Balancing market and community interests: sustainability and the global economy

The world has more poor people today than ever before. We have an accelerating gap between the rich and the poor. Widespread violence is tearing families and communities apart nearly everywhere. And the planet's ecosystems are deteriorating at an alarming rate. Yet the prevailing wisdom continues to maintain that economic growth offers the answer to poverty, environmental security, and a strong social fabric, and that economic globalization, which involves erasing economic borders to allow the free flow of goods and money, is the key to growth. Indeed, the more severe the mounting economic, environmental, and social crises become, the stronger the policy commitment to these same prescriptions, even as evidence mounts that they are not working.

Consensus is growing outside of official circles that they cannot work. We must envision a very different world order that embodies a more advanced understanding of the reality of our planet and the potential of our species. Such a vision, which puts a new frame on our global crisis, is emerging.

A struggle between two extremist ideologies has been a central feature of the 20th century. Communism called for all power to the state. Market capitalism calls for all power to the market--a euphemism for giant corporations. Both ideologies lead to their own distinctive form of tyranny. Trying to run an economy without markets is disastrous, as the experience of the Soviet Union demonstrated. However, there is a fundamentally important distinction between markets and free markets. The secret of Western success in World War II and the early post-war period was not a free market economy. It was the practice of democratic pluralism built on institutional arrangements that seek to maintain a balance between the institutions of the state and the market and protect the right of an active citizenry to hold both institutions accountable to the public interest.

Contrary to the claims of ideologues who preach a form of corporate libertarianism, markets need governments to function efficiently. It is well-established in economic theory and practice that markets allocate resources efficiently only when firms internalize the costs of their production and when markets are competitive. Governments must set and enforce the rules that make cost internalization happen and since successful firms invariably grow larger and more monopolistic, governments must regularly step in to break them up and restore competition.

For governments to play their necessary role in balancing market and community interests, governmental power must be concentrated at the same system level as market power. If markets are national, then there must be a strong national government. By expanding the boundaries of the market beyond the boundaries of the nation state through economic globalization, we almost inevitably place the concentration of market power beyond the reach of government. This has been an important consequence of both the structural adjustment programs of the World Bank, the International Monetary Fund, and the trade agreements negotiated under the General Agreement on Tariffs and Trade (GATT). The effective result is to transfer governance decisions from governments, which at least in theory represent the interests of all citizens, to the dominant institutions of the market--corporations--which by their nature serve the interests of their shareholders. One result is a loss of ability of societies everywhere on the planet to address environmental and other needs.

Relieved of constraints to their own growth, enormous economic power is being concentrated in the hands of a very few global corporations. Antitrust action to restore the conditions of market competition by breaking up these concentrations has been one of the many casualties of globalization. Indeed, current policy encourages firms to merge into ever more powerful concentrations to strengthen their position in global markets.

The fact that large corporations have been shedding employees at a rapid rate has created an impression in some quarters that the large firms are losing their power. It is a misleading impression.

The Fortune 500 firms did shed 4.4 million jobs between 1980 and 1993. During this same period, however, their sales increased 1.4 times, assets 2.3 times, and CEO compensation 6.1 times.

This concentration has progressed to the point where of the world's 100 largest economies, 50 are now corporations, not including banking and financial institutions.

Any industry in which five firms control 50% or more of the market is considered by economists to be highly oligopolistic. The Economist recently reported that five firms control more than 50% of the global market in the following industries: consumer durables, automotive, airlines, aerospace, electronic components, electrical and electronic, and steel. Five firms control over 40% of the global market in oil, personal computers, and--especially alarming in its consequences for public debate on these very issues--media.

Such firms have enormous political power and they are actively using it to reshape the rules of the market in their favor.

The GATT has become one of their most powerful tools for this purpose. Under the new GATT agreement now in the process of ratification, a World Trade Organization (WTO), is being created with far-reaching powers to provide the world's largest corporations with the legal protection they feel they need to continue expanding their far-flung operations without responsibility for serving any interest other than their own.

