by Jeff Faux, 2006
The Global Class War
How America’s Bipartisan Elite Lost Our Future and What We Must Do to Win It Back
John Wiley & Sons, Inc., Hoboken; 292 pages.
Review by Stephen E. Shaw
Bull! Not bull Guest Author
May 15, 2007
Globalization has not given this country what its promoters promised: widespread prosperity, millions of new jobs, and the ability to lead the world into a brighter economic future. Instead, the push to pass NAFTA and approve China’s entrance into the World Trade Organization have proved to be the most reckless economic undertaking in our history. The corporate push for cheap labor and higher profits lies at the root of this sordid tale. Its collateral damage is the American economy, its finances, its competitiveness, and its working people and their economic security. That aside, it has been a great success.
Jeff Faux’s book, The Global Class War, is a compelling, urgent, and cogent exploration of globalization, and NAFTA in particular. This is one of three books that describe the state of our world without flinching (the other two are Nemesis, by Chalmers Johnson and Financial Armageddon, by Michael J. Panzer). Faux is the founder, past president, and now senior fellow at the Economic Policy Institute, a Washington research organization dedicated to, among other things, creating a sustainable economy.
We see NAFTA as a template for the loose formulations of globalization. Faux describes this as domestic policy aligned with the interests of the transnational corporation, rather than with those of the people. It also complements the hegemonic delusions of America’s foreign policy since the end of the Cold War, also far removed from the people’s interests. They run as parallel forces in world affairs.
For those who watch closely, this economy is running into a ditch. Faux identifies what lies ahead for all of us, and what we must do to change it, thus the subtitle of his book: How America’s Bipartisan Elite Lost Our Future and What It Will Take To Win It Back. He gives a trenchant analysis of how this debacle was launched. His remedy is less than convincing, about which more later. But it’s clear that soon, we will again have to rebuild the American economy and, perhaps, remake American society, as well. And that’s the good news.
But first, some history. Franklin Delano Roosevelt is universally (if, by some, grudgingly) credited with having saved capitalism in the United States with the New Deal. Abuses and outright thievery left many hoping for a more radical alternative. Consider: in the 1920s, there was no safety net and a winner-take-all mentality; there was no forty hour work week, overtime pay, worker protections, unions, vacations, pensions; health insurance was two decades away (a union-sponsored innovation brought about by wartime); poverty was commonplace next to affluence; relief, if there was any, came from private charities and churches; the middle class was an ideal, but didn’t exist as we know it; belief in a munificent government was nonexistent; government protected the interests of the moneyed class, with no regulation of business; speculation in the financial markets was rampant and made to order for the investment bankers, corporate chieftains, and the inheritors of wealth; for a working person to accumulate wealth would be next to impossible. If this is sounding eerily familiar, it’s because it’s what’s been happening in America in the last twenty five years.
The Reagan Administration revoked the social contract. Reagan trashed all things public, ended the positive role of government in people’s lives, curtailed regulation of business and industry, and redistributed wealth upward. His phrase “get the government off people’s backs” has become part of our popular language. His list of things to get off people’s backs was extended to the trade union movement, government services, worker protections, environmental stewardship, and regulating the financial industry, to name a few. He lowered taxes for those with the largest incomes, with the difference made up either by the middle class or with a burgeoning national debt. He changed the political and economic rules for the American middle and working classes in favor of corporations and those at the very top of the income pyramid. Reagan sanctioned and encouraged business’s ruthless drive for profits, with nothing out of bounds. This meant shipping jobs overseas and, ultimately, dismantling manufacturing in this country. He followed Margaret Thatcher’s formulation that there is no society, just individuals competing in the market place.
This was the beginning of the march to globalization, carried on by subsequent administrations, regardless of party. A by-product of this anything-goes atmosphere created a spate of corporate malfeasance cases such as Enron, Global Crossing, and World-Com that dwarf the shenanigans of the Gilded Age. And the continuing corruption scandals in the Congress emanating (but not exclusively) from the Delay-Abramoff axis show how this approach gets carried into doing the people’s business in America.
