Public Institutions and Civil Society
Council of Europe Conference
Strasbourg, 31 May - 1 June 1999
The Council of Europe is an interesting, not very well-known institution with headquarters in Strasbourg. For decades before the end of the Cold War, it counted both Eastern and Western European countries among its 41 members and thus kept bridges in repair at a dark and difficult time. It often deals with cultural subjects and is undaunted by vast, not to say unmanageable topics: this paper was written as one of four introductory reports for a Conference called "Market Society, Democracy, Citizenship, Solidarity: a Confrontational Space?"
I say what I think of the juxtaposition of "market" and "society" in the opening section. The Conference, organised by Roberto Laporta of the Council and Consultant Patrick Kochersperger, brought together an outspoken, interesting mix of people and took place in the grand and formal parliamentary chamber also used by the European Parliament for plenary sessions until in moved into its own home in the summer of 1999. My assigned subject, as the reader will see, was nearly as broad as that of the Conference itself and correspondingly tries to cover quite a lot of ground.
In 1944, the philosopher-historian-anthropologist-economist Karl Polanyi published his masterwork, The Great Transformation. A fierce critic of the market-based "disembedded" society created by the industrial revolution in England, Polanyi declared, "To allow the market mechanism to be sole director of the fate of human beings and their natural environment ...would result in the demolition of society". Polanyi was convinced, however, that the danger was past; such a demolition of society could no longer occur in the post-war world. History was taking a turn for the better: "Within the nations we are witnessing a development under which the economic system ceases to lay down the law to society and the primacy of society over that system is secured". (1)
Polanyi's observations could be a template for the title of this portion of the Council of Europe Conference on "Market Society, Democracy, Citizenship and Solidarity: A Confrontational Space?" He would have reacted immediately: the "market society" is a contradiction in terms and antithetical to democracy, citizenship and solidarity. He would also have been appalled that it should have become necessary to reaffirm this point in the final year of the 20th century.
Indeed, though Polanyi's diagnosis was and remains accurate, his historical optimism was misplaced. The institutions of the post-war European Welfare State which he believed definitive are today under serious threat. The taxation-redistribution mechanism upon which modern social democracies have traditionally depended has been terminally disrupted by the internationalisation of capital and income which escape the territorial and fiscal reach of national authorities. Nor can political control be exercised over Transnational Corporations [TNCs] or international financial markets. The "votes" of speculators, who continually evaluate national economic and social policies, now outweigh the votes of citizens. Polanyi's nightmare scenario of the "market mechanism [as] sole director of the fate of human beings and their natural environment" has returned with a vengeance.
This paper will try briefly to explain why the social democratic Welfare State model is gravely endangered and will argue that, as Polanyi foresaw, this evolution can indeed lead to the "demolition of society" unless citizens and their governments act politically in order to:
- confine the market to its rightful place;
- reaffirm the essential role of the public good and the democratic nation-state;
- enlarge the concept and the scope of "responsible citizenship" to encompass the international sphere.
The Welfare State: Public Good or Public Enemy?
The Council of Europe, whose half century we celebrate at this Conference, was born at a propitious time for democracy. New or rejuvenated public institutions were being created through scores of redistributive measures - health services, social security, stronger labour laws and legal protection for trade unions, retirement benefits for the aged, guaranteed prices for farmers, low-cost housing, public transport, subsidised cultural activities, nationalised energy and utilities - all these and many other similar policies were the bread and butter of the post-War agenda. The International Bank for Reconstruction and Development [now the World Bank] and especially the Marshall Plan allowed Europe to get back on its feet and become once more the most important trading partner of the United States.
These policies proved, on the whole, successful. Life expectancies rose steadily along with standards of living, children were better educated, people were healthier, elders could count on a dignified end to their lives. Without idealising social democracy or the achievements of the Welfare State, one can still affirm that they reduced economic disparities, diminished the stress and anxieties of daily life and improved national cohesion without diminishing individual freedoms - quite the contrary. A glance at the popular press of the day shows that if people were concerned about the future, it was often to ask how society would be able to cope with so much abundance and leisure.
Encouraged by the decolonisation process, many people also believed that, little by little, similar policies would prevail in what was later to be called Third World; it seemed that the rich-poor gap could be substantially reduced between nations of "North" and "South" just as the Welfare State was reducing the gap within them. Such aspirations seemed quite reasonable at the time.
Why, then, has neo-liberalism, the term we will use here as shorthand for the set of policies placing the market mechanism at the epicentre of economic, political and social life, once more gained the upper hand? Why does the socially "disembedded" model Polanyi believed was gone for good now dominate national as well as international institutions? Why have economic disparities vastly increased inside the prosperous industrialised countries at the same time the North-South gap has become a chasm?