The WTO will hear disputes brought against the national or local laws of any country that another member country considers to be a trade barrier. Complaints will be heard by secret panels comprising three unelected trade experts whose rulings can be overturned only by a unanimous vote. In general, any health, safety, or environmental standard that exceeds a maximum set by an international standards body dominated by industry representatives is likely to be assumed to be a trade barrier unless the offending government can prove it has a valid scientific basis. The burden of proof is on the defendant. If the WTO panel rules that a law constitutes a trade barrier the government for whom the decision is taken may demand payment from the transgressing government equal to the presumed loss. The GATT agreement also guarantees global patent protection, a move that gives large corporations virtual monopoly over a wide range of technologies and even life forms.

As powerful as large corporations are, they function increasingly as instruments of a global financial system that has become the world's most powerful governance institution.

The power in this system lies with a small group of private financial institutions that have only one objective: to make money in massive quantities. A seamless electronic web allows anyone with proper access codes and a personal computer to conduct instantaneous trades involving billions of dollars on any of the world's financial markets. The world of finance has become much like a gigantic computer game. In this game the smart money does not waste itself on long-term commitments to productive enterprises engaged in producing real wealth to meet real needs of real people. Rather, it seeks short-term returns from speculation in erratic markets and from simultaneous trades in multiple markets to profit from minute-to-minute price variations. In this game the short-term is measured in micro-seconds; the long-term in days. The environmental, social, and even economic consequences of financial decisions involving more than a trillion dollars a day are invisible to those who make them.

The bulk of these free-floating funds are controlled by large investment houses, banks, mutual funds, and retirement funds. Each pool of money is managed by a professional investment manager whose reputation depends on his or her financial performance relative to that of their colleagues. The mutual fund managers see their results reported for public scrutiny each day in every major newspaper around the world. Some people may put their money in these funds for the long term, but the professionals who manage these funds have to show daily and quarterly results.

Corporations that invest in real assets are forced by the resulting pressures to restructure their operations in ways that maximize their immediate short-term return to shareholders. One way to do this is by downsizing, streamlining, and automating their operations, using the most advanced technologies to eliminate hundreds of thousands of jobs. The result is jobless economic growth. Contemporary economies simply cannot grow fast enough to create jobs faster than technology and a dysfunctional economic system are shedding them. In nearly every country in the world we now have a labor surplus and those lucky enough to have jobs are increasingly members of the contingent workforce without either security or benefits. The resulting fear and insecurity makes the jobs versus environment issue a crippling barrier to essential environmental action.

Another way to increase corporate profits is to externalize ever more of the cost of the firm's operations onto the community. This is accomplished by pitting localities against one another in a standards-lowering competition to offer subsidies, tax holidays, and freedom from environmental and employment standards. Similarly workers are pitted against one another in a struggle for survival that pushes wages down to their lowest common denominator. This is what global competitiveness is about--competition among localities--not among the large corporations, which are engaged in minimizing the competition among themselves through mergers and strategic alliances.

Any corporation that does not play this game to its limit is likely to find itself a takeover target by a corporate raider who will buy out the company and profit by taking the actions that the previous management, perhaps from a fit of social conscience and loyalty to workers and community, failed to take. The basic point is that the globalizing economic system is reconstructing itself in a way that makes it almost impossible for even highly socially-conscious and committed managers to operate a corporation responsibly in the public interest.

We are caught in a terrible dilemma. We have reached a point in history that requires us to rethink the very nature and meaning of human progress in fundamental ways. It has happened so quickly and is so foreign to our culturally imbedded assumptions that few among us even realize what has happened. The real issues are seldom discussed in a media dependent on corporate advertising.

There is a compelling case to be made that sustainability in a growth-dependent globalized economy is what Herman Daly would call an impossibility theorem. What is the alternative? Among those of us who are devoting significant attention to this question, the answer is the opposite of globalization. It lies in promoting greater economic localization, breaking economic activities down into smaller, more manageable pieces in ways that link the people who make decisions to the consequences of those decisions, both positive and negative. It means rooting capital in place and distributing its control among as many people as possible.

Powerful interests stand resolutely in the way of achieving such a reversal of current trends. The biggest barrier, however, is the limited extent of public discussion of the subject. The starting point must be to get the issues out on the table and bring them into mainstream policy debates in a way that is not now happening.

David C Korten is founder and president of the People-Centered Development Forum in New York City. Printed with permission from the Institute for Soviet American Relations.

Peace Magazine May-Jun 1995

Peace Magazine May-Jun 1995, page 26. Some rights reserved.

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