The Global Alternative
by Jeff Faux
The American Prospect magazine, Summer 2001
Though the leaders of the Washington Consensus would deny
there's more than one way to organize the global economy.
The economic orthodoxy that guides the management of the global
economy has failed to deliver. During the past two decades of
accelerated privatization, deregulation, and free trade, global
growth has actually slowed. The countries (mostly Asian) that
grew faster rejected the advice of the bankers, bureaucrats, consultants,
and media pundits who constitute the Washington Consensus on such
matters. At the same time, inequality both in developed and in
developing countries has generally worsened and poverty is spreading.
Even James Wolfensohn, president of the World Bank, has observed:
"At the level of people, the system isn't working."
Yet there remains a widespread impression that there is no
other option-that capital markets are so sensitive, governments
must bend to the political agenda of those who speak for the world's
great financial institutions. From the boardrooms, protestors
are dismissed as selfish protectionists or ignorant malcontents
whose tantrums will only divert the world's poor from their primary
task of selling their labor to the world's rich. "What,"
the pundits ask those who dissent, "is your alternative?"
There is no way to roll back the tide of change in communication,
transportation, and production technologies that is driving the
world's economic integration. The question is not whether we integrate
the world's economies but how. To this, there is certainly more
than one possible answer.
Those who make up the global opposition to the Washington
Consensus agenda have, in fact, generated a number of different
answers. Taken together, their proposals suggest an alternative
development path for the world economy that addresses the interests
currently left out, such as workers' rights, sustainable development,
and democratic accountability. The opposition proposals are the
building blocks of a more social-democratic vision of the global
economy-one in which the distribution of income, wealth, and political
power is a direct concern of economic policy.
Politically, the proposals knit together the two main wings
of the opposition. One wing, based in the advanced economies,
is represented by the coalition of trade unionists, environmentalists,
religious activists, students, and other civil-society groups
that disrupted the Seattle meeting of the World Trade Organization
(WTO) in late 1999 and, more recently, the meeting of Western
Hemisphere trade ministers (the Summit of the Americas) in Quebec
The other wing is centered in the developing world, where
the lives of the vast majority of people have become even more
precarious because of harsh social policies demanded by first-world
financiers as the price of their loans and aid. It includes peasants
being forced from the land by corporate agriculture and mining,
political leaders disempowered by rumors in faraway bond markets,
civic organizations fighting for human rights and democracy, and
trade unions struggling to give voice to workers. Though largely
unreported in the U.S. media, their protests are widespread. Virtually
every day somewhere in the third world, people are clubbed, rocks
are thrown, and shots are fired in what Joseph Stiglitz, former
chief economist at the World Bank, has termed "IMF riots."
Despite their common adversary, the members of the opposition
party have been divided on the issue of enforcing standards for
labor and the environment. There is general agreement on the need
for such rules. But many in the third world see the effort to
enforce them with trade and financial sanctions as a vehicle for
first-world protectionism. And they resent being manipulated by
arrogant institutions in developed countries-especially the United
As one Asian economist observed: "The U.S. Treasury runs
the International Monetary Fund, and for years urged them to make
loans to dictators who squandered the proceeds and are now dead
or retired in the south of France. Then the IMF tells us that
the only way to pay their debts is to increase exports made with
our cheap labor. When we do, U.S. unions complain that we are
undercutting labor standards."
First-world activists see their third-world equivalents as
being too willing to align themselves with multinational capital
in opposing social protections through trade and financial agreements.
They are skeptical when those in the third world who claim
to be supportive of human rights resist economic sanctions-which,
in practical terms, are the only way to preserve those rights.
The emerging global social-democratic alternative involves
a "grand bargain" between the two wings of the opposition:
The developed world would get protection for its social standards,
and the developing world would receive the flexibility and capital
investment it needs for growth.
This global "New Deal" involves six major components.
