Globalisation of economy

GLOBALISATION OF ECONOMY

Francis Fukuyama wrote his book The End of History  after the collapse of the Soviet empire and the Marxist brand of economy. Here, on behalf of the neo liberals and neo conservatives, he declared that liberal democracy and its corollary the free market economy were the final point of the evolution of the socio-economic system. Before presenting the Proutistic system of economy, I would like to show in this chapter how free market economy in the form of globalisation actually promotes the globalisation of poverty. It is nothing but a post-cold war capitalist strategy to control economic power by marginalizing even the nation states.

Economic oligarchies have conspired to influence the whole world with their slogans of free-market ideology. They are imposing a false idea of wealth, infusing the false concept that money is the main content of life, as well as sanctifying greed and envy in order to amass wealth. They have carefully designed the tools – the International Monetary Fund, the World Bank and the World Trade Organisation – to bring all the nation states under their claws. Their policy is increasing social strife and polluting the environment.

 The Sanctification of Greed

The beliefs espoused by free-market ideologues are familiar to anyone who is conversant with the language of contemporary economic discourse:

‘Sustained ‘economic growth’, as measured by gross national product, is the criteria of progress. ‘Free markets’, unrestrained by government, generally result in the most efficient and socially optimal allocation of resources.

‘Economic globalisation’, achieved by removing barriers to the free flow of goods and money everywhere in the world, spurs competition, increases economic efficiency, creates jobs, lowers consumer prices, increases consumer choice, increased economic growth, and is generally beneficial to almost everyone.

‘Privatisation’, which moves functions and assets from government to the private sector, improves efficiency.”1 David C. Korten, When Corporations Rule the World.

The primary responsibility of government is to provide the infrastructure necessary to advance commerce and enforce the rule of law with respect to property rights and contracts. These free-market ideological doctrines assume that:

  • “People are by nature motivated primarily by greed.
  • The drive to acquire is the highest expression of what it means to be human.
  • The relentless pursuit of greed and acquisition leads to socially optimal outcomes.
  • It is in the best interest of human societies to encourage, honour and reward the above values.”2

Economic rationalists, market liberals and members of the corporate class and main sections of the media are working hard to impose the above economic doctrines on the whole world. What is the result?

 

World population distribution arranged by income
Income Group
Percentage of World Income
Richest 20%                           
85%
Next richest 40%                           
10%
Next 20%                           
3.5%
Poorest 20%                           
1.5%
Source: UNDP,   Human Developement Report, 2005 – Dikhanov

This means that about 2 billion people of the poorest 40% earn less than $2 a day.

 More outrageous statistics:

Kevin Phillips’s new book, Wealth and Democracy,  contains a stunning table in a chapter titled “Millennial Plutographics,” reporting the salaries of America’s ten most highly paid CEOs in 1981, 1988 and 2000.

In 1981 those captains of industry were paid an average of $3.5 million, which seemed like a lot at the time. By 1988 the average had soared to $19.3 million, which seemed outrageous. But by 2000 the average annual pay of the top ten was a staggering $154 million. It’s true that the wages of ordinary workers roughly doubled over the same period, although the bulk of that gain was eaten up by inflation. But the earnings of top executives rose an incredible 4,300%.

What are we to make of this astonishing development? Is it stealing or befooling? Forbes magazine writes in its 1998 edition that the combined sales of the top two hundred corporations was equal to eighteen times the combined annual income of 1.2 billion people – the 24% of the world population who live in severe poverty.

It is obvious that globalisation is a process designed to establish economic control of the economic oligarchies over nation states. This mental tendency to accumulate enormous wealth to consolidate  economic power is a serious mental disease.

 

GATT and WTO

On April 15, 1994, 115 countries of the world concluded the final treaty of the General Agreement on Trade and Tariff (GATT), and thus laid the ground rules of the World Trade Organization (WTO). The basic rules are:

  • Trade Related Investment Measures (TRIM) 
  • Trade Related Intellectual Property rights (TRIP) 
  • General Agreement on Trade in Services (GATS

 TRIM

This regulation abolished:
1. the requirement for national treatment
2. the prohibition on quantitative restriction

The first point means that identical treatment has to be extended to both domestic products and to imports. With this clause, the difference between national enterprise and foreign enterprise is dissolved.

