Arthur MacEwan is professor emeritus of economics at the University of Massachusetts Boston and a co-founder and associate of Dollars & Sense magazine. This is the final part of a three-part series on the era of economic globalization, the distribution of power worldwide, and the current crisis. It was originally published in the January/February issue of Dollars & Sense, commencing the magazine’s year-long “Costs of Empire” project. Parts 1 and 2 are available here and here.
Arthur MacEwan
Global Commerce and Political Power
The rhetoric of free trade, in any case, is simply one of the tools that the U.S. government, its allies, international agencies, and large firms use in shaping the world economy. Economic and political-military power is the foundation for this shaping. Following World War II, when the U.S. accounted for more than a quarter of world output, it had tremendous economic power—as a market, an investment source, and a source of new technology. U.S. firms had little competition in their global operations and were thus able to penetrate markets and control resources over a wide range (outside of the U.S.S.R., the rest of the East Bloc, and China). Along with this economic power, the military power of the United States was immense. In the context of the Cold War and the rise of democratic upsurges and liberation movements in many regions, the role of the U.S. military was welcomed in many countries—especially by elites facing threats (real or imagined) from the Soviet Union, domestic liberation movements, or both.
This combination of economic and military power, far more than the rhetoric of free trade, allowed the U.S. government to move other governments toward accepting openness in international commerce. The Bretton Woods conference was a starting point in this process; U.S. representatives at the conference were largely able to dictate the conference outcomes. In terms of international commerce, things worked quite well for the United Sates for about 25 years. Then, however, various challenges to the U.S. position emerged. In particular, the war in Indochina and its costs, competition from firms based in Japan and Europe, and the rise of OPEC and increase in energy costs began to disrupt the dominant U.S. role by the early 1970s.
Still, while the period after the 1970s saw slower economic growth, both in the United States and in several other high-income countries, the United States continued to hold its dominant positon. In part, this was due to the Cold War—the Soviet threat, or at least the perceived threat, providing the glue that attached other countries to U.S. leadership. Yet, by the 1990s, the U.S.S.R. was no more, and China was becoming a rising world power.
In spite of the changes in the world economy, the United States at first appears to have almost the same share of world output in 2016, 24.7%, as it had in the immediate post-World War II period, and is still considerably ahead of any other country. Yet this figure evaluates output in the rest of the world’s countries at market exchange rates. When the figures are recalculated, using the real purchasing power of different currencies, the U.S. share drops to 15.6%, behind China’s 17.9% of world output. Of course, as China has a much larger population than the United States, even using the purchasing power figures, per person GDP in the U.S. is almost four times greater than in China; it would be almost 7 times greater using the market exchange rates.
The rise of China has not moved the United States off its pedestal as the world’s dominant economic power. Moreover, U.S. military strength remains dominant in world affairs. Yet the challenge is real, even to the point that China has recently created an institution, providing development loans to low-income countries, to be an alternative to the (U.S.-dominated) World Bank. Investment by Chinese firms, too, is spreading worldwide. Then there are the military issues in the South China Sea.
At the same time, the United States is engaged in seemingly intractable military operations in the Middle East, and has continued to maintain its global military presence as widely as during the Cold War. Having long taken on the role of providing the global police force, for the U.S. government to pull back from these operations would be to accept a decline in U.S. global power. But, further, the extensive and far flung military presence of U.S. forces is necessary to preserve the rules of international commerce that have been established over decades. The rules themselves need protection, regardless of the amount of commerce directly affected. The real threat to “U.S. interests” posed by the Islamic State and like forces in the Middle East, Africa, and parts of East Asia is not their appalling and murderous actions. Instead, their threat lies in their disruption and disregard for the rules of international commerce. From Honduras and Venezuela to Saudi Arabia and Iraq, if U.S. policy were guided by an attempt to protect human rights, the role of U.S. military and diplomatic polices would be very different.
Continuing to operate on a global level to halt threats to the “rules of the game”—in a world were economic power is shifting away from the United States—this country is threatening itself with imperial overreach. Attempting to preserve its role in global affairs and to maintain its favored terms of global commerce, the U.S. government may be taking on financial and military burdens that it cannot manage. In the Middle East in particular, the costs of military operations during the 21st century have run into the trillions of dollars. Military bases and actions are so widespread as to limit their effectiveness in any one theater of operations.