Basic political and labor rights- including freedom of association,
prohibition of forced labor and child labor, nondiscrimination,
and the setting of minimum standards-would become part of trade
agreements and investment policies. They would ultimately be enforceable
by sanctions, similar to the way that investors' rights are protected.
Rights would be distinguished from standards. (For example: All
workers would have a right to a minimum wage, but the level of
the wage would depend upon a country's income.)
The one-size-fits-all policies of the international financial
agencies have not only failed to produce faster growth; they allow
the leaders of recipient countries to escape responsibility for
their own policies by blaming all their problems on international
bankers. Therefore, once human and political rights are ensured,
countries should have the flexibility to choose their own development
path, for which their leadership should be held accountable-both
to their citizens and to foreign investors.
The Hope for Africa bill introduced in the U.S. House in 1999
by Congressman Jesse Jackson, Jr., illustrates this principle.
It was an alternative to a business-sponsored bill that was supported
by the Clinton administration and the Republicans and that based
increased U.S. trade with sub-Saharan Africa on the recipient
countries' willingness to cut corporate taxes, permit open foreign
ownership of natural resources, slash domestic budgets, and privatize
public assets. In contrast, Jackson's bill- which failed-would
have conditioned increased trade on minimum labor standards and
guaranteed that jobs created would go to African workers. The
countries would have been free to pursue the development path
that best fits their circumstances.
WINNERS COMPENSATING LOSERS.
As long as workers who have to bear the costs of open markets
expect that they will be abandoned by the society that profits
at their expense, they will resist globalization. So developed
countries, particularly the United States, need social policies
that compensate those who must pay for the benefits of economic
integration. Such policies would include increased public spending
on health care for the uninsured, worker retraining, and community
redevelopment, as well as more generous unemployment compensation
and wage insurance to cushion the blow of moving to lower-paying
Volatile financial markets must be tamed. Since no system of global
banking regulation is in sight, the simplest solution is a tax
on international financial transactions, as proposed by Nobel
Prize-winning economist James Tobin. The proceeds would be used
for long-term investments in education and health care in poor
countries. Such a tax, which has the virtue of being easily understood
and can be administered with minimal bureaucratic discretion,
is already supported by many influential people around the world.
Several years ago, in fact, the government of Canada proposed
a discussion of the Tobin tax for the agenda of the Group of Seven
(the major economic powers) meeting in Halifax, but the U.S. Treasury
quickly quashed the idea.
COORDINATED ECONOMIC POLICY.
A fully functioning global economy-like a fully functioning national
economy-needs central banking and counter-cyclical public budgets
in order to maintain overall growth. But there will be neither
a global central bank nor a global government budget for a long
time, so these functions must be performed by the governments
of the three largest economies-the United States, Europe, and
Japan-acting together. Having pressured the world into a system
of brutal competition, the major powers have a responsibility
to maintain sufficient global demand with low interest rates and
other macroeconomic policies.
One potential counterweight to global laissez-faire is the multinational
regional economy, the most developed of which is the European
Union. Unlike simple free-trade areas, the EU is a political economy
with a strong constituency in support of a democratic social contract.
It serves as a rough model for future regional groupings.
Can such a set of proposals unite the two wings of the opposition?
One thing suggests that it might: "Alternatives for the Americas,"
an 80-page work-in-progress being written by the Hemispheric Social
Alliance-a group of labor, environmental, religious, and citizen
activists from North and South America. The document codifies
the first four of these principles into a comprehensive alternative
to the investor-driven Free Trade Area Agreement of the Americas
(FTAA). The "Alternatives" draft has become the working
paper for discussion among the diverse groups opposed to the FTAA.
It has been translated into Portuguese and Spanish by Brazilian
and Mexican trade unions and has appeared on Web sites all over
Unfortunately, there is no independent forum where proponents
can press the institutions of global economic governance to take
these ideas seriously. Demonstrators can temporarily obstruct
the workings of the global institutions' managers. But there is
no place to formally discuss the policies of agencies such as
the IMF and the WTO-except the IMF and the WTO, which have no
interest in alternatives to their own model. As a consequence,
the leaders of the labor, environmentalist, and religious groups
in opposition find themselves drawn into largely fruitless public
dialogues. Meanwhile, the real work goes on in private negotiations
in which the IMF and WTO parcel out rules to protect various business
interests, whose headquarters may be located in a specific country
but who recognize no nation-state as home.