Our rendezvous with global destiny got hijacked. The middle and working classes got cajoled with winks and nudges into political deals with the devil, while the policies they bought paved the way for their slow, inexorable decline. It seemed that everyone in post-war America thought the good times would never end. But in 1968, the upheaval of the Vietnam misadventure and social changes including the civil rights movement occurring at home alienated white working class voters, making them prime targets for demagogues who had little to offer but anti-New Deal gaul wrapped in the flag. The Democratic Party lost it’s link to this important constituency when Robert Kennedy was killed and no one stepped up to fill that vacuum. What followed, the so-called Southern Strategy, destroyed the coalition that had delivered a sound economy, social progress, strong defense, and international respect. It has yet to recover. Republicans set the stage for subsequent economic and political policies that shifted the center of gravity in American politics, from the large majority of people to the corporations and the rich.
The Shock of the New
Globalization was designed by and for corporations and their willing accomplices. It was sold to us as the next big thing, and it is. But most Americans are either victims or spectators, participating as consumers, not producers; whatever their skills, they are expendable. And anyone who suggests a national economic policy is said to be a protectionist or, worse, a socialist. Ultimately, globalization must be redesigned to be inclusive of labor and subject to popular control. The American market is the biggest in the world, the one where everyone wants to sell products. That is the ultimate leverage to get a better deal.
The consumption-at-any-cost ethos that has marked the American economy in recent years is the only holdover from when the middle class was ascendant. After 9-11, Americans, ready to sacrifice around a common objective were told to go shopping. But even that’s coming to a close because the consumer is tapped out. Wages have stagnated since the late Nineties. Jobs are fewer and those available don’t pay much. The housing bubble is collapsing (which follows the collapse of the stock bubble) and with it, the end of the house-as-ATM that’s sustained the great patriotic shopping spree. Forty-plus million Americans are without health insurance. Most corporations now try to avoid this benefit, as they do pensions. We are living through what Reagan wrought and Rubin continued.
Jeff Faux begins when globalization is well under way and NAFTA is being promoted. One conversation with a corporate lobbyist galvanized his attention and, as he says, was the “seed of this book.”
Don’t you understand?” she finally said. “We have to help Salinas. He’s been to Harvard. He’s one of us.”
The reference to “us” seemed odd. … It took me a little while to understand her point: we internationally mobile professionals had a shared self-interest in freeing transnational corporations from the constraints imposed by governments on behalf of people who were, well, “not really like us.” … At that moment, I realized that globalization was producing not just a borderless market, but a borderless class system to go with it.
The global economy is ruled by a virtual one-party governing structure, a network, that Faux calls the the Party of Davos, after the town in Switzerland where the global elite meet annually to discuss how to benefit corporate capital in the world. “In the absence of global government, the transnational investor class represented by Davos depends on support from the elites running the major nation-states of the world, the U.S. superpower being the most important.”
American political parties, Republican and Democratic, show little difference in their approach to globalization in general, and NAFTA in particular. They both embrace the underlying philosophy of neoliberalism. It is a doctrine “in which competition for wealth is the only recognized value and virtually all social decisions are left to unregulated markets” (emphasis added). The United States has sought to impose neoliberalism on the rest of the world, although the term is rarely used here. This is the economic component of American imperialism and the messianic drive to remake the world if not in our image, then at least in our service.
Once we were told that what was good for General Motors, was good for America, the classic trickle down argument. But those business titans, who now might have offered that maxim, have become disconnected from the concerns and the fate of their fellow citizens. “Ronald Reagan’s breaking of the air traffic controllers’ union in 1981 signaled big business that it could violate the social contract. Clinton’s passage of NAFTA in 1993 signaled that big business could abandon it completely.”
