Agreements like the North American Free Trade Agreement
(NAFTA) and the World Trade Organization (WTO) have enhanced
transnational capitalist power and profits at the cost of growing economic instability and deteriorating working and living
conditions. Despite this reality, neoliberal claims that liberalization, deregulation, and privatization produce
unrivaled benefits have been repeated so often that many working people accept them as unchallengeable truths. Thus, business
and political leaders in the United States and other developed capitalist countries routinely defend their efforts to expand the WTO and secure new
agreements like the Free Trade Area of the Americas (FTAA) as necessary to ensure a brighter future for the world’s people, especially those living in poverty.
For example, Renato Ruggiero, the first Director-General
of the WTO, declared that WTO liberalization efforts have “the potential for eradicating global poverty in the early
part of the next [twenty-first] century—a utopian notion even a few decades ago, but a real possibility today.”1 Similarly, writing shortly before the December 2005
WTO ministerial meeting in Hong Kong, William Cline, a senior fellow for the Institute for International Economics, claimed
that “if all global trade barriers were eliminated, approximately 500 million people could be lifted out of poverty
over 15 years....The current Doha Round of multilateral trade negotiations in the World Trade Organization provides the best
single chance for the international community to achieve these gains.”2
Therefore, if we are going to mount an effective challenge
to the neoliberal globalization project, we must redouble our efforts to win the “battle of ideas.” Winning this
battle requires, among other things, demonstrating that neoliberalism functions as an ideological cover for the promotion
of capitalist interests, not as a scientific framework for illuminating the economic and social consequences of capitalist
dynamics. It also requires showing the processes by which capitalism, as an international system, undermines rather than promotes
working class interests in both third world and developed capitalist countries.
The Myth of the Superiority of ‘Free Trade’:
Theoretical Arguments
According to supporters of the WTO and agreements such as
the FTAA, these institutions/agreements seek to promote free trade in order to enhance efficiency and maximize economic well
being. This focus on trade hides what is in fact a much broader political-economic agenda: the expansion and enhancement of
corporate profit making opportunities. In the case of the WTO, this agenda has been pursued through a variety of agreements
that are explicitly designed to limit or actually block public regulation of economic activity in contexts that have little
to do with trade as normally understood.
For example, the Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS) limits the ability of states to deny patents on certain products (including over living organisms)
or control the use of products patented in their respective nations (including the use of compulsory licensing to ensure affordability
of critical medicines). It also forces states to accept a significant increase in the length of time during which patents
remain in force. The Agreement on Trade Related Investment Measures (TRIMS) restricts the ability of states to put performance
requirements on foreign direct investment (FDI), encompassing those that would require the use of local inputs (including
labor) or technology transfer. A proposed expansion of the General Agreement on Trade in Services (GATS) would force states
to open their national service markets (which include everything from health care and education to public utilities and retail
trade) to foreign providers as well as limit public regulation of their activity. Similarly, a proposed Government Procurement
Agreement would deny states the ability to use non-economic criteria, such as labor and environmental practices, in awarding
contracts.
These agreements are rarely discussed in the mainstream media
precisely because they directly raise issues of private versus public power and are not easily defended. This is one of the
most important reasons why those who support the capitalist globalization project prefer to describe the institutional arrangements
that help underpin it as trade agreements and defend them on the basis of the alleged virtues of free trade. This is a defense
that unfortunately and undeservedly holds enormous sway among working people, especially in the developed capitalist countries.
And, using it as a theoretical foundation, capitalist globalization advocates find it relatively easy to encourage popular
acceptance of the broader proposition that market determined outcomes are superior to socially determined ones in all spheres
of activity. Therefore, it is critical that we develop an effective and accessible critique of this myth of the superiority
of free trade. In fact, this is an easier task than generally assumed.
Arguments promoting free trade generally rest on the
theory of comparative advantage. David Ricardo introduced this theory in 1821 in his Principles of Political Economy and
Taxation. It is commonly misunderstood to assert the obvious, that countries have or can create different comparative
advantages or that trade can be helpful. In fact, it supports a very specific policy conclusion: a country’s best economic
policy is to allow unregulated international market activity to determine its comparative advantage and national patterns
of production.3 {The logic behind Ricardo’s argument was that when ever government intervened in trade it was for the
benefit of a special interest, and the increased prices of the good effected was a harsh burden upon the downtrodden masses. The masses would be better off without such intervention—jk}.