The answer may lie partly in the natural wear and tear of policies in effect for decades. Contradictions, inadequacies and poor adaptation of institutions to new circumstances are bound to arise, but these alone cannot explain the success of neo-liberalism. Nor is the collapse of the Soviet Union a sufficient reason to enforce policies that are throwbacks to those of the nineteenth century, even though the absence of an alternative model, however flawed, undoubtedly strengthened the hand of neo-liberals.
The anti-worker, anti-social policies we witness in country after country do seem to be the result of a conscious effort to reverse the gains of the past half-century. Lest this statement appear to partake of "conspiracy theory", let us cite the Swedish economist then working for Lehman Brothers, London. who, asked if a stringent austerity budget voted by a newly elected Swedish social democratic government "was enough", replied that it was a "step in the right direction" but that it was "not nearly enough". Indeed, he declared, "people must understand that global financial markets are on a religious crusade to roll back social democracy around the world". (2)
How to "Roll-back" Social Democracy
I have argued in detail elsewhere (3) that much of the reason for neo-liberalism's dominant position today can be traced to the remarkable intellectual cohesion of its supporters and their willingness to pay hundreds of millions of dollars in pursuit of cultural hegemony in the fully Gramscian sense of the term. In Gramsci's reference to Machiavelli, the "Modern Prince" establishes hegemony through a slow changing of people's consciousness during a period of "passive revolution". By "hegemony", Gramsci meant that, without the use of force, one class has succeeded in persuading all the others to accept its own moral, political and cultural values. (4)
In our own time, this successful class is international in composition and in scope. Its representative institutions are Transnational Corporations [TNCs], large private financial institutions, foundations and "think-tanks" and, in the public sphere, bodies like the World Bank, the International Monetary Fund and the World Trade Organisation. The leading role of the United States in furthering the interests of these private sector actors has been characterised by the celebrated Columbia University Professor of Economics Jagdish Bhagwati as the "Wall Street-Treasury Complex"[on the model of President Eisenhower's military-industrial complex]. (5) Professor John Williamson, then of the Institute of International Economics, preferred to call it the "Washington Consensus". (6)
The agenda of this international minority led by the United States - whether one chooses to call it a Complex or a Consensus - was economic growth through free markets, free trade, free capital movement and free investment; deregulation and downgrading of the role of the state combined with wholesale privatisation of public services - in a word, the opposite of the Keynesian or social democratic paradigm. Social equity, much less environmental health, figured nowhere among its concerns.
As the Lehman Bros. banker said so candidly, the goal of this international class has always been to "roll back" the post-war Welfare State and to destroy the public institutions which underpin it. The "religious crusade" he referred to has grown from a small, unpopular sect with virtually no influence [clustered around Friedrich von Hayek and Milton Friedman at the University of Chicago in the early 1950s] to become a worldwide orthodox faith with its own doctrine, priesthood, law-giving institutions and hell for sinners who dare to contest the revealed truth. For example, Oskar Lafontaine, the ex-German finance minister whom the Financial Times called an "unreconstructed Keynesian", was consigned to this hell for daring to propose higher taxes on corporations and tax cuts for ordinary families.
Roll-back in Britain...
Still, ideological power without political power is of little use. Although the intellectual and ideological groundwork had been prepared well before, the neo-liberal era really begins with the election of Margaret Thatcher in 1979. Readily proclaiming her allegiance to Hayek and the Chicago School, she undertook the "roll-back" revolution in Britain through massive privatisations (7), a concerted assault on the trade unions, lower taxes for the rich and higher ones for the poor, plus sharp cuts in welfare spending and investment in public goods like health, education and housing.
In pre-Thatcher Britain, about one person in ten was classed as living below the poverty line, not a perfect record but honourable as nations go and in any case far better than Britain's in the pre-War period. Twenty years later, by 1996, one person in four, and one child in three, was officially considered poor. The physical reality of roll-back is millions of people who cannot afford to heat their homes in winter, who must put a coin in the meter before they can have electricity or water, who do not own a warm waterproof coat, who do not have access to fresh foods. (8)
Thanks to Thatcher-Major tax policies, during the 1980s, the top one percent of taxpayers received 29 percent of all the tax reduction benefits, with the result that a single person earning half the average salary found his or her taxes had increased by 7 percent, whereas a single person earning ten times the average salary received a 21% tax reduction. The cumulative impact of Tory "reforms" was to reduce the incomes of the poor by 18 percent between 1979 and 1996. (9)
In the United States...
One can cite similar evidence for the Reagan years in the United States. Kevin Phillips, a Republican analyst and former aid to President Nixon, charted the drastic changes in American income distribution that occurred between 1977 and 1988. During this decade, the top 10 percent of American families increased their average family income by 16 percent, the top 5 percent increased theirs by 23 percent, but the extremely well-off top 1 percent of American families could thank Reagan for a 50 percent increase - their revenues went from an affluent $270.000 to a heady $405.000.