It should be clear by now that Clinton sold out his supposed constituency by accepting the corporate view of NAFTA as his own, without social protections, either in the participating countries or for American workers and industries. The neoliberal doctrine promoted by Clinton and his Republican nemesis, Newt Gingrich, captured the intellectual heritage of Ronald Reagan as “happy-faced social Darwinism.” Faux describes their common definition of this new era:
We are entering an information age that is obliterating economic national boundaries. It is a time of change equivalent to the shift from the agricultural to the industrial age. The resulting deregulated global economy is bringing freedom, democracy, and technological wonders to the rest of the world. In order for you to survive and prosper in this new global market you will have to compete against some six billion people out there, most of whom will work for a lot less than you will. The price of labor is set in South China, where people will work for one-twentieth or less of your wage. If you want to live better than the Chinese, you have to be more than twenty times more efficient. Therefore, you should get all the technical training you can get, be willing to work longer and harder, and make wise investments. You are on your own.
Faux points out that there hasn’t been a labor union person at the cabinet level since John F. Kennedy appointed Arthur Goldberg Labor Secretary in 1961. Reagan and Margaret Thatcher set the ground for the later development of globalized free trade by a concerted effort to destroy unions, unravel the welfare state, and demonize class consciousness. Republicans and their well funded think-tank cohorts characterized the left as ineffectual, atheist intellectuals, culturally radical, out-of-touch with American values, thus building on and expanding the Southern Strategy. Democrats still hadn’t figured out how to resuscitate the coalition that fell apart in 1968. In its place, identity politics became the image of the Democratic party.
Labor unions had been marginalized with the help of Reagan’s policies and corporate money. Uncertain about its own identity and unwilling to rebuild the party by attacking the harm done to working men and women for twelve years of Reagan-Bush, Democrats followed the pull to the right and become more like Eisenhower Republicans. Thus, by the time Clinton became president, he might have been feeling the pain of his labor supporters, but he was providing aid and comfort to his corporate contributors.
After the fall of the Berlin Wall and the end of the Cold War, Bill Clinton promised a peace dividend. There would be new spending on education, training, and health care, along with conversion of military outlays for such things as microsurgery, fast trains, and new technologies. “The American people have earned this peace dividend through forty years of unrelenting vigilance and sacrifice and an investment of trillions of dollars,” Clinton intoned during the 1992 campaign. The military-industrial complex had other ideas, and “they, the people who ran the State Department and the Pentagon, Boeing and Lockheed, had won” the long struggle of the Cold War. In short, while the people had shelled out plenty to support the perpetual war machine over the preceding forty four years, “the governing class had no intention of demobilizing.”
During the Cold War, American international commerce was always seen to be accompanied by a military presence that protected the world from communism. As a German businessman told Faux: “Never forget, when General Electric walks into the boardrooms here, the Sixth Fleet walks in behind it.” That’s an advantage no American transnational company wanted to abandon. The imperial policies defended by the military and foreign policy establishments were embraced with equal enthusiasm by the business community. Thus, “post-Cold War America (would be one of) cheap labor, financial speculation, oil profits, and fat military contracts.”
Faux explores the institutional framework of global free trade, the World Trade Organization. The WTO lends international legitimacy to globalization in a way that regional pacts cannot. The supposed comparative advantage in international trade purports that each country offers what it does best, thus all win because of the increased efficiencies. What that idea fails to resolve is what happens within individual nations as a result of the so-called “creative destruction,” a by-product of economic progress formulated by Joseph Schumpeter, a favorite of neoliberal adherents. With the WTO member nations have little in the way of assuring their own interests, of preventing partners’ abuses, of prohibiting the entry of products deemed unsafe or immoral (e.g., produced by child labor or slave labor). WTO protects patent rights of multinational corporations, but prevents measures to protect workers, public health or environmental preservation that may abridge the “freedom of corporations to invest, buy and sell.” Faux:
Under the WTO, the economic policies of all national governments–no matter how democratically legitimate–are subject to the approval of a supranational organization established to impose commercial values over all other domestic considerations–including health, education, justice, and environmental protection. The only excepted sector was the military.
