The state steps in to save global economies

May 2020

Is the era of hyperglobalisation at last over?

The state steps in to save global economies

STATE CAPITALISM DEFEATS MONOPOLY CAPITALISM IN RESPONSE TO COVID-19 OPENING A ROAD TO SOCIALISM 

Covid-19 has forced governments to prioritise the needs of their citizens. To do that, they’ve had to override the ideas and laws that underpinned the extreme globalisation of the past 30 years. A quick return to business as usual gets less likely by the day; that gives us a unique chance to rewrite the economic rules once and for all.
by Lori M Wallach



Vital goods: globalisation means wealthy countries are not self-sufficient
Chen Jimin · China News Service · Getty

The Covid-19 pandemic could trigger an overdue end to the era of hyperglobalisation, the corporate-rigged economic regime that has caused enormous social and environmental costs worldwide over the last decades.

But change will be fiercely opposed by powerful commercial interests profiting from the status quo and now in ‘crisis capitalism’ mode, trying to secure more of the same. Some current and aspiring political leaders lack the imagination or courage to achieve a visionary makeover, or worse, are actively aligned with the corporate lobby.

There are four major reasons why the Covid-19 crisis could create an unprecedented opportunity for those who have long opposed the current neoliberal corporate-managed trade and investment regime to achieve transformational changes that would otherwise be inconceivable. The time is ripe for the progressive version of ‘the shock doctrine’, the phenomenon described by Naomi Klein of dominant powers exploiting crises to reorganise the world to their liking.
Forced solidarity

First, the pandemic has forced most residents of developed countries to personally experience pain and anxiety from hyperglobalisation. With our societies and economies organised to serve a system designed by and for multinational corporations, the world’s wealthiest countries cannot produce or obtain sufficient supplies of ventilators, masks and other medical supplies essential to keep people from dying.

Thanks to hyperglobalisation, production shutting down in one country has triggered a chain reaction meltdown of medical defences and economies worldwide that dramatically exacerbates the damage wrought by the virus itself.

As the crisis spotlights longstanding, unaddressed menaces inherent to this system that can be ignored in better times, it is not hard to apply this understanding to other potential disasters and recognise the existential vulnerabilities of corporate globalisation.

Many critical goods are now mainly produced in one or two countries, and an outsized share in China. And it’s difficult to quickly increase production elsewhere. Long, thin globalised supply chains mean firms seeking to ramp up production of goods cannot find inputs, parts and components. Many of the more than 100 essential parts needed to make a ventilator are not even produced in the handful of countries where most of these lifesaving machines are made; 90% of the active pharmaceutical ingredients used to make almost all medicines are produced in only two countries.

Fealty to the ‘efficiency’ god that rules the globalised regime ensures there is little redundancy. So, the supply chain breaks if one of hundreds of links — companies around the world — are not operating. When workers in one country fall ill, or social distancing is needed to limit contagion, or governments prioritise domestic needs over exports, a worldwide shortage of essential goods can quickly develop.
The Covid-19 crisis may dramatically realign power dynamics in the battle over the rules of the global economy. And it will do so at a moment when people and governments are paying attention to where things are made, how and by whom, as a matter of life and death consequences

That means many people are now personally experiencing the disaster that this system was long known to be by millions of industrial workers and small farmers, and their neighbours in gutted communities throughout the developed world. This new imposed solidarity is key. It has mainly been developed country governments pushing the trade and investment agreements that have formalised hyperglobalisation. And those marginalised by it in developed nations have become ripe for the picking by rightwing political forces.

Only a catastrophe that happens suddenly, in contrast to a slower frog-in-pot climate boil, could awaken many who have previously felt insulated from the damage. Even some who smugly lectured about globalisation’s win-win efficiency gains and pushed ‘free trade’ deals packed with corporate protectionism now admit that things may have gone a bit too far, and perhaps more regional and localised production models may have merit. This shift has been on repeated display in such cheerleaders for globalisation as The Economist and the Financial Times.