Ricardo “proved” his theory of comparative advantage
using a two country, static model of the world, in which Portugal
is assumed to be a more efficient producer of both wine and cloth than England,
but with greatest superiority in wine production. Ricardo demonstrated that, in his created world, both Portugal and England
would gain by an international division of labor in which each produced the good in which it had the greatest relative or
comparative advantage. Thus, even though England’s production efficiency was inferior to that of Portugal in both goods,
the logic of free trade would lead Portugal to concentrate on wine production and England on cloth production, with the resulting
trade between them generating maximum benefits for both countries.
Mainstream economists, while continuing to accept the basic
outlines of Ricardo’s theory, have developed refinements to it. The most important are the Hecksher-Olin theory which
argues that since a country’s comparative advantage is shaped by its resource base, capital-poor third world countries
should specialize in labor intensive products; the factor-price equalization theory which argues that free trade will raise
the price of the intensively used factor (which will be unskilled labor in the third world) until all factor prices are equalized
worldwide; and the Stopler-Samuleson theory which argues that the incomes of the scarce factor (labor in rich countries; capital
in poor countries) will suffer the most from free trade. None of these refinements challenge the basic conclusion of Ricardo’s
theory of comparative advantage. In fact they offer additional support for the argument that workers in the third world will
be the greatest beneficiaries of free trade.
Like all theories, the theory of comparative advantage (and
its conclusion) is based on a number of assumptions. Among the most important are:
- There is perfect competition between firms.
- There is full employment of all factors of production.
- Labor and capital are perfectly mobile within a country
and do not move across national borders.
- A country’s gains from trade are captured by those
living in the country and spent locally.
- A country’s external trade is always in balance.
- Market prices accurately reflect the real (or social)
costs of the products produced.
Even a quick consideration of these assumptions reveals that
they are extensive and unrealistic. Moreover, if they are not satisfied, there is no basis for accepting the theory’s
conclusion that free-market policies will promote international well being. For example, the assumption of full employment
of all factors of production, including labor, is obviously false. Equally problematic is the theory’s implied restructuring
process, which assumes that (but never explains how) workers who lose their jobs as a result of free-trade generated imports
will quickly find new employment in the expanding export sector of the economy. In reality, workers (and other factors of
production) may not be equally productive in alternative uses. Even if we ignore this problem, if their reallocation is not
sufficiently fast, the newly liberalized economy will likely suffer an increase in unemployment, leading to a reduction in
aggregate demand and perhaps recession. Thus, even if all factors of production eventually become fully employed, it is quite
possible that the cost of adjustment would outweigh the alleged efficiency gains from the trade induced restructuring.
The assumption that prices reflect social costs is also problematic.
Many product markets are dominated by monopolies, many firms receive substantial government subsidies that influence their
production and pricing decisions, and many production activities generate significant negative externalities (especially environmental
ones). Therefore, trade specialization based on existing market prices could easily produce a structure of international economic
activity with lower overall efficiency, leading to a reduction in social well being.
There is also reason to challenge the assumption that external
trade will remain in balance. This assumption depends on another, that exchange rate movements will automatically and quickly
correct trade imbalances. However, exchange rates can easily be influenced by speculative financial activity, causing them
to move in destabilizing rather than equilibrating directions. In addition, as trade increasingly takes place through transnational
corporate controlled production networks, it is far less likely that exchange rate movements will generate the desired new
production patterns. To the extent that exchange rate movements fail to produce the necessary trade adjustments in a reasonably
short period, imports will have to be reduced (and the trade balance restored) through a forced reduction in aggregate demand,
and perhaps recession.