The Party of Davos
The Party of Davos defies the usual Marxist interpretation of capitalists. These are professionals from a broad range of occupations and affiliations. Some have never been business people or owners, but are facilitators to the powerful, hoping some of that rubs off on them: “ bureaucrats, journalists, academics, lawyers and consultants.” There are “at the fringes, some labor leaders, important clergy, and the leadership of some of the largest non-governmental organizations (NGOs).” A description of this aggregation that is both amusing and vivid comes from a private email to friends of a Pulitzer Prize winning journalist (Laurie Garrett) as follows:
Finally, who are these guys? I actually enjoyed a lot of my conversations, and found many of the leaders and rich quite charming and remarkably candid. Some dressed elegantly, no matter how bitter, cold and snowy it was, but most seemed quite happy in ski clothes or casual attire. Women wearing pants was perfectly perfectly acceptable, and the elite is sufficiently multicultural that even the suit and tie lacks a sense of dominance.
Watching Bill Clinton address the conference while sitting in the hotel room of the President of Mozambique–we were viewing it on closed circuit TV–I got juicy blow-by-blow analysis of U.S. foreign policy from a remarkably candid head of state. A day spent with Bill Gates turned out to be fascinating and fun. I found the CEO of Heineken hilarious, and George Soros seemed quite earnest about confronting AIDS. Vicente Fox–who I had breakfast with–proved sexy and smart like a–well, a fox. David Stern (Chair of the NBA) ran up and gave me a hug.
The world isn’t run by a clever cabal. It’s run by about 5,000 bickering, sometimes charming, usually arrogant, mostly male, people who are accustomed to living in either phenomenal wealth or great personal power. A few have both...They are comfortable working across languages, cultures and gender, though white Caucasian males still outnumber all other categories. They adore hi-tech gadgets and are glued to their cell phones.
Welcome to Earth: meet the leaders.
The opposition to the Davos phenomenon is widespread, and, though organized, gets little attention in the mainstream media (MSM), except when there are protests at WTO meetings. There is a large and growing group that comes together periodically to discuss strategies to overcome the hurtful aspects of globalization. It’s the World Social Forum and it meets in Porto Alegre, Brazil. Starting in 2000, prompted by the Seattle demonstrations against the WTO in 1999, about four thousand individuals from a variety of environmental groups, universities, trade unions, and women’s rights groups came together for the first time. By 2005, that meeting brought 150,000 to Porto Alegre. They are, though, too removed from the locus of power, and while they’ve been successful in mounting public information campaigns against the more pernicious aspects of globalization, they have muted impact where it counts.
Whenever anyone from the governing class, or the chattering class for that matter, laments the loss of jobs or the compression of wages because of China, keep in mind that it’s not China alone that’s overwhelming the world with goods. American and other first world corporations persuaded Bill Clinton and the Republican leadership in Congress to allow China’s entry into the WTO and the U.S. market with no protections, no requirements, and no limitations on its endless supply of cheap labor. “Today, 60 percent of China’s exports are shipped by foreign firms” many that would be recognizable. There’s little wonder why the neoliberal agenda has predominated in Washington. Fat campaign contributions have purchased a license to steal. Nothing has come between the transnational corporations and growing profits, like the competitiveness of their supposed home country. Faux defined competitiveness in a way that would not find resonance in the high councils of contemporary America:
(A) nation effectively competing in the world would be one that has a balance of trade and a level of productivity that allows living standards to rise without having to expand the hours of work.
As the public education system implodes, corporations are silent. If competitiveness were based on a well educated domestic work force, they would be the first to step up. But the corporate elite have made a deal of silence with the current crop of radical rightists now in power, in exchange for lower taxes. Better to let public education consume itself with false issues like sex education, prayer in the classroom, creationism, and home schooling. Anyway, what would we do with a first-rate education system? There aren’t enough jobs to employ all the newly well educated it would produce.