For those searching for an alternative vision, it's a catch-22:
A global social contract needs to be enforced by global institutions.
But in the absence of global democracy, such institutions will
be captured by multinational financial interests, which will prevent
the brokering and enforcement of a global social contract. The
opposition is thus constantly forced back into a defense of national
sovereignty as the only available instrument for achieving social
justice. Yet sovereignty is steadily eroding under the relentless
pressure of global markets. Moreover, a nationalist politics undercuts
the cross-border cooperation needed to balance the cross-border
political reach of business and finance. Nationalism perpetuates
the myth that national identity is the deciding factor in whether
one wins or loses in the global economy. It obscures the common
interests of workers in all countries when faced with the alliances
of investors in rich and poor nations that now dominate the global
International cooperation among those in the opposition is
certainly growing. In some industries, coordinated labor campaigns
have successfully challenged the freedom of multinational corporations
to dictate terms to their workers. And a nimble, talented network
of non-governmental organizations (NGOs) has done remarkably well
in mobilizing people and information for maximum media effect.
But in a world of about 190 separate countries (most of which
are desperate for investment) and more than six billion people
(most of whom are poor), the development of a global political
movement powerful enough to bring the investor class to the bargaining
table is clearly a long way off.
REGIONALISM AND DEMOCRACY
Nevertheless, it is not so difficult to imagine an effective
cross-border politics among limited groups of countries in sub-global
geographic regions. People who live in countries in the same region
tend to have more in common with one another. Language barriers
are not as great. Culture is similar. And trading relations are
usually the strongest. From a development perspective, regional
clusters of nations can provide the economies of scale so that
small third-world countries can take advantage of new technologies.
From a political perspective, a path to global integration built
on expanding regional markets could provide a more accommodating
arena for a social-democratic alternative.
Indeed, regionalism has long been a project of the mainstream
left around the world. The European Union grew out of a French
socialist's dream of burying Franco-German enmity. African regionalism
was the vision of the late Julius Nyerere of Tanzania as a way
of progressing beyond tribalism and colonialism. In Latin America,
there is a history of efforts to bring together economies in the
Southern Cone, in the Andes, and in Central America.
Attempts at regional integration of less-developed countries
have failed more often than not, in part because ruling economic
oligarchs and their foreign-investor allies are threatened by
the bidding up of wages and costs that comes from a more diverse
economy. Thus, the United Fruit Company-and, therefore, the U.S.
State Department-was unenthusiastic about the regional integration
of the Central American economies because it would have created
competition for labor and weakened the politically conservative
oligarchs that run those countries.
On the other hand, the European Union illustrates the greater
potential for sustained economic integration when policy is focused
on the development of a diverse domestic market. The extent of
social protection in Europe and the rich debate over the restructuring
of a continent-wide social contract reflect a comprehensive notion
of economic integration as a tool for political and social development.
Ironically, the European Union was inspired by U.S. economic history,
which can be read as a process of regional integration supported
by a federal constitution that nurtured (not without struggle)
the growth of trade unions, civil rights, and a modest welfare
This more comprehensive approach stands in stark contrast
to the North American Free Trade Agreement (NAFTA), which the
U.S. government is now holding up as the model for development
in all of the Western Hemisphere. In NAFTA, development is narrowly
defined as an expansion of the volume of goods and money that
flow across the border. Accordingly, the arrangement gives extraordinary
protections to investors but leaves labor, the environment, and
consumers to the mercies of the deregulated markets. As a result
the benefits have largely gone to capital, while labor has borne
the cost of dislocation, increased insecurity, and an overwhelmed
public infrastructure on both sides of the border.