As for poorer Americans, the bottom 80 percent all lost something; true to the rule, the lower they were on the scale, the more they lost. The bottom 10 percent of Americans reached the nadir: according to Phillip's figures, they lost 15% of their already meagre incomes: from an already rock-bottom average of $4.113 annually, they dropped to an inhuman $3.504. (10) Expressed another way, in 1977, the top 1 percent of American families had average incomes 65 times as great as those of the bottom 10 percent. A decade later, the top 1 percent was 115 times better off than the bottom decile.
... And in the World at Large
Britain and the United States are among the most unequal of the developed countries, but virtually all countries have seen inequalities increase over the past twenty years due to neo-liberal policies. In 1997, UNCTAD published evidence based on some 2600 separate studies of income inequalities, impoverishment and the "hollowing out" of the middle classes. The UNCTAD team documents these trends in dozens of widely differing societies, including China, Russia and the other former Socialist countries. (11) Policies similar to those of Thatcher/Reagan have been imposed internationally throughout the South and in the former Soviet Union and its satellites under the guise of structural adjustment policies [SAPs] designed by the International Monetary Fund and the World Bank.
The theoretical and ideological justification for redistribution of wealth to the best- as opposed to the worst-off is as follows: increased incomes for the rich and higher returns to capital will lead to more investment, more efficient allocation of resources and will consequently provide more employment and greater welfare for everyone. Rich people's money is thus assumed to have a higher "multiplier effect" than poor people's. In reality, people at the top end of the scale already have most of the goods they need; they contribute relatively little to the national or local economies. The bulk of their wealth [technically known as "savings"] heads straight for financial markets, with much of it placed in purely speculative financial instruments.
If income is redistributed instead towards the bottom 80 percent of society, it is almost all used for current consumption and consequently contributes to the local and national economies and to employment. [For this reason, some economists have recommended paying salaries above a certain figure in depreciable currency which cannot be saved or invested but must be spent on tangible goods and services within a defined period, usually a year after issue.]
Why Upward Distribution of Wealth Leads to Financial Crisis
According to the Bank for International Settlements [BIS], industrialised country "institutional investors" [pension funds, insurance companies and investment companies] in 1995 were in command of more than $21.000.000.000.000 [$21 thousand billion or $21 trillion] worth of financial assets, half of them American. (12) This astonishing figure does not include the assets of international commercial banks; to place it in perspective, it is equivalent to more than three-quarters of Gross World Product or to $3500 for every person alive today.
These assets are volatile. If money managers detect financial instability or mismanagement in any investment arena, they will exit at the stroke of a computer key, displaying what the BIS refers to as "herding" behaviour. A mere one percent of their equity holdings is "equivalent to a 27% share of market capitalisation in emerging Asian economies and a share of over 66% of Latin American equity markets". (13)
Because of their comparative weight, very small shifts in these giant portfolios can cause turmoil in small, vulnerable markets; and even in larger ones. Let us not forget George Soros' coup against the British pound, nor the fact that in 1992-93 the Banque de France lost the totality of its reserves in a vain attempt to defend the parity of the franc. No one should be surprised at the kinds of financial crises we have since witnessed in Mexico, Russia, Asia or Brazil. There will be others in future. As a result, and with the added disadvantage of the IMF's "credit crunch" measures, tens of thousands of small enterprises have failed in these countries and tens of millions of workers have lost their jobs.
International Finance and the Hostage State
Financial managers demand maximum returns on their capital and will move wherever these returns are highest. Nations, regions and firms are all placed in competition to attract their investments, making it far more difficult for governments to regulate their own economies. A whole new - and deceptive - vocabulary has sprung up in the past decade based on the exorbitant demands of capital for the highest possible remuneration. Even "investment" does no longer means what it sounds like: depending on the year, two-thirds to three-quarters of all "investment" is actually devoted to mergers and acquisitions which invariably result in massive job losses. So-called "portfolio investment" is notoriously unstable: as one currency trader put it, "For me, 'long term' means ten minutes".
In the same vein,
- "Competitivity" means a government's willingness to organise the national space in order to provide maximum return to capital;
- "Flexibility" of the labour force means a government's willingness to sacrifice the hard-won gains of its own working class [wages, benefits, decent working conditions] in order to be more "competitive" [see above];
- "Privatisation" of public assets means a government's willingness to alienate or surrender the product of decades of work by thousands of people, transferring it to large private shareholders;
- "Deregulation" means a government's willingness to give up its sovereignty for the benefit of transnational corporations and financial market operators.