What Lies Ahead
Faux takes careful note of the financial calamities on the horizon that come closer each day. The United States has so far been able to avoid catastrophe by its ability to borrow and by international partners willing to lend vast sums to keep afloat the appearance of prosperity and fiscal soundness. That may be changing, as more countries decide to denominate international transactions in alternate currencies. The Euro has enjoyed increasing popularity, among others. The balance of trade, the current account deficit, the increasing indebtedness of government and families combine to make our system vulnerable. This is rapidly approaching its endgame.
Transnational corporations and the military have been the winners in globalization. The losers have been workers, whose wages have stagnated in the last six years and have risen only ten percent in real terms in the last thirty; and exporting businesses that have tried to compete with the “China price.” Add to the loser list, any non-military public function that requires financial support and leadership from government. But the worsening imbalances that face the American economy will exact a toll even the most exalted will be unable to avoid, and that may be our salvation.
If consumers can no longer shop indefinitely, demand for imports will drop. Without the U.S. market to absorb the rush of exports from around the world, globalization will suffer a decline that will exacerbate our financial vulnerabilities. China, Japan, and South Korea have an interest in continuing to hold our debt and support the dollar, so long as their exports to our market flow uninterrupted. If we lose our appetite for imports, the rest of the world is unlikely to come to our aid; the Cold War is over and most of the world views our war on terror with suspicion.
If China would bail us out, there would be a high political price; then again, their prosperity and stability rely on rising exports. The rest of the developed world will likely respond to a rapidly falling dollar with protectionism. Our inability to absorb everything the rest of the world produces would cause holders of our debt to divest, the dollar to plunge, and our trading partners to protect their domestic markets from an on-rush of American goods. America’s reputation abroad is the worst in its history. Not many, even our friends, the few we have left, would be willing to sacrifice their own interests to support us.
For the past twenty five years, we have spent more than we’ve earned. It’s what’s kept the United States afloat. Fiscal responsibility and social stability have been traded in for laissez-faire economics and burgeoning profits for a select group of transnational corporations. Our attempts to impose this approach on the rest of the world have been unrelenting and of mixed success. As at the end of the Twenties, the coming storm will give the lie to these policies, putting them to rest for at least another generation. We will have to live within our means, export more and reduce imports, and somehow, pay down the massive debt we’ve accumulated. In the face of severe international pressures, we will have to learn to live with less, adopt policies that are more inward looking and, one hopes, let go of global hegemony as the over-arching theme of our foreign policy.
Faux doesn’t talk much about the displacement that will plague post-calamity United States, unlike Panzer in Financial Armageddon. He cites the people’s loss of confidence in the elites who rule us; it’s amazing how long it’s lasted. Many believed the mantra of “get more education and training for the good jobs that come from globalization.” Now they’re starting to question why the job they trained for doesn’t exist. Meanwhile, outsourcing continues at a brisk clip, with higher paying jobs now in the corporate cross-hairs. Thatcher’s dream has come true: NAFTA and globalization doesn’t exist as if there were a society within its boundaries, only individuals competing with one another for jobs.
If we follow the schematic of globalization that Faux has described, we see transnational corporations relentlessly seeking cheap labor through outsourcing, this brings about the so-called creative destruction or more accurately killing the competition, which gives rise to cheap imports; the people who are displaced have little choice (the WalMart phenomenon) but to buy them. Capital and income are redistributed upward and away from the home country to the provider of cheap labor and its investors. The industrial base shrinks; the people are under- or unemployed; the nation spends more than it earns and imports more than it exports. People are learning, though. The professionals whose jobs are tenuous are now in the same boat as those “not like us.” Research and development is shifting to Asia; such “American” transnationals as Boeing, Motorola, Proctor and Gamble, and GlaxoSmithKline sent their R and D to India, Taiwan, and China.
