PCDForum Article #8,  Release Date May 20, 1994

by Walden Bello

1994 is the year the World Bank and the International Monetary Fund (IMF) mark their "golden" 50th anniversary. But it is an event most of the world's people have little cause to celebrate especially the countries and the peoples whose economies are in a state of collapse, largely as a result of the structural adjustment programs imposed on them by these institutions. Knowledge of this failure is now widespread, as is awareness of the insecurity and deterioration of working conditions being experienced by most people in the North. What is not widely recognized is that these two phenomena are linked to the same cause a sweeping strategy of global economic rollback unleashed by Northern political and corporate elites to consolidate corporate hegemony in the home economy and shore up the North's domination of the international economy.

Central to this process was the leadership of a highly ideological Republican regime in Washington. Aside from defeating communism, Reaganism in practice was guided by three other strategic concerns. The first was to resubordinate the South within a US-dominated global economy. The second was to roll back the challenge to US economic interests from the newly industrializing countries (NICs) and Japan. The third was to dismantle the New Deal "social contract" between big capital, big labor, and big government which both Washington and Wall Street saw as the key constraint on corporate America's ability to compete internationally.

This is not to suggest an image of corporate and political elites plotting at the White House or in Manhattan high rises to impose global adjustment. This is never the way major shifts in national policy come about. What usually occurs is a much more complex social process in which ideology mediates between interests and policy. An ideology is a belief-system a set of theories, beliefs, and myths with some internal coherence that seeks to universalize the interests of one social sector to the whole community. In market ideology, for instance, freeing market forces from state restraints is said to work to the good not only of business, but also to that of the whole community. Transmitted through social institutions such as universities, corporations, churches or parties, an ideology is internalized by large numbers of people whose actions it then informs.

Radical free market ideas had been around for a long time as an alternative to the post-War Keynesian "social contract." However, market ideology became a dominant force only when a political elite which espoused it ascended to state power on the back of an increasingly conservative middle-class social base at the same time that the changed circumstances of international economic competition caused the corporate establishment to desert the liberal Keynesian consensus in its favor.

There was a wide sharing of the assumptions of free-market ideology by cultural, state, and economic elites during the Reagan-Bush era. There were obvious differences among these elites, but for the most part there was agreement on the broad thrust of championing private enterprise, rolling back communism and the insurgent South, eliminating state intervention in the economy, reducing government-supported safety nets, and "freeing labor markets" by dismantling unionism.

When a class-based ideological alliance faces a conflict between ideology and its class interests, the class interest generally prevails. This alliance is no exception. The very intellectual foundation of free market ideology is a belief in the superiority of purely competitive markets over oligopoly. Unrestrained by concern for intellectual consistency and coherence, the central commitment of the Reagan-Bush policy agenda to "unfettering the market place" found expression not in efforts to break up oligopolies, but rather to doing away with the obstacles to corporate mergers and acquisition. The result has been a further concentration of corporate power.

Ultimately, the strategic coherence of the Republican policies was provided not by their pro-competition principles but by their anti-statist and pro-corporate thrust. From the viewpoint of the free-market vanguard which dominated Washington, state intervention via protectionism and foreign investment restrictions prevented U.S. capital from fully penetrating Third World Economies; aggressive state support for domestic firms in the NICs militated against the creation of a "level playing field" for U.S. corporations; and exorbitant taxation of the private sector and enforcement of environmental and labor standards prevented U.S. capital from becoming competitive with the formidable Japanese. Thus they sought to eliminate state supports for production in the South and the NICs, and to reduce state restraints on corporate activity in the United States.

In the South, the debt crisis of 1982 served as the opening for the imposition of the structural adjustment programs via the World Bank and the IMF that forced south to roll back state intervention in economic life. The aim was to weaken domestic entrepreneurial groups by eliminating protectionist barriers to imports from the North and by lifting restrictions on foreign investment; to overwhelm the weak legal barriers protecting labor from capital; and to integrate the local economies more tightly into the North-dominated world economy.

The consequences have been devastating. In the developing countries, an estimated 13-18 million people, mostly children, die from hunger and poverty each year. Women have been especially hard hit, since the higher physical demands on them, relative to men, necessitate calorie requirements that are often not met. Most "adjusted" countries have not even been able to reduce their external debts, ostensibly a primary goal of structural adjustment.