Also worthy of challenge is the assumption that capital
is not highly mobile across national borders. This assumption helps to underpin others, including the assumptions of full
employment and balanced trade. If capital is highly mobile, then free-market/free-trade policies could produce capital flight
leading to deindustrialization, unbalanced trade, unemployment, and economic crisis. In short, the free-trade supporting policy
recommendations that flow from the theory of comparative advantage rest on a series of very dubious assumptions.4
The Myth of the Superiority of ‘Free Trade’:
Empirical Arguments
Proponents of neoliberal policies often cite the results
of highly sophisticated simulation studies to buttress their arguments. However, these studies are themselves seriously flawed,
in large part because they rely on many of the same assumptions as the theory of comparative advantage. The following examination
of two prominent studies reveals how reliance on these assumptions undermines the credibility of their results.
In 2001, Drusilla Brown, Alan Deardoff, and Robert
Stern published a study that claimed that a WTO-sponsored elimination of all trade barriers would add $1.9 trillion to the
world’s gross economic product by 2005.5 Their study was widely showcased in media stories that appeared before the November 2001 start of WTO negotiations
in Doha, Qatar.
The World Bank has also attempted to calculate, as
part of its Global Economic Prospects series, the expected benefits from trade liberalization. In Global Economic Prospects
2002, it concluded that “faster integration through lowering barriers to merchandise trade would increase growth
and provide some $1.5 trillion of additional cumulative income to developing countries over the period 2005–2015. Liberalization
of services in developing countries could provide even greater gains—perhaps as much as four times larger than this
amount. [The results also] show that labor’s share of national income would rise throughout the developing world.”6
The studies by Brown, Deardoff, and Stern, and the World
Bank are based on computable general equilibrium models, in which economies are defined by a set of interconnected markets.
When prices change—in this case because of a change in tariffs—national product markets are assumed to adjust
to restore equilibrium. Since economies are themselves connected through trade, price changes are also assumed to generate
more complex global adjustments before a new equilibrium outcome is achieved. It is on the basis of such modeling that the
authors of these studies try to determine the economic consequences of trade liberalization.
This type of modeling is very challenging. Specific assumptions
must be made about consumer and producer behavior in different markets and in different nations, including their speed of
adjustment. Detailed national input-output tables are also required. But even more is required. For example, in order to ensure
that their model will be solvable, Brown, Deardoff, and Stern assume that there is only one unique equilibrium outcome for
each trade liberalization scenario. They also assume there are just two inputs, capital and labor, which are perfectly mobile
across sectors in each country, but bound by national borders. In addition, they assume total aggregate expenditure in each
economy is sufficient, and will automatically adjust, to ensure full employment of all resources. Finally, they also assume
that flexible exchange rates will prevent tariff changes from causing changes in trade balances.
Said differently, the authors created a model in which
liberalization cannot, by assumption, cause or worsen unemployment, capital flight, or trade imbalances. Thanks to these assumptions,
if a country drops its trade restrictions, market forces will quickly and effortlessly encourage capital and labor to shift
into new, more productive uses. And, since trade always remains in balance, this restructuring will, by definition, generate
a dollar’s worth of new exports for every dollar’s worth of new imports. As Peter Dorman notes in his critique
of this study: “Of course, workers and governments would have little to worry about in such a world—provided they
could shift readily between expanding and contracting sectors of the economy.”7
World Bank economists also use computable general equilibrium
modeling in their work. In Global Economic Prospects 2002, they begin their simulation study with “a baseline
view about the likely evolution of developing countries, based upon best guesses about generally stable parameters—savings,
investment, population growth, trade and productivity growth.”8 This baseline view incorporates only those changes in the “global trading regime”
that occurred up through 1997 and uses these best guesses to estimate economic outcomes for the years 2005 to 2015. Next,
they assume the removal of all trade restrictions in the period 2005 to 2010, with the restrictions reduced by one-sixth in
each year.9 Finally, they compare the
estimated economic outcomes from this liberalization scenario with those from the initial baseline scenario to determine the
gains from liberalization.
This modeling effort also depends on several critical and
unrealistic assumptions. One is that tariff reductions will have no effect on government deficits; they will remain unchanged
from what they were in the baseline projection. This assumption claims that governments will automatically be able to replace
lost tariff revenue with new revenue from other sources. Another assumption is that tariff reductions will have no effect
on trade balances; they will remain the same as in the baseline projection. The final one is the existence of full employment.
Once again, a powerful free-trade bias is built into the heart of the model by assumption, thereby ensuring a pro-liberalization
outcome.