No return to ‘business as usual’

Second, the shackles of conventional wisdom have been smashed. The usual government excuses of ‘we cannot do that very sensible thing under WTO/FTA/EPA/ISDS rules’ have halted. In taking whatever Covid-19 response actions are necessary, governments are shredding fundamental principles and legal obligations underpinning hyperglobalisation. It seems improbable there can be a quick return to ‘business as usual’, if only given the new role governments are being forced to play.

Indeed, many governments have been forced to reverse their extreme (and often voluntary) dereliction of duty to shape the economy for the public interest. Today, instead of corporations unilaterally deciding where and when to sell anything they produce, scores of governments around the world are finally doing what their residents would have expected of them all along — prioritising residents’ needs and intervening as needed.

Officials as improbable as Sabine Weyand, head of the European Commission’s trade directorate, have admitted as much: ‘We have to recognise that in the heat of a crisis you cannot leave the allocation of scarce resources just to the markets. You have to accept that you have to be able to direct it toward the health sector rather than to allow speculators to buy up what they find on the market’ (1).

Yet Weyand is advocating a return to ‘business as usual’ as soon as possible. EU trade commissioner Phil Hogan’s solution is to double down by launching negotiations to eliminate all restrictions on medical equipment trade ‘to ensure that global supply chains can operate freely’ (speech at meeting of EU trade ministers, 16 April 2020). Hogan and other hyperglobalisation defenders oppose calls to reshore some production of critical goods or build new regional supply chains, mischaracterising such proposals as futile efforts at ‘self-sufficiency’.

Talk about tone deaf. At issue is not a binary choice between hyperglobalisation versus autarchy. The crisis has awakened people to the reality that under the hyperglobalisation regime, their governments do not have the means to protect the public interest. That genie will not be easily shoved back into its bottle.

In addition, the sales pitch about globalised production and just-in-time global supply chains maximising efficiency to the benefit of all has given way to the reality that this system maximises short-term profits to the detriment of reliability, public health, equity and even national security.

In a nod to these realities, a 30 March G20 trade ministers’ statement suggests that policies countries deem necessary to combat the crisis should qualify for WTO exceptions. The array of prospective violations underscores the WTO’s constraints on governments’ ability to serve their residents: medicines and certain medical goods cannot be produced without obtaining permission and paying large patent fees to pharmaceutical firms; food supplies cannot be managed; regulation of many service sectors from health to retail is constrained, and so forth.

Growing demand: making protective masks at LL Bean in Maine, US, April 2020
Adam Glanzman · Bloomberg · Getty

No longer left vs right

Third, at least in the United States, crisis response has scrambled the political lines of the globalisation debate, breaking group-think norms along the way and realigning the politically possible.

Rather than left versus right, the political spectrum on Covid-19 response reveals a cleavage along populist versus corporatist lines. Bernie Sanders and Elizabeth Warren are progressive populists. They believe in breaking up the regime of corporate-led globalisation and active governance to put people and planet ahead of corporate profits.

Policies they and other progressive Democrats have long demanded are now being echoed by conservative populists. ‘This pandemic also exposed a Grand Canyon size fault in our supply chain. We don’t make critical products in America anymore. It’s a threat to our health, our national security and our economy. Americans have long known about this problem. Washington is just waking up to it, and Wall Street was hoping it wouldn’t get caught.’ But that quote isn’t from Sanders or Warren — it’s from the Republican Missouri senator Josh Hawley (3 April 2020).

Not unrelated is the fourth factor: the epidemic-related acceleration worldwide of governments’ and citizens’ re-evaluating the current global economic construct in the context of China’s role in it, and the perils of relying on China as the world’s factory. A case in point, the Japanese government just announced a new $2bn programme to help its multinationals leave China (2).

Progressives who revile Trump’s anti-Asian jingoism and its use to distract from his failed Covid response are also now personally experiencing the perils of reliance on concentrated production anywhere. And more so in China, whose government is among the least transparent and not subject to any democratic accountability.

Pre-Covid, various countries were exploring how to boost national research and manufacturing capacities to counter the China 2025 agenda, the plan designed to ensure China dominates ‘industries of the future’ such as AI, robotics, green vehicles, advanced aerospace, medical technologies and more.