The second point means that the quantitative restrictions involving import licenses and quotas on imports and exports should be abolished. (NB: In 2003 the Indian government abolished quota restrictions on 1,423 items, against which one MP protested and was consequently marginalized by the ruling party.) These two provisions will effectively allow full freedom for MNCs in undeveloped countries, and will both drain foreign exchange and ruin the small-scale sector of those countries.

TRIP
According to the provision of TRIP, existing patent laws have to be amended by the governments of each country by 1999 in the first phase, and by 2004 in the second phase. The Indian Patent Law of 1970, for example, demands that separate patents have to be obtained for the process, for the formula and for the product. Patents on essential items such as agricultural products, human and veterinary medicines, surgical instruments and pesticides, as well as defence and atomic energy-related items were prohibited. In some cases, the patent on a process was allowed, even though the patent on the ensuing product was prohibited. This enabled research scholars to invent new processes for the same product.

The new patent law of the WTO extends the scope of patentability, thus restricting the scope to produce using modified processes. All countries were supposed to amend their patent laws by 1999. For certain items such as food, chemicals, medicine and herbs, deadline was extended for another five years. By 2004 all national patent laws were supposed to be superseded by international law, and the national overnments amended their constitutions accordingly.

With regard to plant varieties, developing countries were allowed to have their own system which could be applied up to the end of a ten-year period (ending in 2004). The WTO was given freedom to devise stiffer “plant breeder rights” so that a global model could be uniformly applied to all member countries. This drastically reduces farmers’ rights and curtails their freedom to retain protected seeds from their harvests or to exchange or sell such seeds. Every planting season they will have to purchase protected seeds from the transnational company.

Import of Patent Rights

Previously, patent holders must obtain a patent from the patent-granting country. According to the new laws of the WTO, imports and locally produced products will be automatically allowed patent rights on an equal basis. This means that patents can be obtained not only for establishing manufacturing monopolies, but also to establish import monopolies. Patent holders will have no obligation to the national governments that confer the patent rights.  There will be no check on the import of patented products; they can be sold at a high transfer price without any price control. The impact of the new patent law will have an extremely harmful effect on prices, especially of medicines. The cost of many medicines, including life-saving medicines, will increase by five to ten times.

Availibility

The availability of new drugs and medicines from indigenous sources will be greatly reduced. The effect of these new patent laws on local research and development and on small-scale pharmaceutical industries will be extremely adverse. About 18,000 such industries may face bankruptcy and closure in India only.

GATS

According to this clause, all restrictions on banking, insurance, telecommunications and air transport have to be repealed. This will enable the MNCs to control the entire economic infrastructure of any underdeveloped or developing country.

IMF-WB-WTO: The unholy trinity

So far, the IMF (International Monetary Fund) and the WB (World Bank) have tried to control the economies of developing countries using the leverage of loans. This works only if the country asks for a loan. By introducing the WTO laws, the MNCs will now control the trade and services of a country. Even the national budget of any country will be dictated by this unholy trinity through the MNCs.

The following are part of the IMF-WB-WTO plans to reduce budgetary subsidies:

– reduction of subsidies
– removal of subsidies for agricultural inputs
– reduction of support for  domestic agriculture
– removal of food subsidies
– removal of PDS( Public Distribution System)
– pursuance of liberal economic policies
– pursuance of free trade by  developing countries
– promotion of foreign investment
– removal of restrictions on  MNCs in utilities
– import liberalisation
– repeal of laws on import
– privatisation of utilities
– entry of MNCs in utilities
– privatisation of the banking sector
– lifting restrictions on the entry of foreign investors

With the introduction of so-called globalisation, economic control has already beenn passed on to MNCs, and whatever basic infrastructure exists is about to ruin instead of being enhanced. Abnormal hikes in the prices of essential commodities increase the gap between rich and poor. Gradually increasing dependence on foreign money and expertise are the symptoms of economic colonization.

