The Party of Davos
by Jeff Faux
www.thenation.com/, February 13,
The world's movers and shakers are convening
once again in January at the annual World Economic Forum in Davos,
the posh ski resort nestled in the Swiss Alps. Attendance is invitation-only,
enforced by police barricades, razor wire and the latest high-tech
military hardware to guard against terrorists, protesters and
curious local citizens.
Some 2,000 people will show up to discuss
the world's problems as defined by those who own and manage the
great global concentrations of wealth (Microsoft, Citigroup, Siemens,
Nestlé, Nomura Holdings, Saudi Basic Industries, etc.).
Their guests include prominent political leaders, international
bureaucrats, academics, consultants and media pundits--with a
few NGO and labor union officials sprinkled along the edges to
Davos is not the place for secret conspiracies.
More than 200 hovering journalists will dispatch to the world's
citizens breathless accounts of the chatter and charm of the masters
of the economic universe. Davos is rather the most visible symbol
of the virtual political network that governs the global market
in the absence of a world government. It is more like a political
convention, where elites get to sniff one another out, identify
which ideas and people are "sound" and come away with
increased chances that their phone calls will be returned by those
one notch above them in the global pecking order.
Americans are of course prominent members of this "Party
of Davos," which relies on the financial and military might
of the US superpower to support its agenda. In exchange, the American
members of the Party of Davos get a privileged place for their
projects--and themselves. Whether it's at Davos, at NATO headquarters
or in the boardroom of the International Monetary Fund, heads
turn and people listen more carefully when the American speaks.
"Davos Man," a term coined
by nationalist scholar Samuel Huntington, is bipartisan. To be
sure, Democrats tend to be more comfortable with the forum's informal
seminar-style and big-think topics like global poverty, cultural
diversity and executive stress. Bill Clinton goes often, and Al
Gore, John Kerry, Robert Rubin, Madeleine Albright, Joe Biden
and other prominent Democrats are familiar faces. Republicans
generally prefer more private venues. George W. Bush, of course,
doesn't do anything unscripted. But people like Dick Cheney, Newt
Gingrich, John McCain and Condoleezza Rice have all worked the
That the global economy is developing
a global ruling class should come as no shock. All markets generate
economic class differences. In stable, self-contained national
economies, where capital and labor need each other, political
bargaining produces a social contract that allows enough wealth
to trickle down from the top to keep the majority loyal. "What's
good for General Motors is good for America," Dwight Eisenhower's
Defense Secretary famously said in the 1950s. The United Auto
Workers agreed, which at the time seemed to toss the notion of
class warfare into the dustbin of history.
But as domestic markets become global,
investors increasingly find workers, customers and business partners
almost anywhere. Not surprisingly, they have come to share more
economic interests with their peers in other countries than with
people who simply have the same nationality. They also share a
common interest in escaping the restrictions of their domestic
The class politics of this new world
economic order is obscured by the confused language that filters
the globalization debate from talk radio to Congressional hearings
to university seminars. On the one hand, we are told that the
flow of money and goods across borders is making nation-states
obsolete. On the other, global economic competition is almost
always defined as conflict among national interests. Thus, for
example, the US press warns us of a dire economic threat from
China. Yet much of the "Chinese" menace is a business
partnership between China's commissars, who supply the cheap labor,
and America's (and Japan's and Europe's) capitalists, who supply
the technology and capital. "World poverty" is likewise
framed as an issue of the distribution of wealth between rich
and poor countries, ignoring the existence of rich people in poor
countries and poor people in rich countries.
The conventional wisdom makes globalization
synonymous with "free trade" among autonomous nations.
Yet as Renato Ruggiero, the first director-general of the World
Trade Organization, noted in a rare moment of candor, "We
are no longer writing the rules of interaction among separate
national economies. We are writing the constitution of a single
global economy." (Emphasis added.)
On the board of many transnational companies,
Ruggiero has been both trade and foreign minister in the Italian
government of right-wing businessman Silvio Berlusconi. He is
now the chair of Citigroup's Swiss subsidiary. His fellow authors
of the Davosian constitution have similar résumés,
tracking careers that flow easily across borders and between public
and private sectors. After just stepping down as German chancellor,
Gerhard Schröder has become board chair of a Russian company
building a gas pipeline that Schröder himself had negotiated
while in office. And so it goes.
In the absence of global democracy, the
forces that act as counterweights to the power of the investor
class in national economies--labor, civil society and progressive
political parties--are too weak and unorganized to create a global
social contract. What might be called the "Party of Porto
Alegre"--the NGO activists of the World Social Forum, who
also meet annually (usually in Brazil, this year in Venezuela,
Mali and Pakistan) in January--is hardly a match for Davos. It
is therefore no surprise that the constitution of the world economy
protects just one class of global citizen--the corporate investor.
Given the influence of American elites,
the model for this constitution is the North American Free Trade
Agreement, conceived under Ronald Reagan, nurtured by George H.W.
Bush and delivered by Bill Clinton. Among other things, NAFTA's
1,000-plus pages give international investors extraordinary rights
to override government protections of workers and the environment.