Although this bias is sufficient to dismiss the study’s
usefulness as a guide to policy, its results are still worth examining for two reasons: First, the projected benefits are
smaller than one might imagine given the World Bank’s unqualified support for liberalization. Second, later World Bank
studies have revealed significantly smaller benefits. In its 2002 study, the World Bank concluded that “measured in
static terms, world income in 2015 would be $355 billion more with [merchandise] trade liberalization than in the baseline.”10 Third world countries as a group would receive $184
billion, or approximately 52 percent of these total benefits. Significantly, $142 billion of this third world gain is projected
to come from the liberalization of trade in agricultural goods. Even more noteworthy, $114 billion is estimated to come from
third world liberalization of its own agricultural sector.11 Liberalization of trade in manufactures turns out to be a minor affair. Total estimated third world gains from a complete
liberalization of world trade in manufactures amount to only $44 billion.
If we were to take these numbers seriously, they certainly
suggest that the third world has little to gain from an actual WTO agreement. As Mark Weisbrot and Dean Baker note in their
critique of this study, “the removal of all of the rich countries’ barriers to the merchandise exports of developing
countries—including agriculture, textiles, and other manufactured goods—would...when such changes were fully implemented
by 2015...add 0.6 percent to the GDP of low and middle-income countries. This means that a country in Sub-Saharan Africa that
would, under present trade arrangements have a per capita income of $500 per year in 2015, would instead have a per capita
income of $503.”12 Moreover,
as they also point out, these meager gains would be far outweighed by losses incurred from compliance with other associated
WTO agreements.
More recent World Bank estimates show even smaller
gains from liberalization. In Global Economic Prospects 2005, the World Bank incorporated new data sets, which allowed
it to “capture the considerable reform between 1997 and 2001 (e.g., continued implementation of the Uruguay Round and
China’s progress toward WTO accession), and an improved treatment of preferential trade agreements.”13 As a result, total projected static gains from merchandise
trade liberalization fell to $260 billion (in 2015 relative to the baseline scenario), with only 41 percent of the gains accruing
to the third world.
Although working people have been ill-served by capitalist
globalization, many are reluctant to challenge it because they have been intimidated by the “scholarly” arguments
of those who support it. However, as we have seen, these arguments are based on theories and highly artificial simulations
that deliberately misrepresent the workings of capitalism. They can and should be challenged and rejected.
Neoliberalism: The Reality
The post-1980 neoliberal era has been marked by slower
growth, greater trade imbalances, and deteriorating social conditions. The United Nations Conference on Trade and Development
(UNCTAD) reports that, “for developing countries as a whole (excluding China), the average trade deficit in the 1990s
is higher than in the 1970s by almost 3 percentage points of GDP, while the average growth rate is lower by 2 percent per
annum.”14 Moreover,
The pattern is
broadly similar in all developing regions. In Latin America the average growth rate is lower by 3 percent per annum in the
1990s than in the 1970s, while trade deficits as a proportion of GDP are much the same. In sub-Saharan Africa growth fell,
but deficits rose. The Asian countries managed to grow faster in the 1980s, while reducing their payments deficits, but in
the 1990s they have run greater deficits without achieving faster growth.15
A study by Mark Weisbrot, Dean Baker, and David Rosnick
on the consequences of neoliberal policies on third world development comes to similar conclusions. The authors note that
“contrary to popular belief, the past 25 years (1980–2005) have seen a sharply slower rate of economic growth
and reduced progress on social indicators for the vast majority of low- and middle-income countries [compared with the prior
two decades].”16
For those that reject the major assumptions underlying mainstream
arguments for the “freeing” of international economic activity, this outcome is not surprising. In broad brush,
trade liberalization contributed to the deindustrialization of many third world countries, thereby increasing their import
dependence. By making them cheaper and easier to obtain, it also encouraged an increase in the importation of luxury goods.
And finally, by attracting transnational corporate production to the third world, it also increased the import intensity of
most third world exports. Export earnings could not keep pace largely because growing third world export activity and competition
(prompted by the need to offset the rise in imports) tended to drive down export earnings. Exports were also limited by slower
growth and protectionism in most developed capitalist countries.
