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The Collapse of Globalism

The more extravagant promises of globalization theory have come to naught. Where do we go from here?

| Wed Nov. 9, 2005 3:00 AM EST

The current wave of globalization has its origins in the economic crises of 1970s, when the industrialized economies, after three decades of steady growth, began to flounder, beset by persistently high unemployment and inflation, and governments began casting around for an alternative to the Keynesian orthodoxy that had dominated economic thinking since the end of the Second World War. They found that alternative in a (hitherto fringe) school of thought associated with Friedrich von Hayek and, later, Milton Friedman, one premised on the notion that in matters of economic management government was the problem, not part of the solution, as Keynesianism had it.

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Central to the new thinking—taken up famously and with particular fervor in the 1980s by Margaret Thatcher and Ronald Reagan—was the the idea that market forces work best and to everyone's benefit when government stands aside. Left alone, such forces would inevitably unleash waves of trade, which would in turn generate a tide of growth, raising all ships in both the developed and developing world. Deregulation and privatization were the watchwords of the day.

Developing countries were effectively forced to open up to foreign trade and capital—for their own good. On a global scale, the embrace of what fast became a new orthodoxy promised an impressive array of social and political benefits as trade barriers fell and international markets were freed from the dead hand of government: the power of the nation-state would wane; nationalism and racism would fade; economics, not politics—and certainly not religion—would shape human events. Free markets and free democracies would become the norm in an interdependent, peaceful world held together by the magic of enlightened self-interest.


However, as John Ralston Saul argues in his new book, The Collapse of Globalism, things didn't work out quite as planned. The past three decades have been marked by unimpressive economic growth and sharply increasing economic inequality, and recent years have seen a marked rise in economic populism, nationalism, and conflict, much of it within states. The Asian financial crisis of 1997-98 pointed up the instability of the global economic system, and, in 1998, the talks on the Multilateral Agreement on Investment (MAI) collapsed. In 1999, the WTO conference at Seattle drew huge protests that derailed the talks. As the failure of last week's free trade meeting in Argentina showed, developing countries, having gradually and painfully discovered that globalization, at least as currently conceived by the industrialized countries, has been something less than a boon, are no longer willing to open their markets with no questions asked, on terms dictated by the United States and other industrialized countries.

Saul, a Canadian, writes that the collapse of free trade orthodoxy has left us in a vacuum, unmoored from the (spurious) certainties of yesterday's economic fundamentalism but lacking a better framework for thinking about economic arrangements within and among states. The task of figuring out what that framework might be requires, first of all, that the proponents of globalization admit that there's a problem with their model, which many have been unwilling to do.

Saul is the author of many books, including Voltaire's Bastards. He recently talked with Mother Jones by phone from Canada.

Mother Jones: It's fairly clear that some of the wilder political predictions of globalization theorists—the decline of nationalism, the fading away of sectarian passions, for example—have fallen short. But you argue that the economic promise hasn't panned out, either.

JRS: That's right. Look, we've seen a 22 times increase in world trade, a 15 times increase in foreign investment, incredible multiples in financial markets. Traditionally in capitalism, when you have more cash, you can fund more activity, which produces more jobs and creates more wealth. That's basic economic theory. But in fact you find that this 30-year period has been a time of average or below-average growth. Interestingly, the Keynesian period, covering the previous 25 years, was a period of high taxes and high growth. So you stand back and you say, 'So, we got this growth in trade and investment and money markets, and we didn't get even an above-average growth. Why not? Why hasn't it worked? And why aren't we discussing the fact that it hasn't worked?'

the collapse of globalism

MJ: What about economic equality among and within nations? Is that another sign that something's amiss?

JRS: Yes, and the statistics show this pretty much everywhere. And the interesting thing is, even that disparity between rich and poor doesn't total up to a big increase in wealth; it's just that a small group of people are getting richer and a much larger group of people are getting poorer. So getting more of the pie today, for the poor, still wouldn't represent a success for the system. This suggests that the system, as designed by the globalists, simply isn't delivering what it said it would deliver.

MJ: Why not?

JRS: One of the reasons is that a great deal of what's counted as trade isn't in fact trade. This is the sort of thing we need to discuss—that what we call transnationals you could very easily call the British East India Company, or the Hudson Bay Company; in other words, they're big mercantilist operations of the 16th- and 17th-century sort; they're basically anti-free market devices. And the whole point of the industrial revolution, the whole point of Adam Smith was that we were going to break down this mercantilist international oligopoly/monopoly system and get competition, and that competition would lead to growth. Instead, what we've got is these large machines which actually slow down growth.

We count as trade what is moved around inside a transnational corporation, where no real profits are being made at each level. In fact, transnationals are very carefully organized so that they actually make losses at most levels. I give an example in the book of 30-60 corporations operating in Britain. The Financial Times discovered that most of them, despite massive turnover, were making losses, and therefore weren't paying taxes. More important, they weren't investing in each place. Suppose the supply chain were 10 separate companies. Well, in some way the companies would be investing in its area—building houses, building schools, paying taxes, in a sense being a real part of the local economy. You'd be getting growth; today you're not. It's all designed to prevent the creation of real wealth.

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