Against the NICs, trade policy was the weapon of choice. While Washington's immediate goal was to rectify trade imbalances by reducing NIC exports to the United States and prying open NIC markets, its strategic objective so clear in its treatment of South Korea, the NIC par excellence was to dismantle the system of state intervention and support that had enabled NIC producers, following the "Japanese mode," to compete successfully against American corporations not only in world markets, but in the U.S. market itself.

In the United States, "getting government off the back of business" took the form of a radical reduction of tax rates on the rich, removal of state restraints on corporate mergers and acquisitions, and weaker enforcement of environmental standards. Above all, it meant giving government support to aggressive corporate efforts to bust unions and weaken labor's resistance to the drive to achieve competitiveness by reducing wages and benefits, "downsizing" the domestic work force, and transferring manufacturing operations to cheap labor areas in the Third world. Ironically, a Republican regime pledged to arrest U.S. decline ended up accelerating it, though the elites who prospered handsomely at the expense of everyone else scarcely noticed.

By the end of the Reagan-Bush era, federal aid to the cities had plummeted by 60 per cent from its levels in 1981. The upsurge of crime, spread of drugs, and consolidation of inner-city poverty were among the predictable results. The successful assault on organized labor was apparent in wage trends: between 1979 and 1989, the hourly wage of 80 per cent of the work force declined, with the wage of the typical (or median) worker falling by nearly five per cent in real terms. Male workers with 12 or fewer years of schooling lost the most ground, with their hourly wages falling by 20 per cent.

While in Germany and Japan technology was employed to assist workers in gaining higher productivity, in the United States, it was used to displace them. Throughout the 1980's, corporations broke down the power of labor by substituting high-tech machines for well-paid skilled workers. For the most part, US corporations are meeting the competitive challenge of the 1990's by continuing the strategy of the 1980's. While Japanese firms cling with tenacity to their system of life-time employment, even US firms experiencing good times, such as Walmart and Procter and Gamble, have embraced downsizing as a basic strategy to maintain profit margins.

Although a new Democratic administration has ascended to power in Washington, hopes that it would break with the policies in place have proven to be largely misplaced. Continuing support for structural adjustment, an even more aggressive trade policy, the June 1993 bombing of Iraq ordered by president Bill Clinton, and support for the North American Free Trade Agreement (NAFTA) designed to consolidate cheap-labor preserves south of the border indicate continuity rather than the change that Clinton promised.

There is an alternative to the dark victory of the grim global future known as the "New World Order." However, bringing it about will mean eliminating its central cause, the restructuring of the world economy to consolidate the hegemony of Northern corporate capital. It will mean appealing to and promoting the common interests of workers of the North and workers of the South in repealing corporate-driven structural adjustment. It will entail forging across borders an alternative economic vision that brings the economy back under the control of the community.

An alternative economic system need not mean an end to competition, only its subordination to the strategic organizing principles of cooperation, equity, and sustainability. Indeed, in this post-Keynesian, post-Stalinist, post-Reaganomics world, the challenge to economic innovators is how to marry capitalism's unsurpassed ability to promote productive efficiency and technological innovation to the traditional socialist movement's concern for equity and the Green Movement's demand for a New Deal between nature and society. The universalizing logic of labor solidarity, community, equity, and ecological sustainability provides the foundation for this alliance.

If the Bank and Fund's 50th birthday is not an occasion to celebrate, it certainly provides an opportune time to assess the role and record of these powerful global institutions and the alternatives to the agenda they serve.

Walden Bello is senior analyst and former executive director of the Institute for Food and Development Policy and a contributing editor of the People-Centered Development Forum. He may be reached c/o Institute for Food and Development Policy, 398 60th St., Oakland CA 94618, U.S.A. (510) 654-4400; Fax (510) 654-4551; e-mail: foodfirst@icg.apd.org. This article was prepared and distributed by the People-Centered Development Forum based on his recent book Dark Victory: The United States, Structural Adjustment and Global Poverty co-authored by Shea Cunningham and Bill Rau available from the Institute for Food and Development Policy (see above) at $12.95 plus $3.50 shipping and handling. CA residents add sales tax. Outside the United States contact Pluto Press, 345 Archway Road, London N65AA, UK.

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