In an effort to keep growing trade and current account deficits
manageable, third world states, often pressured by the IMF and World Bank, used austerity measures (especially draconian cuts
in social programs) to slow economic growth (and imports). They also deregulated capital markets, privatized economic activity,
and relaxed foreign investment regulatory regimes in an effort to attract the financing needed to offset the existing deficits.
While devastating to working people and national development possibilities, these policies were, as intended, responsive to
the interests of transnational capital in general and a small but influential sector of third world capital. This is the reality
of neoliberalism.
The Dynamics of Contemporary Capitalism
While the term “neoliberalism” does, in many
ways, capture the essence of contemporary capitalist practices and policies, it is also in some important respects a problematic
term. In particular, it encourages the view that a wide range of policy options simultaneously exist under capitalism, with
neoliberalism just one of the possibilities. States could reject neoliberalism, if they wanted, and implement more social
democratic or interventionist policies, similar to those employed in the 1960s and 1970s. Unfortunately, things are not so
simple. The “freeing” of economic activity that is generally identified with neoliberalism is not so much a bad
policy choice as it is a forced structural response on the part of many third world states to capitalist generated tensions
and contradictions. Said differently, it is capitalism (as a dynamic and exploitative system), rather than neoliberalism (as
a set of policies), that must be challenged and overcome.
Mainstream theorists usually consider international trade,
finance, and investment as separate processes. In fact, they are interrelated. And, as highlighted above, the capitalist drive
for greater profitability has generally worked to pressure third world states into an overarching liberalization and deregulation.
This dynamic has had important consequences, especially, but not exclusively, for the third world. In particular, it has encouraged
transnational corporations to advance their aims through the establishment and extension of international production networks.
This has led to new forms of dominance over third world industrial activity that involve its reshaping and integration across
borders in ways that are ever more destructive of the social, economic, and political needs of working people.
During the 1960s and 1970s, most third world countries pursued
state directed import-substitution industrialization strategies and financed their trade deficits with bank loans. This pattern
ended suddenly in the early 1980s, when economic instabilities in the developed capitalist world, especially in the United
States, led to rising interest rates and global recession. Third world borrowing costs soared and export earnings plummeted,
triggering the third world “debt crisis.” With debt repayment in question, banks greatly reduced their lending,
leading to ever deepening third world economic and social problems.
To overcome these problems, third world states sought
new ways to boost exports and new sources of international funds. Increasingly, they came to see export-oriented foreign direct
investment as the answer. The competition for this investment was fierce. Country after country made changes in their investment
regimes, with the great majority designed to create a more liberalized, deregulated, and “business friendly” environment.
Transnational corporations responded eagerly to these changes, many of which they and their governments helped promote. And,
over the years 1991–98, FDI became the single greatest source of net capital inflow into the third world, accounting
for 34 percent of the total.17
New technologies had made it possible for transnational corporations
to cheapen production costs for many goods by segmenting and geographically dividing their production processes. They therefore
used their investments to locate the labor intensive production segments of these goods—in particular the production
or assembly of parts and components—in the third world. This was especially true for electronic and electrical goods,
clothing and apparel, and certain technologically advanced goods such as optical instruments.
The result was the establishment or expansion of numerous
vertically structured international production networks, many of which extended over several different countries. According
to UNCTAD, “it has been estimated, on the basis of input-output tables from a number of OECD and emerging-market countries,
that trade based on specialization within vertical production networks accounts for up to 30 percent of world exports, and
that it has grown by as much as 40 percent in the last 25 years.”18
Despite the fierce third world competition to attract FDI,
transnational corporations tended to concentrate their investments in only a few countries. In general, U.S. capital emphasized
North America (NAFTA), while Japanese capital focused on East Asia, and European capital on Central Europe. The countries
that “lost out” in the FDI competition were generally forced to manage their trade and finance problems with austerity.
Those countries that “won” usually experienced a relatively fast industrial transformation. More specifically,
they became major exporters of manufactures, especially of high-technology products such as transistors and semiconductors,
computers, parts of computers and office machines, telecommunications equipment and parts, and electrical machinery.
