Thomas Palley

Progressives and trade unionists frequently complain about how globalization has tilted the playing field in favor of capital. By facilitating international trade and cross-border investment, globalization has enabled capital to go mobile. This has created multiple exit options for capital, and the credible threat of movement to other countries has raised capital’s economic and political bargaining power. Corporations, who control capital, have then used this increased power to shift income distribution in favor of profits, roll back taxes, and challenge policies promoting social protection and inclusion.

There is also another way in which capital has gone global, and that is through ideas and language. Business schools and university economics departments have provided capital with a globally shared framework and language for talking about the economy. From Washington DC to Tokyo, from Berlin to Brasilia, neo-liberal economists share a common “free market” frame that quickly allows them to establish shared conversations.

The ability to communicate with each other is a powerful force driving the politics and policy of globalization. The shared conversation establishes shared cross-border policy priorities, and policymakers, politicians, and journalists brought up on this language are led to see the world in a particular way. The fact that all use the same language also creates a massive global echo chamber that drives global understandings.

This is how the rhetoric and misleading idealizations of the invisible hand and the “natural” rate of unemployment have come to dominate public discourse. Thomas Friedman’s ”flat world” [http://en.wikipedia.org/wiki/The_World_is_Flat] smacks of a level playing field, yet globalization produces anything but. Workers do indeed compete internationally against each other, but that competition has been structured and designed by global corporations, not by an invisible hand.

Progressives and organized labor lack an equivalent simple framework for explaining the global economy, which is a huge disadvantage in the struggle for a fair and just globalization. When trade unionists from different countries gets together, this lack of a common analytical framework results in fractured conversations that obstruct the development of common understandings and policy priorities. It also obstructs the development of a global echo chamber to counter that of capital.

The lack of a shared language is a serious problem that hampers labor’s efforts to counter the underlying problem of capital’s newfound global mobility. Labor cannot go mobile, and nor should it. Moving machines and factories between countries is one thing: having workers uproot and migrate is another. Instead, labor needs to establish international agreement and solidarity that can enable new strategies and policies that again corral capital and restore a human face to capitalism. Language is critical for this.

Proponents of corporate styled globalization use the metaphor of a sunny flat world to describe the economy. Advocates for workers should adopt an alternative metaphor: a box. The box describes how workers are being boxed in and squeezed from all sides by today’s corporate inspired economic order. The box has four sides: globalization, less than full employment, small government, and labor market flexibility. These four sides describe the neo-liberal policy paradigm, which puts workers under continuous economic pressure that none can escape.

Private sector workers are pressured by globalization, which allows corporations to put them in international competition with oppressed low-wage workers in less developed economies. Public sector workers are pressured by the small government agenda that emphasizes privatization and places them in competition with private sector workers. Both groups of workers are pressed by policies that accept less than full employment and promote labor market flexibility. Less than full employment is where central banks enter the picture, as they keep interest rates high in the name of price stability, thereby preventing full employment. Labor market flexibility strips workers of employment and social protections, erodes the minimum wage, and makes union organizing near impossible.

The box can provide labor with a framework for a global economic conversation. Most importantly, it provides a compelling alternative to the metaphor of a flat world. Second, it provides a clear link between the economy and policy, driving a stake through the notion of a natural economy and emphasizing the significance of policy. Third, the box helps identify unities and disagreements between both northern (developed) and southern (developing) country workers. Among northern workers there is widespread agreement about the threat posed by the labor market flexibility, small government, and less than full employment pieces of the neo-liberal agenda. But there are differences about globalization and free trade. For instance, Canadian, Swedish, and German unions tend to be much more pro-free trade. Labor needs to understand the sources of these differences and what can be done about them if it is to offer a winning alternative to corporate globalization.

Canada is significantly a raw material exporter, which lends to classical comparative advantage arguments in favor of trade as it makes sense to get raw materials from the most abundant locations. Germany runs massive trade surpluses on the back of a relatively under-valued exchange rate. While Sweden has tended to have an under-valued exchange rate, and has several national industrial champions (think Volvo, Saab, Ericsson) that have given it a global edge. It also has labor market policies that assist workers displaced by trade. For northern unions the challenge is to negotiate whether these country-specific features are decisive, or whether there is better solidarity agenda that emphasizes fairly valued exchange rates and rules for global competition.

Globalization also divides northern and southern workers, a division that is repeatedly exploited by business-friendly policy elites. Developing country workers are familiar with the World Bank – IMF labor market flexibility, privatization, and small government agenda. They are also familiar with high interest rate policies that stifle growth. However, they frequently split on the issues of labor standards and export-led growth based on under-valued exchange rates. Here, they argue that cheap exploitable labor is a legitimate source of comparative advantage and that unbridled competition is the best path to development.

The box provides a simple framework for identifying both the extensive nature of agreement and where disagreement exists. The points of agreement provide an opportunity to build a robust global echo chamber, while identifying points of disagreement is the necessary first step to seeing if these can be resolved. The box neatly frames the problem and opens the way for a richer conversation that can identify coherent economic policy alternatives to the neo-liberal policy mix.

Finally, the box has one further political benefit. Using the box to describe the new global economic order highlights the support for anti-worker policies by the major political parties. In the U.S., both Republicans and “new” Democrats have pushed the box policy agenda. In Germany, the Social Democrats have also been drawn in this direction, as evidenced by their split over the “Agenda 2010” labor market flexibility debate [http://en.wikipedia.org/wiki/Agenda_2010 – External_links]. To paraphrase Rich Trumka, Secretary – Treasurer of the AFL-CIO, economic policy today is like a restaurant with one chef and two waiters serving the same meal – and it tastes like crow no matter who serves.

This entry was posted on Sunday, September 17th, 2006 at 7:57 pm and is filed under Political Economy. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.