Governments unwilling to sacrifice their public institutions to private interests are labeled "backward" or worse: thus Germany is accused of "a preference for the status quo which puts the brakes on adaptation to the globalised economy" and Mr Schroeder is faulted because he has never explained how he proposes to "lift Germany from its position in 24th place in the World Economic Forum global competitiveness rankings or improve the average return on investments by companies from 12 percent to the United States' level of 20 percent." (14)
This statement, typical of what one may read in the press every day, is significant for several reasons:
- "A preference for the status quo" means hanging on to social protection and redistributive Welfare State measures rather than caving in to the demands of transnational corporations and financial firms. This is clearly a sign of backwardness;
- The statement assumes that a private body, in this case the World Economic Forum [the Davos group] made up of the top representatives of international capital, should be arbiter and rank nations according to the returns they are willing to provide to capital;
- An average 12 percent return on corporate capital, which Germany is still providing despite its "preference for the status quo" is woefully inadequate. A 12 percent return only merits 24th place in the Davos rankings, whereas 20 percent is available in the United States and elsewhere;
- Some people still foolishly assume that a company is "profitable" so long as it is not making a loss. Such beliefs are here revealed not merely as naive but as heretical, as Messrs Lafontaine, Schroeder and others ought to recognise.
When shareholders have received their 20 percent - why not 25 or 30 percent? - they can see if anything is left over for employees, for the community in which the firm happens to be based or for a fiscal contribution to the state budget.
This is the real meaning of neo-liberal globalisation and the roll-back of social democracy: governments once capable of protecting their own citizens are now called upon to sacrifice their sovereignty and their citizens to the interests of maximum shareholder value. Public, national institutions which stand in the way of this goal must be abandoned, demolished or, in more polite terms, "deregulated".
International Institutions in the Service of Neo-liberalism
"Deregulation" applies only to national institutions. No system, including a "free-market" system can exist without rules and internationally, new rules are being made every day by global institutions whose mission is to codify and entrench the three fundamental freedoms of neo-liberalism:
- freedom of capital circulation
- freedom of trade in goods and services
- freedom of investment
The International Monetary Fund is the principle international institution concerned with freedom of capital circulation. It has been strengthened enormously over the past twenty years, principally through the debt crisis and the mechanism of conditionalities attached to its structural adjustment loans. From its initial mandate of balance of payments support, the IMF has become the quasi-universal arbiter of "sound" economic policies. The Fund has also recently attempted to modify, for the first time, its 1944 Articles of Agreement in such a way that member countries would be obliged to liberalise their capital accounts and could no longer prevent the entry or exit of capital of any provenance or for any duration. (15)
The World Trade Organisation, established in January 1995 at the end of the long and laborious GATT negotiations, has taken charge of free trade in goods and services. It has far more powers in this regard than GATT had; for example its [non-transparent] Dispute Resolution Mechanism is binding on all members and without appeal. In the name of greater liberalisation, WTO panels have, so far, consistently ruled against environmental restrictions to trade and the Organisaiton has determined that all matters relating to labour protection should be taken to the ILO which has not made a binding decision in living memory.
At its Third Ministerial meeting [Seattle, November-December 1999] the WTO is scheduled to extend its jurisdiction to agriculture and services and to revisit the Intellectual Property Agreement [TRIPS]. At present, several of its most powerful members, including the European Commission, are attempting to add investment, competition policy, government procurement and electronic commerce to the Seattle agenda. The whole package [including agriculture, services and TRIPs] would be called the "Millennium Round". As of this writing, the Millennium Round, however desirable some may find it, has no legal status whatsoever. (16)
It is worth noting that at least one-third of all international "trade" consists in intra-firm transactions between different branches of the same Transnational Corporation or between the head office and its affiliates and cannot be considered in any normal sense of the word "national" trade. (17) Some sources claim that a further third of world trade takes place between different TNCs. In any case, the trade regime as developed by the WTO is clearly biased in their favour.
The Multilateral Agreement on Investment [MAI] was an initial and nearly successful attempt to make binding and universal rules to liberalise investments. Thanks to citizens' efforts in many countries, this Agreement failed after three years of negotiations at the OECD. The MAI would have included not just Foreign Direct Investment but also Portfolio Equity Investment, natural resources, real estate including farmland, intellectual and cultural property. The imposed investment regime would have been that of "right of establishment" as opposed to "permission of establishment"; the principles of National Treatment and Most Favoured Nation would have applied and no area was to be excluded save that of the police and national defense. The MAI further outlawed all "performance requirements" and its dispute resolution mechanism was based on investor versus state lawsuits [state versus investor was not allowed] and it defined expropriation broadly so as to include future, as-yet-unearned profits. This free-standing, top-down treaty would have given all rights to corporations, all obligations to governments and no rights at all to citizens. Although it has failed temporarily, it is likely to resurface at the WTO Third Ministerial as part of the Millennium Round under the heading of "investment" [see supra].
