THERE'S A DANGEROUS FLAW IN “GLOBAL ECONOMY” CONCEPT

PCDForum Article #16 Release Date March 10, 1996

by David C. Korten

The annual meeting in Davos, Switzerland of the World Economic Forum has for years brought together top industrialists and political figures from around the world to advance the proposition that removing tariffs and other restrictions on the free international flow of trade and investment is a key to creating new economic opportunity and prosperity.

It was thus a noteworthy event when the Forum's founder, Klaus Schwab, and its managing director, Claude Smadja, publicly announced that economic globalization is producing disastrous consequences that threaten the political stability of the Western democracies. Their warning, which appeared in a recent International Herald Tribune opinion piece, bears close examination for being one of the most honest and accurate assessments of the consequences of economic globalization yet produced by leading advocates of that process. They observed that:

• Economic globalization is causing severe economic dislocation and social instability.
• The technological changes of the past few years have eliminated more jobs than they have created.
• The global competition "that is part and parcel of globalization leads to winner-take-all situations; those who come out on top win big, and the losers lose even bigger."
• Higher profits no longer mean more job security and better wages. "Globalization tends to delink the fate of the corporation from the fate of its employees."
• Unless serious corrective action is taken soon, the backlash could turn into open political revolt that could destabilize the Western democracies.

Schwab and Smadja go on to argue that the globalization process is irreversible and that the task for political and economic leaders is to demonstrate "how the new global capitalism can function to the benefit of the majority and not only for the corporate managers and investors" and convince the public that the current economic restructuring "will lead to renewed prosperity." They suggest a focus "on training and education, on the constant overhauling of telecommunications and transportation infrastructure, on entrepreneur-incentive fiscal policies, [and] on recalibrating social policies" to increase national competitiveness.

Unfortunately, these policies, which globalization boosters have been promoting for some time, have contributed significantly to advancing the inequality and social disintegration that Schwab and Smadja now call on the world's leaders to reverse. It is like a doctor telling a patient that death is inevitable and he should increase the dosage of the medicine that is killing him.

For nations, communities, and individual workers global competition is about competing against every other nation, community, and worker in the world for a declining pool of jobs by courting corporate favor. It is not about creating new jobs, but rather about redistributing them to those that are willing to give up the most in terms of wages, subsidies, tax breaks, working conditions, and environmental standards. More fundamentally it is about shifting wealth from communities and working people to corporations and share holders.

The real issues behind economic globalization relate to power. Most so called trade agreements, such as the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA), are really agreements securing the rights of global corporations to operate freely wherever they chose. These agreements advance the process of delinking global corporations from accountability to all interests save one-a global financial system that relentlessly demands ever increasing financial returns.

Accountable to the narrow interests of only one stakeholder, managers have little choice but to use the corporate power at their command to drive competitors from the market or absorb them through acquisitions, shed workers, bid down local wages and standards, and obtain ever greater subsidies and tax breaks from those localities they in turn favor with jobs. Those managers who do this successfully reap enormous financial rewards. Those who resist are cast out in favor of less principled replacements.

It is quite disingenuous of those who sit at the pinnacles of corporate power to advise nations and communities to make themselves more globally competitive. The recommended measures do little to expand the total pool of jobs or increase average wages and the standards that make for healthy nations and communities. Rather they simply increase the public subsidies to those corporate managers and shareholders. The extreme inequality that is creating dangerous social and political instability throughout the world is an inherent consequence of an economic system in which people and communities are forced to compete for favor with giant corporations accountable only to the interests of global financial markets.

Correcting the massive dysfunction that economic globalization has created will not be easy. The starting point must be a clear recognition that this dysfunction is inherent in a globalized economic system. We should also be clear that this system was put in place through intentional policy choices orchestrated by the powerful and well organized economic interests that have benefited from it. We can just as well put in place policies that result in a sharing of the benefits of technological change, and return both economic and political power to the local communities where people live and work.

This will require people and communities to recognize that their interests are better served by international cooperation than by global competition. Through cooperation we can put in place policies that create a bias in favor of local rather than global capital and production systems, help us to move toward greater equity, protect the environment, nurture cultural diversity and exchange, raise living standards, and share experience, knowledge and technologies to the benefit of all people everywhere. If Messrs. Schwab and Smadja and their colleagues in the World Economic Forum truly wish to forestall the mounting backlash against the disruptive consequences of economic globalization, they should take the additional step of acknowledging that economic globalization is itself an inherently bad idea and join in this challenging endeavor.

David C. Korten is the author of When Corporations Rule the World published by Kumarian Press and Berrett Koehler Publishers and president of the People-Centered Development Forum. This piece was originally published by Knight-Ridder Financial News, 75 Wall St., 22nd Floor, New York, N.Y. 10005 (Attn: Sally Heinemann, editorial director).

People-Centered Development Forum columns and articles may be reproduced and distributed freely with appropriate credits without prior permission. 

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