The potential danger in this situation is twofold. On the one hand, the costs of these operations and the resulting strain on the U.S. government’s budget can weaken the operation of the domestic economy. On the other hand, in the context of the rising challenges to the U.S. role in global affairs and the rising role of other powers, especially China but also Russia, U.S. forces may enter into especially dangerous attempts to regain U.S. power in world affairs—the treacherous practice of revanchism.
Are There Alternatives?
Although globalization in the broad sense of a geographic expansion of economic, political, social, and cultural contacts may be an inexorable process, the way in which this expansion takes place is a matter of political choices—and political power. Both economic and political/military expansion are contested terrain. Alternatives are possible.
The backlash against globalization that appeared in 2016, especially in the U.S. presidential campaign, has had both progressive and reactionary components. The outcome of the election, having had such a reactionary and xenophobic foundation, is unlikely to turn that backlash into positive reforms, which would attenuate economic inequality and insecurity. Indeed, all indications in the period leading up to Trump’s inauguration (when this article is being written) suggest that, whatever changes take place in the U.S. economic relations with the rest of the world, those changes will not displace large corporations as the principal beneficiaries of the international system.
Nonetheless, the Sanders campaign demonstrated the existence of a strong progressive movement against the current form of globalization. If that movement can be sustained, there are several reforms that it could push that would alter the nature of globalization and lay the foundation for a more democratic and larger changes down the road (Sanders’ “revolution”). Two examples of changes that would directly alter U.S. international agreements in ways that would reduce inequality and insecurity are:
Changing international commercial agreements so they include strong labor rights and environmental protections. Goods produced under conditions where workers’ basic rights, to organize and to work under reasonable health and safety conditions, are denied would not be given unfettered access to global markets. Goods whose production or use is environmentally destructive would likewise face trade restrictions. (One important “restriction” could include a carbon tax that would raise the cost of transporting goods over long distances.) Effective enforcement procedures would be difficult but possible.
Establishing effective employment support for people displaced by changes in international commerce. Such support could include, for instance, employment insurance funds and well funded retraining programs. Also, there would need to be provisions for continuing medical care and pensions. Moreover, there is no good reason for such support programs to be limited to workers displaced by international commerce. People who lose their jobs because of environmental regulations (such as coal miners), technological change (like many workers in manufacturing), or just stupid choices by their employers should have the same support.
Several other particular reforms would also be desirable. Obviously, the elimination of ISDS is important, as is cessation of moves to extend U.S. intellectual property rights. The reforms would also include: global taxation of corporations; taxation of financial transactions; altering the governance the IMF, World Bank, and WTO to reduce their role as instruments of the United States and other high income countries; protections for international migrants and protection of their rights as workers. The list could surely be extended. Changes in international economic relations, however, cannot be separated from political changes. The ability of the United States and its allies to shape economic relations is tied up with military power. Military interventions and the threat of military interventions have long been an essential foundation for U.S. power in the global economy. These interventions and threats are often cloaked in democratic or humanitarian rhetoric. Yet, one need simply look at the Middle East to recognize the importance of the interests of large U.S. firms in bringing about these military actions. (Again, see the box on Smedley Butler.) It will be necessary to build opposition to these military interventions in order to move the world economy in a positive direction— to say nothing of halting the disastrous humanitarian impacts of these interventions.
No one claims that it would be easy to overcome the power of large corporations in shaping the rules of international commerce in agreements or to reduce (let alone block) the aggressive military practices of the U.S. government. The prospect of a Trump presidency certainly makes the prospect of progressive change on international affairs—or on any other affairs—more difficult. There is, however, nothing inevitable about the way these central aspects of globalization have been organized. There are alternatives that would not undermine the U.S. economy (or other economies). Indeed, these alternatives would strengthen the U.S. economy in terms of improving and sustaining the material well-being of most people.
The basic issues here are who—which groups in society—are going to determine basic economic policies and by what values those policies will be formulated. D&
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