The common denominator of all these international institutions is not only their mandate to establish the maximum degree of liberalisation in their several areas but also their lack of transparency and of democratic accountability. In the neo-liberal world view, because the market should dictate its rules to society and not the contrary, democracy is an encumbrance. The task of these international institutions is not to be accountable to any citizenry but to smooth the way and write appropriate rules for the optimum functioning of transnational corporations and financial investors.
Corporate Penetration of Public Institutions
Such a view is confirmed by the increasing penetration of international institutions, including the United Nations and its specialised agencies, by the lobbying arm of transnational corporations. Without entering into a detailed discussion of this phenomenon, one can still cite several instances.
- The European Roundtable of Industrialists has been deeply involved in the definition of European Union policies [Presidents of 45 European TNCs, HQ and staff in Bruxelles, actively lobbying since the early 1980s] (18).
- The World Business Council for Sustainable Development played a substantial agenda-setting role at the UNCSTED [Rio] Conference and continues successfully to impose the view that corporations are capable of self-regulation [in this case where environmental protection is concerned] so do not need to be regulated by external bodies.
- The Geneva Business Dialogue, promoted by Helmut Maucher, President of Nestlé and of the International Chamber of Commerce has been given the blessing of Kofi Annan. This Dialogue brings together top executives and international civil servants of the UN and agencies like the World Bank, IMF and WTO with the aim of increasing "mutual understanding between business leaders and international organisations". The Geneva Business Declaration [September 1998] stated that:
"A more substantive involvement of business must be part of the reform [of the UN]. Here, the International Chamber of Commerce has confirmed and strengthened its position as THE voice of business through a close working relationship with the WTO and constructive consultations with the UN Secretary General and the heads of UN agencies".
- UNCTAD has its "Partners for Development" programme with business and, more important, the UNDP is stressing the Private Sector Development Programme in which partner corporations will implement development projects and be allowed to use the UN logo. As the Administrator of UNDP says to his staff in an internal memo encouraging them to "reach out to the corporate sector", "The Secretary General [Kofi Annan] has made clear that he welcomes efforts of the United Nations system to work with corporations". (19)
- Finally, the little-known Transatlantic Business Dialogue [TABD] was established in 1995 to set the agenda for the New Transatlantic Marketplace, recently rechristened the Transatlantic Economic Partnership [TEP, between the United States and Europe]. The TABD, made up of the highest echelons of business leaders from both sides of the Atlantic meets annually with major international figures. In between these large gatherings, its various committees pilot the actual work of the TEP, particularly the series of Mutual Recognition Agreements between the US and the EU. These Agreements are designed to ensure that any product which can be sold on one side of the Atlantic can automatically be sold as well on the other. President Clinton has said, "I want to especially thank the Transatlantic Busines Dialogue for their leadership in these [mutual recognition] agreements". (20) His Secretary of Commerce concurred: "The TABD said it was important; we heard them and acted." (21)
One of the chief Mutual Recognition Agreements concerns food products, including such hotly disputed issues as hormone-fed beef, genetically modified crops and the like, which few Europeans want to eat. The US Under-Secretary of Commerce for International Trade has noted, "Unfortunately, the European Union, which is a major market for US foods, feed ingredients and other agricultural products, has a slow and unpredictable process for approving new US agricultural products developed through advanced biotechnology". (22) The TABD and the TEP are expected to supersede these "slow and unpredictable" processes.
What Place for Participatory Democracy and Responsible Citizenship?
It may seem all too true that neo-liberal globalisation has managed to close off most of the escape routes, that the capacity [and often the will] of individual states to control their own affairs has been seriously eroded, that non-transparent, unaccountable international institutions have assumed a far greater political role than formerly. What, then, are the prospects for citizens and for democracy? Are these prospects really as bleak as they may first appear? As stated at the outset, the answers to these questions will depend on the capacity of citizens and their governments to
- confine the market to its rightful place;
- reaffirm the essential role of the democratic nation-state;
- enlarge the concept and the scope of "citizenship" to encompass the international sphere.
The author of this paper is aware that many of the following remarks are likely to appear both heretical and utopian. That is no reason for not fulfilling her contract.
Confining the Market to its Rightful Place
The market has its place and its space, but must not occupy all the places or spaces of society. It performs many functions well - no one wants to have an argument over the price every time they buy a loaf of bread or a cup of coffee - but should not be asked to do what it cannot do, in particular define our social relations. As Polanyi so eloquently explained, the market left to itself will move wealth upwards, exclude untold numbers from its benefits and increase social disparities and tensions to the breaking point.