Whether NAFTA was worth this cost is a subject of partisan
debate in each nation. But one thing is certain: NAFTA is incomplete.
Deliberately so, of course; had its promoters revealed NAFTA for
what it was-the first step toward economic and political integration
of the three nations-it would have been soundly rejected in each
country. Be that as it may, there is no going back. Supporters
of the Washington Consensus are already pushing to consolidate
their agenda for the North American economy, with proposals to
adopt the U.S. dollar as currency in Mexico and Canada, as well
as an updated version of the infamous bracero system in which
the U.S. government would provide American employers with Mexican
workers whose docility is guaranteed by the threat to ship them
Mexico's new president, Vicente Fox, has explicitly called
for the transformation of NAFTA into a wider continental agreement.
He wants to open up the border to more immigration and to receive
aid for schools, roads, and infrastructure from the United States
and Canada similar to the "social cohesion" funds that
the richer countries of western Europe provide to Spain, Portugal,
Ireland, and Greece to help them grow faster.
These initiatives provide an opening for a trinational coalition
of progressives to offer its own continental grand bargain that
reflects the interests of working people in all three countries.
In such an arrangement, the United States and Canada would agree
to make capital available for sustained public investments and
Mexico would agree to the enforcement of labor and environmental
standards, which would rise as the country's income grows. [See
Jeff Faux, "Time for a New Deal with Mexico," The American
Prospect, October 23, 2000.]
The seeds of a framework for such a bargain are already embedded
in NAFTA's various side agreements on labor, the environment,
and infrastructure needs. These provisions were just political
fig leaves that gave cover to the Democratic members of Congress
who voted for NAFTA. Not surprisingly, they have been largely
ineffectual. Still, their very existence acknowledges the principle
that social goals have a place in trade and investment agreements.
They could provide a foundation upon which a trinational political
movement could build a new continental deal.
Debating and working out compromises with wide political appeal
in all three countries are not beyond the technical capacities
of the various labor groups and NGOs that are even now working
together across borders on ways to reform NAFTA. The question
is how to gain a serious, democratic political forum. The answer,
at least in part, may lie in having the legislatures- which are
responsive to grass-roots pressure-play a larger role in shaping
the continent's economic future.
Thus far, the function of the legislatures in the development
of NAFTA has been to react-to ratify or not to ratify the agreement
made by the foreign-trade-and-finance-ministry apparatus of the
executive branches. This reflects the traditional vie that international
economic agreements are a function of foreign policy. It is at
the heart of the argument to give President George W. Bush the
"fast-track" negotiating authority that was taken away
from Bill Clinton in the negative reaction to NAFTA.
The argument might have made sense when such agreements were
an extension of foreign policy-when markets were bound by national
borders and negotiators promoted clearly defined national interests.
But the emergence of a global marketplace has altered those conditions.
In the case of the North American single market, issues such as
Mexico's enforcement of labor laws, Canada's environmental standards,
and U.S. immigration policy are becoming the domestic concerns
of a continental economy.
Of course, we have no North American legislature. Realizing
that and already being organized on a continental basis, the banking
and transnational business groups have been busy connecting conservative
legislators in all three countries. It is time to build a parallel
progressive presence on these issues. In each country, legislators-working
with the cross-border coalition of labor groups and other NGOs-could
introduce similar proposals on aspects of the grand bargain. It
would be a beginning in the essential process of building a continental
constituency for progressive NAFTA reform-and just as important,
democratizing the process of making continental economic policy.
The advantages of starting a visible and transparent political
debate over North American integration would spill beyond the
continent. In light of the influence of the United States, would
give hope to many people around the world who are struggling with
the consequences of a mismanaged global market-a sense that even
here, in the heart of the Washington Consensus, an emerging alternative
vision foreshadows globalization that works for everyone.
JEFF FAUX is president of the Economic Policy Institute in
Washington, D.C. For more on organizing the global economy, see
the links to this article at www.prospect.org.
New Global Economy