Rebalancing relations with China
In the United States, polling shows unusual public consensus, in line with policymakers from across the political spectrum, in favour of rebalancing commercial relations with China. Pre-crisis, recognition was growing, even among fervent supporters of the status quo, that while China has brought millions out of poverty, it also is moving further away from the rule-of-law, democratic country sold as the inevitable result of China’s WTO membership.
Rather than left versus right, the political spectrum on Covid-19 response reveals a cleavage along populist versus corporatist lines.

The growing concerns about China’s efforts to actively promote its high-tech authoritarianism, its practice of what one US commentator calls ‘innovation mercantilism’ (3) and its build-up of military might, in part financed by its massive trade surplus, have also fuelled a shift of foreign policy elite and national security officials in numerous nations. And it is impossible to separate China’s role from the hyperglobalised economic structure, of which it conspired with US, European and other multinational corporations to become the epicentre.

All four factors mean that the Covid-19 crisis could dramatically realign power dynamics in the decades-long battle over the rules of the global economy. And it will do so at a moment when people and governments worldwide are paying attention to where things are made, how and by whom, as a matter of life and death consequences.

If the lessons of this crisis are harnessed for positive change, the result would look like stronger and more resilient local, national and regional economies, designed to operate with numerous, diverse players, generating needed goods and services that are affordable and broadly accessible; creating decent jobs; supporting smaller-scale farming; and preserving the environment. It is no coincidence that these changes are also necessary to counter the climate crisis.

Past approaches provide models for how to harvest the benefits of international trade without concentrating production in a few venues where wages and environmental standards are lowest.

Special rules for essential goods

Consider that until the mid-1990s establishment of the WTO and numerous ‘free trade’ agreements, trade rules treated food differently from other goods. Why? Everyone needs food to survive. Thus, governments required ample policy space to determine how to ensure reliable and affordable supplies, including through supply management, subsidies, government stockpiling and more. Certainly that logic remains for food, and should also be applied to other critical sectors, such as medicine and medical supplies, where a lack of domestic or regional manufacturing and related supply chains creates extreme vulnerability.

To distribute production of essential goods, the 1970s Multi-Fibre Arrangement (MFA) provides an interesting model. The MFA allocated textile and apparel market share worldwide as a way to distribute production to countries with smaller industrial capacity or higher wages. When the WTO terminated the MFA, corporate-managed trade logic concentrated production in China and a few other Asian nations, while capacity in Africa, the Americas and Caribbean, Europe and smaller Asian nations was decimated.

To promote more resilient, sustainable trade and investment patterns, existing corporate-friendly limits on government policy space must go, while some additional ground rules are needed. The 1940s International Trade Organisation, with its floor of labour and competition standards and its rules against currency misalignment, shows how to elevate human needs without imposing detailed one-size-fits-all dictates on signatory nations. (Notably the medical goods sector is highly concentrated after a few global giants bought up and often shut down the production capacity of erstwhile competitors.)

Many a book and paper has been written about better international commercial policy. The common theme is that countries require policy space to restore democratic control of economies to serve human needs, which includes rebuilding more geographically diversified production capacity for essential goods.

The toolbox of national industrial policy, which seems to have a bad name everywhere but China, is also well known. It includes tax policies that reward domestic productive capacity and green industries, not outsourcing and Big Oil; financial regulations that reward investment in productive capacity and penalise speculation; robust competition policies; domestic and regional content rules in targeted sectors and related procurement policies that create demand and promote the development of local supply chains; intellectual property rules that prioritise broad, affordable access to medicines and technologies while also rewarding innovation; and investment in research, worker training and apprenticeships in the way Germany does well, but minus the export mania.

It will be contests of power and politics, not a lack of policy options, that determine what happens next. Unless progressives in numerous countries organise to demand an end to business as usual, we could see a mildly adjusted version of the status quo. Or we could find ourselves subject to a rightwing nationalist alternative.

Like those on the left, the likes of former White House chief strategist Steve Bannon can critique the extreme failings of hyperglobalisation. But the alternatives offered by those who love authoritarianism certainly will not be the democratic accountability that is a core antidote to hyperglobalisation.


Lori M Wallach
Lori Wallach is the director of Public Citizen’s Global Trade Watch, Washington DC.
Original text in English