As a consequence of this development, the share of
third world exports that were manufactures soared from 20 percent in the 1970s and early 1980s, to 70 percent by the late
1990s.19 The third world share of world
manufacturing exports also jumped from 4.4 percent in 1965 to 30.1 percent in 2003.20
Mainstream economists claim that this rise in manufactured
exports demonstrates the benefits of liberalization, and thus the importance of WTO-style liberalization agreements for development.
However, this argument falsely identifies FDI and exports of manufactures with development, thereby seriously misrepresenting
the dynamics of transnational capital accumulation. The reality is that participation in transnational corporate controlled
production networks has done little to support rising standards of living, economic stability, or national development prospects.
There are many reasons for this failure. First, those countries
that have succeeded in attracting FDI have usually done so in the context of liberalizing and deregulating their economies.
This has generally resulted in the destruction of their domestic import-competing industries, causing unemployment, a rapid
rise in imports, and industrial hollowing out. Second, the activities located in the third world rarely transfer skills or
technology, or encourage domestic industrial linkages. This means that these activities are seldom able to promote a dynamic
or nationally integrated process of development. Furthermore the exports produced are highly import dependent, thereby greatly
reducing their foreign exchange earning benefits.
Finally, the transnational accumulation process makes third
world growth increasingly dependent on external demand. In most cases, the primary final market for these networks is the
United States, which means that third world growth comes to depend ever more on the ability of the United States to sustain
ever larger trade deficits—an increasingly dubious proposition.
Few countries have escaped these problems. For example, UNCTAD
studied the economic performances of “seven of the more advanced developing countries” over the period 1981–96:
Hong Kong (China), Malaysia, Mexico, Republic of Korea, Singapore, Taiwan Province of China, and Turkey. These are among the
most successful third world exporters of manufactures. Yet, because much of their export activity is organized within transnational
corporate controlled production networks, the gains to worker well being or national development have been limited.
For example, average manufacturing value added for
the group as a whole remained consistently below the value of manufactured exports over the entire period, with the ratio
declining from 76 percent in 1981 to 55 percent in 1996. And, although the group’s average ratio of manufactured exports
to GDP rose sharply, its average ratio of manufacturing value added to GDP remained generally unchanged.21 Moreover, while the group as a whole generally maintained
a rough balance in manufactured goods trade until the late 1980s, after that point imports grew much faster than exports.
Mexico’s experience perhaps best symbolizes the bankruptcy of this growth strategy: “between 1980 and 1997 Mexico’s
share in world manufactured exports rose tenfold, while its share in world manufacturing valued added fell by more than one
third, and its share in world income (at current dollars) [fell] by about 13 percent.”22
China: The Latest Neoliberal Success Story
Capitalism’s failure to deliver development is
not due to its lack of dynamism; in fact quite the opposite is true. By intensifying the development and application of new
production and exchange relationships within and between countries, this dynamism causes rapid shifts in the economic fortunes
of nations, creating a constantly changing (and shrinking) group of “winners” and (an ever larger) group of “losers,”
and masking the connection between the two. Even East Asia has been subject to the instabilities of capitalist dynamics, as
the East Asian crisis of 1997–98 devastated such past “star performers” as South Korea, Indonesia, Thailand,
and Malaysia. After quickly distancing themselves from these countries (and their past praise for their growth), most neoliberals
have now eagerly embraced a new champion, China.23
According to the conventional wisdom, China has become
the third world’s biggest recipient of foreign direct investment, exporter of manufactures, and fastest growing economy,
largely because its government adopted a growth strategy based on privileging private enterprise and international market
forces. In response to this new strategy, net FDI in China grew from $3.5 billion in 1990 to $60.6 billion in 2004. Foreign
manufacturing affiliates now account for approximately one-third of China’s total manufacturing sales. They also produce
55 percent of the country’s exports and a significantly higher percentage of its higher technology exports. As a consequence
of these trends, the country’s ratio of exports to GDP has climbed steadily, from 16 percent in 1990 to 36 percent in
2003.24 Thus, China’s
growth has become increasingly dependent on transnational corporate organized export activity.
