiations decided that the GATT, already the most powerful of the Bretton Woods institutions, should be further strengthened to assume the lead role in global integration. However, to the distress of the advocates of integration, growing numbers of citizen groups have begun to realize that the implications of integration go far beyond what its proponents have chosen to tell the public.

The affairs of the GATT are conducted in secret meetings and are seldom exposed to public debate. The public hears only assurances that a successful agreement will bring new well-paying jobs for workers and lower prices for consumers. It is not mentioned that the Uruguay Round proposals would imbed sweeping provisions of uncertain outcome in binding multilateral agreements. These include provision for trade sanctions imposed in an attempt to force the repeal by signatory countries of conflicting national and local laws. Under current GATT rules, enacting sanctions requires an unanimous endorsement by GATT members. Under the draft proposal now being considered, the so called Dunkel draft, decisions by GATT dispute panels, three unelected and unaccountable officials meeting in secret, would be binding and enforceable unless overturned by a unanimous vote of all GATT member countries.

The mandate of the GATT is to deregulate trade. The proposal now under negotiation seeks to expand the definition of regulatory trade barriers to prevent a national or local government from:

• Giving preferential treatment to local producers;
• Excluding foreign products that fail to meet local environmental, health, and product safety standards if these exceed recognized international standards.
• Restricting the export of natural resources, including through laws requiring local value-added processing;
• Limiting foreign participation in any area of manufacturing, mining or services (such as banking, insurance, and shipping); and
• Failing to prevent infringement of the intellectual property rights (patents and copyrights) of foreign companies.

Many of these GATT provisions are being advanced as necessary to assure the efficient functioning of competitive markets. The GATT proposals do advance competition among workers whose jobs can be exported to low wage, labor surplus economies; among raw materials producers; and among localities seeking to attract employment generating investment by offering cheap labor, lax environmental, health and safety regulation, tax exemptions and other subsidies. The provisions do nothing to limit the ability of transnational corporations to use their monopolistic powers to drive competitors out of the market by unfair means, to eliminate competitors through mergers and acquisitions; or to form non-competitive strategic alliances with "competitors" to share technology, production facilities, and markets.

The proposed GATT provisions will accelerate the shift of power from labor and democratically elected governments to huge corporations, increasingly freeing the latter from both the restraints of law and the competitive discipline of the market. Capital and technology are the critical control points in a free and open global economy. Removal of restrictions on investments by international banks and other financial services companies will allow a few transnational corporations to further extend their control over capital markets world wide. The intellectual property rights agreements will secure monopolistic control by a small number of corporations over much of the world's store of technology and genetic materials, including seeds and medicines. The ability of national and local legislative bodies to set and enforce local social, health, and environment standards will be seriously compromised.

The Bretton Woods agenda of an open, one world economy has an intuitive appeal as a path to universal peace and prosperity. Unfortunately, the more evident outcome is accelerating social and ecological disintegration driven by cultural homogenization and the unrestrained concentration and centralization of unaccountable economic power far removed from ties to place and community. Closing the gap between rich and poor, moving toward a sustainable relationship between human society and earth's ecology, and giving real meaning to democratic governance depend on exactly the opposite the decentralization and distribution of economic power and the nurturing of cultural diversity.

The proponents of the globally integrated economy maintain such conclusions are alarmist and unfounded. Yet one point seems self-evident. No measures with such sweeping implications for the future of democratic governance, the health of earth's ecology, and the well-being of those among the world's people who do not enjoy monopoly powers over capital and technology should be imbedded in enforceable international agreements without thorough and extended public examination and debate. The same holds true for the North American Free Trade Agreement (NAFTA) and other regional trade agreements advancing measures similar to those of the GATT.

The public has good reason to be highly skeptical of any far reaching agreements negotiated in secret and rushed into law without public debate. Even if they are being pursued in the public interest, it is the right of the people to determine whether they actually serve this end. Until the people have this opportunity, they should on principle reject such agreements out of hand.

International trade and investment are means, not ends. Both can advance the world's social and environmental well-being when managed within a political framework that aligns market forces with the public interest. Ensuring such alignment requires preserving the right of publics to determine what constitutes their interests and to hold public officials accountable for imposing on the market a necessary and appropriate regulatory framework.

Alarmist warnings from free trade proponents not withstanding, the existing trading system is not likely to collapse even if the current proposals are rejected. It is time to make a fresh start toward rethinking and recreating the global economy based on principles of decentralization, diversity and distribution with full and open public debate.

This fresh start must include basic reform of the Bretton Woods institutions themselves. We need a peoples' structural adjustment program to render these institutions transparent and democratically accountable and to redefine their mandates to serve economic decentralization and an equitable distribution of economic power.

David C. Korten is a fellow of the People-Centered Development Forum, which produced and distributed this column. Further information on the GATT and NAFTA negotiations may be obtained from the Citizen's Trade Campaign, 215 Pennsylvania Ave. SE, Washington, DC 20003, U.S.A.

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