It sets up secret panels, rife with conflicts of interest, to
judge disputes from which there is no appeal. It makes virtually
all nonmilitary government services subject to privatization and
systematically undercuts the public sector's ability to regulate
business. Jorge Castañeda, later Mexico's foreign secretary,
observed that NAFTA was "an agreement for the rich and powerful
in the United States, Mexico and Canada, an agreement effectively
excluding ordinary people in all three societies."
In the fall of 1993 a corporate lobbyist,
exasperated by my opposition to NAFTA, stopped me in the corridor
of the Capitol. "Don't you understand?" she demanded.
"We have to help [then-Mexican President Carlos] Salinas.
He's been to Harvard. He's one of us."
Her reference to "us" seemed odd. Neither she nor I
was a Harvard graduate. So it took me a while to get her point:
"We" internationally mobile professionals had a shared
interest in liberating similarly mobile global investors from
regulations imposed by national governments on behalf of people
who were, well, not like "us." Despite the considerable
social distance between Salinas and both of us, she was appealing
to class solidarity.
It's impossible to understand why Democratic
Party leaders collaborated with Republicans to establish NAFTA
unless reference is made to cross-border class interests. There
was no compelling economic or political reason for Bill Clinton
to make NAFTA a priority in his first year as President. In economic
terms, nothing was broken that needed fixing. Politically, NAFTA
and the WTO that followed traded away the interests of the Democratic
Party's blue-collar electoral base while creating a bonanza for
Republican constituencies on Wall Street and in red-state agribusiness.
But Clinton was more Davos than Democrat.
Tutored by financier Robert Rubin, a prodigious fundraiser who
became his Treasury Secretary, Clinton embraced a reactionary,
pre-New Deal vision of a global future in which corporate investors
were unregulated and the social contract was history. Indeed,
in all three countries it was the leaders of the political parties
that had historically claimed to represent ordinary people--the
Democrats' Clinton, the Liberal Party's Jean Chrétien and
the Institutional Revolutionary Party's Salinas--who delivered
NAFTA to their global corporate clients, undercutting their own
constituencies. "NAFTA happened," said the then-chairman
of American Express, "because of the drive Bill Clinton gave
it. He stood up against his two prime constituents, labor and
environment, to drive it home over their dead bodies."
A year later, in November 1994, enough
angry Democratic voters stayed away from the polls to give the
Republicans control of the House. Since then, many working-class
Americans, feeling abandoned by the Democrats, have responded
to the Republican definition of class struggle as a fight over
gun control, school prayer and abortion. The Democrats have still
Consistent with a deal among the rich
and powerful, NAFTA made the distribution of income, wealth and
political power more unequal throughout the continent. In all
three countries, wages in manufacturing fell behind productivity
increases, shifting income from labor to capital. Ordinary Mexicans
especially went through the economic wringer--to which the willingness
of hundreds of thousands of them to risk their lives each year
crossing the border continues to be tragic testimony.
On the other hand, opportunities blossomed
for the rich and powerful in all three nations. American and Canadian
investors got access to cheaper labor and privatized Mexican companies,
while Mexican oligarchs got to broker the deals. One example was
the way NAFTA was used to open up Mexico's banking system to foreign
ownership, profiting elites on both sides of the border.
The governments of Carlos Salinas and
his successor, Ernesto Zedillo--hailed in Washington as great
free-market reformers--privatized government-owned banks, turning
them over to business cronies, and, through NAFTA, revoked the
legal ban on foreign ownership. When the banks started to fail,
they were given huge government subsidies to make them attractive
to transnational buyers. At the same time, the "reform"
government was slashing subsidies to the poor for food and medicine.
Banamex, the country's second-largest
bank, was bought by a Mexican syndicate, owned by Salinas pal
Roberto Hernandez Rodriguez, for $3.2 billion and when, thanks
to NAFTA, foreigners were allowed to own Mexican banks, it was
resold to Citigroup for $12.5 billion. Robert Rubin negotiated
the deal for Citigroup, where he had gone after leaving the Treasury
Department. The Mexican government's welfare program for Citigroup
and other foreign investors continues: In 2003 government subsidies
to private banks (more than 85 percent of them now owned by foreigners)
were almost three times those spent on roads, schools and other
NAFTA was only the beginning. The Clinton/Republican
alliance then pushed through the WTO agreement and the subsequent
deal with China that traded off more US industrial jobs in exchange
for protections for US investors in that huge Asian market. Not
only has this produced a massive trade deficit with China and
further downward pressure on US wages, it has also sent some 250,000
jobs from Mexico to China. The ubiquitous Citigroup, with banking
operations in 100 countries, is now busy building its Chinese
banking empire--with Chinese partners.
That well-connected people who move in
and out of government and business act in ways that benefit their
class and take advantage of their contacts to further their own
interests is neither illegal nor new. That's the way class privilege
works. Thus, it is unlikely that Dick Cheney ever ordered anyone
at the Pentagon to give a huge sole-source contract to Halliburton.
He did not have to. Procurement officers already knew the relationship
between the company and the Vice President. And Cheney's promotion
of more funds for the military and for the war in Iraq in particular
was bound to benefit the world to which he belonged--his circle
of rich and powerful people who would always be there for him
and his projects.