Nor does anyone want a "State Socialist" system along the lines of the failed Soviet Union which was both intolerably repressive and grossly inefficient. The State should not, with few exceptions, be involved in the actual production of goods and services. But natural monopolies should be recognised as rightfully belonging to the public sphere and privatisation should not be allowed to take on religious or doctrinal overtones. There is no reason that vital sectors of national economies should be opened to private capital which has no interest in the destiny of this or that nation. In particular, when the "20 percent rule" of return on capital prevails, there is little leeway for a credible industrial, employment or public service policy. [See note 7 for more detailed remarks on privatisation].
Some hopeful signs among citizens in this area include the revolt of European consumers against genetically modified organisms and the corporate takeover of farming and the food supply. In many countries, workers have rallied to the defense of public services [and have been ridiculed as retrograde or interested solely in the defense of narrow, specialised interests]. The support of the French public for the long transport strikes in the winter of 1995, despite great personal inconvenience and government efforts to discredit the strikers, was a remarkable testimony of their attachment to the public sector.
Reaffirming the Essential Role of the Democratic Nation State
In recent years, there has been a trend toward democracy and market economies. That has lessened the role of government, which is something business people tend to be in favor of. But the other side of the coin is that somebody has to take governments' place, and business seems to me to be a logical entity to do it. - David Rockefeller (23)
Despite the best efforts of the private sector and of international institutions to downgrade them, states still have more power than they often appear willing to recognise. A great puzzle for the citizen-activists who fought against the Multilateral Agreement on Investment [MAI] was the willingness of OECD governments to relinquish a huge portion of their national sovereignty while receiving no discernible advantages in exchange. Need one subscribe to the Marx-Engels view of the state as the "executive committee in charge of managing the affairs of the bougeoisie" to explain such a surrender?
One can argue, rather, that the modern state is so complex and full of internal contradictions that the right hand often does not know what the left hand is doing. In the case of the MAI, beyond finance ministries and treasuries, there was no knowledge of the proposed agreement in other ministries - much less among parliamentarians. In an age when highly political measures are presented as purely technical [cf. the Mutual Recognition Agreements of the TEP] a new "democratic division of labour" is required. Monitoring the implications of corporate-inspired proposals is a task citizens have so far had to undertake on their own. Governments ought to set up special bodies to examine these proposals for international agreements, open to citizen participation. Let us not forget the prudent wisdom of the father of modern capitalism, Adam Smith, who judiciously reminds us,
"The interest of dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public... The proposl of any new law or regulation which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have upon many occasions, both deceived and oppressed it." (24)
Two hundred years later, there is no reason to suppose that "this order of men" cares any more about the interest of the public today than they did then. They do not want to incur any costs which might detract from "shareholder value". Among these costs are taxes, which transnational operators of all kinds make an art of avoiding.
The dilemma for governments is to maintain or institute welfare and social democratic protection for their citizens at the same time their tax base is fading away. Wealthier citizens manage to place their revenues offshore and corporate entities often escape taxation altogether. In 1998, the United States federal government expected to collect only 12 percent of total revenues from corporate taxes. Three-quarters of foreign firms registered in the United States pay no taxes at all. (25)
Corporate taxes as a proportion of European government incomes have also drastically diminished (26), with the result that these governments understandably try to keep their revenues stable through all available means. More often than not, this means taxing whatever incomes, consumption and savings are local and immobile as opposed to international and footloose. This will ultimately be a losing game for governments and their citizens, unless international capital can be taxed. Many proposals for taxes on transnational coporations and financial transactions have been suggested. (27)
An encouraging sign is the 23 March 1998 vote of the Canadian Parliament in favour of a "Tobin Tax". This resolution obliges the government to bring the subject to the attention of the 1999 G7 meeting in Cologne. Citizens must press their governments to cooperate in instituting such taxes. Just as an income tax was at the top of the political agenda a century ago, so today no task is more urgent than gaining a hold over transnational capital. Only nation-states can protect their own people; only nation states can, together, seek out the material means to do so.
Enlarging the Scope of "Citizenship" to Encompass the International Sphere
One must understand that the neo-liberal order has been deliberately created by people with a purpose. When one grasps that this vast experiment is not the result of a natural, immutable force like gravity but a totally artificial construct, then one can also recognise that what some people have created, other people can change. For this to happen, citizens must link across borders and sharpen their transnational response to the transnational threat.
The twin tasks of greatest urgency are to reduce inequalities within and between nations. Suppose that international taxation could be instituted: a substantial part of it ought to be devoted to reducing and eventually closing the North-South gap. The good news is that, at least according to the UNDP, a tiny fraction, an infinitesimal proportion of the money moving on financial markets every day could provide a decent life to every person on earth, supply universal health and education, clean up the environment and prevent further destruction to the planet. The UNDP calls for a paltry $40 billion a year. This is not merely solidarity but good sense - otherwise instabilities and ecological ruin will drag everyone down together.