A modern economy requires investment to be competitive. The U. S. economy, with the exception of the well-connected transnationals that make up the Party of Davos, is not. We have stopped investing in our industrial capacity, our intellectual capability, and even technology, long thought to be our strong suit. As for public investments, the aforementioned education system is lacking, as is our health care, energy, transportation, and infrastructure. An ideology promoted with seemingly unlimited funds has won out, for now. We’ve traded our country for low taxes. As Warren Buffett has characterized our current situation, our external debt is making us a “sharecropper society.”
There is little doubt that a great deal of pain lies ahead. Faux talks about a collapse or a shock coming, but not in the detail that Panzer does. We have no idea of the dimensions of the correction, but whatever they may be, it is certain that American living standards must decline, that we must rebuild our ability to make and export things, and import less than we now do. The Party of Davos will be too busy trying to survive to come the aid of their political enablers, who will likely face the electorate’s wrath. That will be a time for America to be thoughtfully inward-looking, while, perhaps, becoming a better international citizen. One can hope.
Faux writes about a North American consciousness, a re-imagining to bring together the people of the NAFTA countries. Clearly, the people of NAFTA have more in common with each other than with the elites who sold them this agreement. He makes the case for a closer relationship between the three peoples, because our economies are irreversibly linked. But he doesn’t say how this would happen. Clearly, regime change in Washington is one prerequisite before anything constructive can happen.
Faux’s idea of a continental democracy is worthwhile, but probably not attainable in North America for some time. He cites the experience of the European Union and how integrating economies proved successful because richer nations provided “cohesion” funds to poorer nations in the form of loans and grants to close the gap, to finance the modernizing of outmoded economic policies. But Europe’s approach to globalization has not left it’s own people’s interests out of the equation. Elites were determined not to allow low-wage competition to be a stumbling block to integration, thus the “cohesion” funds brought the poorer countries up to a higher level. In addition, the people are engaged in the discussion of how this will come about, actively and transparently. There continues to be an active trade union movement in Europe. Europe is less aggressive in international affairs. In short, the people make their voices heard, are a part of the debate, and, amazingly, they vote. The recent rejection of the proposed European constitution is a case in point. Elites will be required to rethink their approach, as the last draft had multiple references to the economy and the market, and only a few to social concerns. Clearly, Europeans rejected the neoliberal model.
Faux sees integrating not only the economies, which is underway, but also a political integration of constitutional guarantees of the three nations. He proposes a “platform” for movement toward a democratic North America. He calls for a continental bill of rights, but it’s unclear how this would come about and how it would be enforced. He calls for “cohesion” funds for Mexico, but it’s unclear how these would be guaranteed. He calls for a competitiveness agenda, derived from the findings of several commissions he envisions would investigate a variety of topics. He leaves out how these would be enacted and become policy. Finally, he calls for a citizens’ continental congress, which he sees as the antidote for the restrictiveness built into the NAFTA agreement, that prevents citizens from being informed about or having a means of participating in NAFTA. It might start informally, as a project of labor groups, foundations, and enlightened business enterprises. Faux says these ideas provide a way of thinking about political and economic union, of starting the conversation, not as an endpoint. Well, maybe.
This is one of the few books that fearlessly sets down a way of understanding the economic and political events of the last twenty five years. Although its final chapters on an emerging North American consciousness or union, fall more into the range of what may be, his treatment of what is in all the preceding parts of this compact book is second to none. It seems to me that when the financial debacle comes, the Party of Davos may not be over, but it will be severely weakened. Anti-globalization organizing efforts must continue. Now may also be the time for a class traitor of some stature to speak against the prevailing ethos of profits without conscience, with no regard to people or to nation. FDR happily wore that title, even bragged about it. One who had that kind of courage today might find a waiting constituency, yearning for economic justice and community, solidarity and political participation. To prepare the ground now in advance of the collapse might well provide a pathway through the chaos.
© Stephen E. Shaw, 2007
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