There are of course important differences
between the ways the elites of the different parties promote the
Davos agenda. The preferred instruments of Rubin Democrats are
the economic levers of the US Treasury, the IMF, the World Bank
and other international financial institutions. Rumsfeld/Cheney
Republicans prefer the Defense and Energy departments. The Rubin
mode is certainly less lethal and probably more effective. Still,
Davos relies on the Pentagon to protect its class privileges with
a worldwide web of military bases, training schools and the always-present
threat to send in the Marines. It's worth remembering that virtually
the only section of Saddam Hussein's law still untouched by the
US occupation is its oppressive labor code.
But the twin pillars of the US superpower--the
Pentagon and Wall Street--are slipping into their own crises and
soon may not be able to provide the military and economic muscle
for the Davos agenda.
The crisis on the military side involves
blowback from the overreach in Iraq. Bush, Cheney and Rumsfeld--despite
their thick transnational corporate connections--have created
a disaster for Davos. The war has unleashed an army of enemies
of Western modernization that is making global corporations nervous.
Two years ago the wiser heads at Davos were appalled at Cheney's
delusional report on the Bush Administration's progress in turning
the Middle East into a shopping mall--however much they might
have sympathized with the objective. Today the mess in Iraq has
revealed to Davos both the incompetence of the American governing
class and the unwillingness of the American electorate to make
the sacrifices necessary to act as security police for the world's
rich and powerful.
The looming economic crisis comes from
the unsustainable US external debt. For more than a quarter-century,
we Americans have been buying more from the rest of the world
than we have been selling it, and borrowing from abroad to make
up the difference. The resulting trade deficit has been a major
engine of global growth under Davos's management. But common sense
and simple arithmetic tell us that even the United States cannot
go on much longer spending more than it is earning.
When the day of reckoning comes, high
interest rates and a falling dollar will force us Americans to
rebalance our trade by cutting the price of what we sell and raising
the price of what we buy, lowering real incomes. The crisis in
the nation's trade sector will be transmitted to the rest of the
economy, made vulnerable by overindebted consumers, overleveraged
pension funds and overpriced houses. Thanks to George W. Bush's
reckless fiscal deficits, the government will have less ability
to overcome an economic crisis through borrow-and-spend, as it
did in the last economic downturn. With the appetite for America's
IOUs diminishing, US politicians will have their hands full dealing
with rising energy costs and the tottering finances of healthcare,
education and pensions.
The basics of a harder-times scenario
are not much in dispute. The debate is between those who foresee
a hard landing and those who believe that the world's central
bankers will somehow figure out a way to avoid a global financial
meltdown. But hard landing or soft, even the staunchest supporters
of globalization admit that lower living standards are already
in the cards. N. Gregory Mankiw, who as Bush's chief economist
famously praised the offshoring of American jobs, recently acknowledged
that US reliance on foreign savings to support its consumption
means a "less prosperous future."
Financier Warren Buffett reaches the
obvious conclusion: We are headed for "significant political
unrest." Democratic Senator Max Baucus, a staunch free-trader,
recently told Chinese business executives that unless they cut
their country's trade deficit with America "US politics will
become unmanageable." New York Times columnist and Davos
champion Thomas Friedman, who also sees the writing on the wall,
suggests dividing political parties by economic class, with Republican
Wall Street joining with Democratic Hollywood against disgruntled
working-class "populists" in both red and blue states.
But working-class disgruntlement is likely
to go beyond Freidman's stereotype of uneducated losers. The outsourcing
and downsizing of opportunities is already adding to the insecurity
of people much further up the skill ladder. There are signs that
the anxiety is spreading to the business class as well; within
organizations such as the National Association of Manufacturers,
the owners of smaller and medium-sized businesses, who still depend
on an American workforce, are beginning to dissent from the once
united front in favor of globalization.
Resistance to Davos is also growing in
our own hemispheric neighborhood. Latin American oligarchs who
prospered by selling their countries' assets and people to transnational
investors have been ousted in Brazil, Argentina, Venezuela, Uruguay
and Bolivia. In Mexico, which is having a presidential election
this July, a leftist critic of NAFTA leads in the polls. The Party
of Davos may not be over, but the rest of the world seems less
willing to foot the bill.
Here in America, the coming unrest could
turn right as well as left. The Republican Party is hopelessly
tied to the multinational priorities of the US business elite,
but its managers are skilled at stoking nationalist resentment
among the working-class victims.
In the two-party system the burden therefore
rests on the Democrats' ability to produce leaders who are not
co-opted by the Party of Davos. Given the current crop, our chances
may not seem great. But leaders are often produced by the times.
As globalization's squeeze on ordinary Americans continues, the
political price will rise for those who continue to give priority
to bringing Burger King to Baghdad over healthcare to Baltimore.
It's worth remembering that Franklin Roosevelt, who was as elite
and privileged as one could get, responded to the economic crisis
of his time by becoming--as they muttered in the best clubs--"a
traitor to his class."
Ruling Elites page
New Global Economy