Finally, international institutions must be democratised. A coalition of international activists only yesterday obliged the neo-liberal establishment to abandon, at least temporarily, its project to liberalise all investment through the MAI. The surprise victory of its opponents infuriated the supporters of corporate rule and demonstrates that well organised, international citizen networks can win battles.
Citizens have the numbers on their side: there are far more of them than of those who profit from the neo-liberal game. Citizens have shown that they have ideas as well, and given the chance can invent solutions to their problems. Neo-liberal ideas, on the other hand, are being called increasingly into question as the crisis deepens. What citizens lack, so far, is international organisation and unity; obstacles which in the age of advanced technology can be overcome. Responsible citizenship today means finding the synergies in each other's struggles, across borders, so that numerical force and the power of democratic ideas become overwhelming. Let us hope that Europe and Europeans will be in the forefront of this effort.
1. Karl Polanyi, The Great Transformation, original edition, New York, Rinehart and Co. 1944; Beacon Press, Boston 1957, quotes pp. 73 and 251.
2. Cited in Manfred Bienefeld, "Can finance be controlled?", paper for the Bangkok Conference on Economic Sovereignty in a Globalising World, Focus on the Global South, Chulalongkorn University, 23-26 March 1999. I am grateful to Professor Bienefeld for sending me the original source of this quote: the Swedish economist Keld Holm, then working for Lehman Brothers, was cited in "Around the Globe", Toronto Globe and Mail, 16 January 1995.
3. Susan George, "How to Win the War of Ideas: Lessons from the Gramscian Right", Dissent [New York], Summer 1997.
4. Antonio Gramsci, Prison Notebooks ["Quaderni del Carcere]; extracts as translated and commented by James Joll, Gramsci, Fontana Modern Masters Series, London 1977, pp.99ff.
5. Jagdish Bhagwati, "The Capital Myth", Foreign Affairs, Vol 77 No.3, May-June 1998.
6. John Williamson articulated the concept of the "Washington Consensus" in various papers for the Institute of International Economics in 1989-1990, notably "The Progress of Policy Reform in Latin America", Policy Analyses in International Economics, IIE, Washington, D.C. January 1990.
7. Although privatisation cannot be made central to this Report, the subject deserves a special place in any discussion of public institutions and civil society. Here is a brief one:
Until recently, all developed capitalist countries, particularly in Europe, prided themsevles on their public services. Confusing public services with some sort of "socialism" is to misunderstand their nature: they are compatible with capitalist economies because they constitute what economists call "natural monopolies". A natural monopoly exists when the minimum size to guarantee maximum economic efficiency is equal to the actual size of the market. In other words, a company has to attain a certain size in order to realise maximum efficiency through economies of scale and thus provide the best possible service at the lowest possible cost to the consumer. Public services also require very large investment outlays at the beginning - like railroad tracks or power grids - which do not encourage competition. Despite the obvious advantages of public services for the community, neo-liberals define anything public as ipso facto "inefficient".
What happens when a natural monopoly is privatised? Quite normally and naturally, the new capitalist owners tend to impose monopoly prices on the public, while richly remunerating themselves. Classical economists call this outcome "structural market failure" because prices are higher than they ought to be and service to the consumer is almost always below the optimum. In order to prevent structural market failures, until the mid-1980s, the capitalist countries of Europe almost universally entrusted the post office, telecomms, electricity, gas, railways, metros, air transport and usually other services like water, rubbish collection, etc. to state-owned monopolies. The USA is the big exception, perhaps because it is geographically too big to favour natural monopolies.
In any event, Margaret Thatcher set out to change all that. As an added bonus, she could also use privatisation to break the power of the trade unions. By destroying the public sector where unions were strongest, she was able to weaken them drastically. Thus between 1979 and 1994, the number of jobs in the public sector in Britain was reduced from over 7 million to 5 million, a drop of 29 percent. Virtually all the jobs eliminated were unionised jobs. Since private sector employment was stagnant during those fifteen years, the overall reduction in the number of British jobs came to 1.7 million, a drop of 7% compared to 1979. To neo-liberals, fewer workers is always better than more because workers impinge on shareholder value.
The other effects of privatisation were also predictable and predicted. The managers of the newly privatised enterprises, often exactly the same people as before, doubled or tripled their own salaries. The government used taxpayer money to wipe out debts and recapitalise firms before putting them on the market - for example, the water authority got £5 billion of debt relief plus £1.6 billion ["the green dowry"] to make the bride more attractive to prospective buyers. A lot of Public Relations fuss was made about how small stockholders would have a stake in these companies - and in fact 9 million British subjects did buy shares - but half of them invested less than £1000 and most of them sold their shares as soon as they could cash in on the instant profits.