Foreign investment has indeed transformed China into
a fast growing export platform, with some significant domestic production capacity. At the same time, many of the limitations
of this growth strategy, which were highlighted above, are also visible in China. For example, foreign dominated export activity
has done little to support the development of nationally integrated production or technology supply networks.25 Moreover, as the Chinese state continues to lose its
planning and directing capability, and the country’s resources are increasingly incorporated into foreign networks largely
for the purpose of satisfying external market demands, the country’s autonomous development potential is being lost.
China’s growth has enriched a relatively small
but numerically significant upper income group of Chinese, who enjoy greatly expanded consumption opportunities. However,
these gains have been largely underwritten by the exploitation of the great majority of Chinese working people. For example,
as a consequence of Chinese state liberalization policies, state owned enterprises laid off 30 million workers over the period
1998 to 2004. With urban unemployment rates in double digits, few of these former state workers were able to find adequate
re-employment. In fact, over 21.8 million of them currently depend on the government’s “average minimum living
allowance” for their survival. As of June 2005, this allowance was equal to approximately $19 a month; by comparison,
the average monthly income of an urban worker was approximately $165 dollars.26
While the new foreign dominated export production has
generated new employment opportunities, most of these jobs are extremely low paid. A consultant for the U.S. Bureau of Labor
Statistics has estimated that Chinese factory workers earn an average of sixty-four cents an hour (including benefits).27 In Guangdong, where approximately one-third of China’s
exports are produced, base manufacturing wages have been frozen for the past decade. Moreover, few if any of these workers
have access to affordable housing, health care, pensions, or education.28
China’s economic transformation has not only
come at high cost for Chinese working people, it has also intensified (as well as benefited from) the contradictions of capitalist
development in other countries, including in East Asia. For example, China’s export successes in advanced capitalist
markets, in particular that of the United States, have forced other East Asian producers out of those markets. Out of necessity,
they have reoriented their export activity to the production of parts and components for use by export-oriented transnational
corporations operating in China. Thus, all of East Asia is being knitted together into a regional accumulation regime that
crosses many borders and in so doing restructures national activity and resources away from meeting domestic needs. Instead,
activity and resources are being organized to serve export markets out of the region under the direction of transnational
corporations whose interests are largely in cost reduction regardless of the social or environmental consequences.29
The much slower post-crisis growth of East Asian countries,
and the heightened competitiveness pressures that are squeezing living standards throughout the region, provide strong proof
that this new arrangement of regional economic relations is incapable of promoting a stable process of long-term development.
Meanwhile, China’s export explosion has also accelerated the industrial hollowing out of the Japanese and U.S. economies
as well as the unsustainable U.S. trade deficit.
At some point the (economic and political) imbalances generated
by this accumulation process will become too great, and corrections will have to take place. Insofar as the logic of capitalist
competition goes unchallenged, governments can be expected to manage the adjustment process with policies that will likely
worsen conditions for workers in both third world and developed capitalist countries. Neoliberal advocates can also be expected
to embrace this process of adjustment as the means to “discover” their next success story, whose experience will
then be cited as proof of the superiority of market forces.
Our Challenge
As we have seen, arguments purporting to demonstrate that
free-trade/free-market policies will transform economic activities and relations in ways that universally benefit working
people are based on theories and simulations that distort the actual workings of capitalism. The reality is that growing numbers
of workers are being captured by an increasingly unified and transnational process of capital accumulation. Wealth is being
generated but working people in all the countries involved are being pitted against each other and suffering similar consequences,
including unemployment and worsening living and working conditions.
Working people and their communities are engaged in growing,
although uneven, resistance to the situation. While increasingly effective, this resistance still remains largely defensive
and politically unfocused. One reason is that neoliberal theory continues to provide a powerful ideological cover for capitalist
globalization, despite the fact that it is both generated by and designed to advance capitalist class interests. Another is
the dynamic nature of contemporary capitalism, which tends to mask its destructive nature. Therefore, as participants in the
resistance, we must work to ensure that our many struggles are waged in ways that help working people better understand the
nature of the accumulation processes that are reshaping our lives. In this way, we can illuminate the common capitalist roots
of the problems we face and the importance of building movements committed to radical social transformation and (international)
solidarity.
Notes
- Quoted in Ha-Joon Chang, Kicking Away the Ladder: Development
Strategy in Historical Perspective (London: Anthem Press, 2002), 15.