A Rational policy for globalisation

An economic system can remain viable only so long as society has mechanisms to counter abuses of either state or market power and the erosion of the natural, social and moral capital that such abuses commonly exacerbate. The market produces a socially optimal outcome when the government and the civil society are empowered to act to maintain the following six conditions for market efficiency, which contradict a monopoly of economic power. Markets cannot produce them. But without these, a market cannot function efficiently. The following proposed conditions are excerpted from For the Common Good  by E.Daly and John Cobb Jr.

“1. Fair Competition: Those who hold monopoly power compel the legislators to rewrite the rules in their favour. Only a firm government hand can restrain the inexorable tendency towards monopolization. Politicians are rarely willing to exert such a strong hand, however, without crisis, and hence it demands an active and well-organized civil society. This means the general population must have a high level of understanding and must be ready to demand fair laws.

 2. Moral Capital: Although market theory assumes self-interested individuals, the real world markets often reward greedy, dishonest and immoral behaviour. Neither a society nor a market economy can function efficiently without a moral foundation.

 3. Public Goods: Many investments and services that are essential to the public welfare, such as investment in basic scientific research, public security and justice, public education, roads, defence and other such infrastructures, are not supplied by the market but rather are used by it. These are the social costs of production.

 4. Full Cost Pricing: In so-called free market economies, a producer tries to externalise social and environmental costs in order to increase profit. Without governmental intervention, no company likes to pay the social costs of its produce.

 5. Just Distribution: In a market system, there is a strong tendency, especially during periods of economic expansion, for the owners to increase their wealth and income while the income of labourers lags far behind. A market in which economic power is unjustly distributed will allocate resources in an unjust and socially inefficient manner. Market efficiency and institutional legitimacy depends upon governmental intervention to constantly restore the equity that the forces of market inexorably erode.

6. Ecological sustainability: As the human economy grows to fill its ecological space, limiting the scale of economic subsystems to maintain an optimal balance with nature becomes necessary for the survival of species. The government must hence set limits and ensure that appropriate signals are sent to the market.”3

We can clearly see that a market freed from governmental restraint is inherently unsustainable because it erodes its own institutional foundations. Hence, what is needed at this stage is a regulated market controlled by the state, civic society and market and not a free market.

 New Economic Order

      In 1975, observing the success of OPEC, Third World countries meeting at the United Nations demanded changes in the structure of international trade so as to bring equality between rich and poor nations. Professor Tinburger proposed the Restructuring of International Order (RIO) for this purpose. RIO goals were:

– bring parity between rich and poor countries in the prices of exported goods
– facilitate industrialisation with indigenous raw material
– reduce the influence of MNCs.

However, since 1991 NEO fizzled out, making way for WTO.

PROUT proposes the following strategies to counter the dangers of the current economic globalisation:

–       introduce economic democracy to counter the  monopoly of economic power
–       create self reliant economic units
–       form economic community amongst equally developed countries, like the EU, ASEAN, ANDEAN, SAARC etc. The North Atlantic Free Trade Association (NAFTA) already caused disaster in the Mexican economy. A free market between rich and poor countries will naturally bring economic disaster to the poorer country, hence it cannot be supported
–       production should be reoriented based on domestic consumption and indigenous raw material
–       encourage small scale industries and mechanise agriculture in developing and underdeveloped countries
–       encourage labour intensive industries
–       curtail the monopoly of economic power in order to  eradicate  corruption

NB   See the next two chapters for the economic policy of prout

Bibliography:

  1. Korten, David. C –When Corporation Rules The World, Kumarian Press & Brett Kohler Publisher, U.S 1995
  2. Ibid
  3. Kevin Philip —- Wealth and Democracy
  4. Daly, H.E and John Kobb—For the Common Good, Beacon Press, Boston 1989

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