From the British example, one can see that the point of privatisation is neither economic efficiency nor improved services to the consumer but simply to transfer wealth from the public purse to private hands. In Britain and elsewhere, the overwhelming majority of privatised company shares now belong to major financial institutions and very large investors. The employees of British Telecom, for example, bought only 1 percent of the shares, those of British Aerospace 1.3 percent, etc. Prior to Ms Thatcher's arrival, much of the public sector in Britain was profitable. Consequently, in 1984, public companies contributed over 7 billion pounds to the treasury. That money is no longer available for the public budget but is going to private shareholders. Service in the privatised industries is now often disastrous. The Financial Times has reported an invasion of rats in the Yorkshire Water system and anyone who has survived taking Thames trains in Britain knows that "private" does not necessarily mean "clean, convenient and punctual".
Exactly the same mechanisms have been at work throughout the world. In Britain, the Adam Smith Institute was the intellectual partner for creating the privatisation ideology. USAID and the World Bank have also used Adam Smith experts and have pushed the privatisation doctrine in the South. By 1991 the Bank had already made 114 loans to speed the process, and every year its Global Development Finance report lists hundreds of privatisations carried out in the Bank's borrowing countries.
8. Annual Report of the Child Poverty Action Group, London, 1996.
9. Marc Suzman, "Poor have seen incomes fall 18% since 1979", Financial Times, 17 April 1996.
10. Kevin Phillips, The Politics of Rich and Poor, Random House, New York 1990, Table I, p.17. Such policies were largely elaborated by the conservative Heritage Foundation, the principle think-tank of the Reagan administration and still an important force in American politics.
11. United Nations Conference on Trade and Development, [UNCTAD], Trade and Development Report, New York and Geneva 1997, Chapter 3.
12. Bank for International Settlements, 68th Annual Report, Basle, 8 June 1998, Table "Institutional Investors in a Global Perspective 1995", p.84.
13. BIS, idem, p.90.
14. John Vinocur, ["News Analysis"], "Germany faces uncertain course to modernisation", International Herald Tribune, 13-14 March 1999.
15. See in particular Stanley Fischer, IMF Deputy Managing Director, "Capital Account Liberalization and the Role of the IMF", World Bank/IMF Annual General Meeting, Hong Kong, September 1997, in IMF Survey, Vol.26 no.19, 20 October 1997 and "Seminar Discusses the Orderly Path to Capital Account Liberalization", IMF Survey, Vol. 27, no.6, 23 March 1998. I and D.
16. See the joint statement of European Commissioner Sir Leon Brittain and the Japanese Minister for Trade and Industry declaring their support for this agenda, European Commission press Release, 7 January 1999.
17. United Nations, World Investment Report 1995, p.103.
18. Corporate European Observatory, Europe, Inc.: Dangerous Liaisons between EU Institutions and Industry, Amsterdam, 1997 [email@example.com]. This excellent Report makes clear that the Union of Industrial and Employers' Confederation of Europe [UNICE] has virtually the same agenda as the ERT: both are "making special efforts to prevent ...new elements which might endanger its competitive agenda....such as the integration of environmental and social concerns". [p.46].
19. Memorandum from UNDP Administrator James Gustave Speth to Regional Bureau Directors, UNDP, 15 June 1998.
20. President Bill Clinton, News Briefing, 16 December 1996.
21. US Secretary of Commerce William M. Daley, US Department of Commerce Press Release: "US and EU Reach Agreement on Mutual Recognition of Product Testing and Approval Requirements", 13 June 1997.
22. David Aaron, Testimony to the House Ways and Means Committee, 28 July 1998.
23. David Rockefeller, "New Rules of the Game: Looking for New Leadership", Newsweek, 1 February 1999.
24. Adam Smith, The Wealth of Nations, Book One, Chapter XI, Conclusion, p. 358-359 in the Penguin [Pelican Classics] Edition.
25. Janice Shields, Institute for Business Research and Tax Watch, "Taxing Overseas investements", Foreign Policy in Focus, Vol.3 no.1, January 1998.
26. See "That European Effect", The Economist, 5 April 1997.
27. For example, Howard M. Wachtel, "Trois taxes golbales pour maîtreiser la spéculation", Le Monde Diplomatique, Octobre 1998; Susan George, "A la Racine du Mal", Le Monde Diplomatique, janvier 1999, le numéro 42 de Manière de Voir Anatomie de la crise financière, novembre-décembre 1998, various articles; the platform of the French Association ATTAC.