- William Cline, “Doha Can Achieve Much More than Skeptics
Expect,” Finance and Development (March 2005), 22.
- Significantly, most neoliberal theorists do not include the
free movement of people in their argument.
- Additional discussion of the theoretical weaknesses underlying
free-trade theories can be found in Arthur MacEwan, Neo-Liberalism or Democracy: Economic Strategy, Markets, and Alternatives
for the 21st Century (New York: Zed Press, 1999), chapter 2; Graham Dunkley, The Free Trade Adventure: The WTO, the
Uruguay Round and Globalism—A Critique (New York: Zed Press, 2000), chapter 6; and Anwar Shaikh, “The Economic
Mythology of Neoliberalism,” in Alfredo Saad-Filho, ed., Neoliberalism: A Critical Reader (London: Pluto Press,
2005).
- Drusilla Brown, Alan Deardoff, & Robert Stern, CGE Modeling
and Analysis of Multilateral and Regional Negotiating Options, Discussion Paper 468 (University of Michigan School of
Public Policy Research Seminar in International Economics, 2001), http://www.fordschool.umich.edu/rsie/workingpapers/
Papers451-475/r468.pdf.
- The World Bank, Global Economic Prospects 2002 (Washington
D.C.: World Bank, 2002), xiii.
- Peter Dorman, The Free Trade Magic Act, Briefing Paper
(Washington, D.C., Economic Policy Institute, 2001), 2.
- World Bank, Global Economic Prospects 2002, (Washington,
D.C.: World Bank Publications, 2001), 166.
- The restrictions that are eliminated include import tariffs,
export subsidies, and domestic production subsidies.
- World Bank, Global Economic Prospects 2002, 167.
- This result is largely a reflection of the assumptions of the
World Bank model. Because the agricultural sector in the third world is protected by relatively high tariffs and assumed inefficient,
its liberalization produces the biggest gains for the third world. This view of third world agricultural production ignores
all cultural and ecological considerations.
- Mark Weisbrot & Dean Baker, The Relative Impact of Trade
Liberalization on Developing Countries, Briefing Paper (Washington, D.C., Center for Economic and Policy Research, 2002),
1.
- World Bank, Global Economic Prospects 2005 (Washington
D.C.: World Bank, 2005), 127.
- UNCTAD, Trade and Development Report 1999 (New York:
United Nations, 1999), vi.
- UNCTAD, Trade and Development Report 1999, vi.
- Mark Weisbrot, Dean Baker, & David Rosnick, The Scorecard
on Development: 25 Years of Diminished Progress (Washington, D.C.,
Center for Economic and Policy Research, 2005), 1.
- UNCTAD, Trade and Development Report 2002 (New York:
United Nations, 2002), 103.
- UNCTAD, Trade and Development Report 2002, 63.
- UNCTAD, Trade and Development Report 2002, 51.
- UNCTAD, Trade and Development Report 2005 (New York:
United Nations, 2005), 131.
- UNCTAD, Trade and Development Report 2002, 77.
- UNCTAD, Trade and Development Report 2002, 80.
- For a discussion of the rise of China as a neoliberal success
story see Martin Hart-Landsberg & Paul Burkett, China and Socialism: Market Reform and Class Struggle (New York: Monthly Review, 2005), especially chapter 1.
- Martin Hart-Landsberg & Paul Burkett, “China and the
Dynamics of Transnational Accumulation: Causes and Consequences of Global Restructuring,” Historical Materialism
(forthcoming 2006).
- Hart-Landsberg & Burkett, “China and the Dynamics
of Transnational Accumulation.”
- China Labor Bulletin, “Subsistence Living for Millions of Former State Workers” (September 7,
2005).
- Edward Cody, “Workers In China
Shed Passivity, Spate of Walkouts Shakes Factories,” Washington
Post, November 27, 2004.
- For more discussion of the destructive social consequences
of Chinese state policies on working people as well as their growing resistance to these policies see Hart-Landsberg
& Burkett, China and Socialism, chapter 3.
- This restructuring is examined in detail in Hart-Landsberg
& Burkett, China
and Socialism, chapter 4, and “China and the Dynamics
of Transnational Accumulation.”
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