part 5

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Posted by Sadie from D006033.N1.Vanderbilt.Edu ( on Wednesday, April 30, 2003 at 0:45AM :

In Reply to: part 4 posted by Sadie from D006033.N1.Vanderbilt.Edu ( on Wednesday, April 30, 2003 at 0:43AM :

The handful of countries that have managed to escape mass poverty since the 1950s are concentrated in East Asia – South Korea, Taiwan, Singapore, and, to a lesser extent, Thailand and Malaysia. South Korea and Taiwan followed strongly dirigiste industrial policies. High protective tariffs were raised, for instance, around certain fledgling industries. (This is sometimes known as the “infant industry” strategy.) Some of these industries were selected for their export potential, and when they were ready to compete internationally they quickly found markets. The local standard of living began to rise. This development strategy is similar to what all the Western powers once did to encourage their own industries, but it is anathema under the free-trade dogma of the Washington Consensus, and it could not be implemented by any underdeveloped, indebted country today. It relies heavily on tariffs and state planning, and is thus noxious not only to the I.M.F. and World Bank but, equally as important, to the World Trade Organization, which is the third Bretton Woods institution. The W.T.O. is dedicated, even more unequivocally than the others, to eliminating “barriers to trade.”

South Korea, Taiwan, and Singapore also managed, each in its own way, to turn some of the early waves of the current flood of corporate globalization to their advantage. When manufacturing started fleeing the high-wage nations of the West, opening assembly plants in Latin America and Asia, the countries that came to be known as the Asian Tigers successfully imposed local-content laws (requiring that investors buy locally produced components when possible) and consistently cut better deals for the transfer of technical skills to their own workers than, say, Mexico did. Thus, when the multinationals moved on to Indonesia and Vietnam in search of cheaper labor, Taiwan and South Korea were ready to let the sweatshops go and to assume a higher position in the global production chain.

None of this wise planning meant that the Tigers were immune to pressures from the multilateral financial institutions. The I.M.F., in particular, was determined that the newly prosperous East Asian countries liberalize their capital markets, and its success in prying open those markets contributed to the devastating regional economic crisis of 1997-98. In the crisis, only Malaysia seriously defied the stern – and, in retrospect, disastrous – advice of the U.S. Treasury Department not to impose capital controls. (These are laws that impede international investors and speculators – what Thomas L. Friedman, the great sloganeer of globalizations, calls the “Electronic Herd” – as they move money in or out of a country.) By no coincidence, Malaysia emerged from the wreckage more quickly and less scathed than any of its neighbors. (Chile, which has made more progress against poverty under neoliberalism than any other Latin American country, also uses capital controls.)

China and India, although poor, have the populational heft to ignore many applications of Western pressure, which has helped each of them ride the globalization wave at least in the right general direction. China offers foreign corporations some of the world’s cheapest labor, particularly in what are called export-processing zones, or free-trade zones. EPZs are tax-free manufacturing zones, where local labor and environmental laws (if any) are often relaxed or suspended in order to attract foreign capital. Today, tens of millions of people in more than seventy countries work in EPZs. They are where the American (and Canadian, and Western European) manufacturing jobs go when they go south. Or, rather, parts of the jobs go there, temporarily, because multinational firms have found that it is often most profitable to distribute the different aspects of production and assembly to different contractors and subcontractors, often in different countries, with the lowest-skilled, most tedious, unhealthy, labor-intensive work typically going to the least developed country. Mobility is essential to this arrangement – the ability to quickly transfer operations from country to country in search of the cheapest production costs and least hassle from local authorities. Thus the facilities in EPZs, the vast prefab sheds and plants, are rarely owned by the contractors who use them, let alone by the multinationals who place the orders. They are leased.

EPZs are not a viable development model. Wages are low, and workers are typically drawn not from local communities but from distant villages and rural areas. With the constant threat that companies will pick up and leave if they are taxed or regulated, local governments rarely profit in any significant way. Local-content laws and knowledge transfer are seldom, if ever, part of the package. A few corrupt officials, along with managers drawn from local elites, profit, certainly, but the great influx of foreign technology and capital that EPZs are supposed to bring rarely materializes.

And this seemingly minor, disappointing fact undermines a crucial assumption, widespread in the West, about the new global division of labor. The assumption is that the developed world is turning into one big postindustrial service economy while the rest of the world industrializes, and that, yes, sweatshops, child labor, egregious pollution, health and safety nightmares, and subsistence-level wages come with industrialization, but that any country that wants to develop must go through all that. “We went through it. So did Western Europe.” This assumption, although not usually stated so crudely, underpins every serious argument for corporate-led globalization. The problem is that the industrialization that Indonesia, Honduras, the Philippines, and dozens of other countries are now experiencing is not the same industrialization that we in the West experienced. It’s true that people are moving from farms to factories, and that urbanization is occurring at a rapid pace. But exploitation and immiseration are not development. And unregulated, untaxed foreign ownership, with profits being remitted to faraway investors, will never build good infrastructure. It is simply not clear how, under the current model, the poor majority in most poor countries will ever benefit from globalization.

China has achieved and maintained impressive growth, even in the present world recession. And yet China, although increasingly integrated into the world economy, and recently admitted to the W.T.O., is following a development path very much its own. It has strict capital controls. It forbids foreigners from owning many forms of stock. It has gone slowly with privatization. (Russia already demonstrated how to do it fast and badly.) The state retains control of the banking system. Still, everybody wants to do business with China, if only because of the size and docility of its labor force and the size of its consumer market, which is expanding very swiftly, along with its urban middle class. Politically, China remains, of course, a one-party state – a police state, in fact – nominally Communist, with little interest in human rights, the rule of law, or other democratic niceties that theoretically come with a market economy.

India, the world’s largest democracy, has achieved less growth, and it has been racked by battles over some of the main insults of corporate globalization, such as seed patenting and the construction of giant, World Bank-backed dams that have displaced millions of villagers. But the Indian middle class (also growing) has enjoyed the fruits of a technology-led boom, thanks to a thick slice of the world’s software programming and back-office work being outsourced to a few Indian firms. The government, meanwhile, has continued to protect many domestic industries – and to use capital controls – basically thumbing its nose at the imprecations of the Bretton Woods institutions to stop.

Most national governments today, though, must struggle in a world economy in which they are dwarfed by global corporations. And those corporations, while gaining power steadily in relation to states (which must compete to lure investment), have also been quietly undergoing a profound self-transformation. This transformation can be seen most easily in two figures: first, the total assets of the 100 largest multinational corporations increased, between 1980 and 1995, by 697 percent; second, the total direct employment of those same corporations during that same period DECREASED by 8 percent. This was more than mere downsizing. These figures demonstrate, again, that a great many of the jobs that left the rich world over the past twenty-five years did not, in fact, rematerialize intact elsewhere, in the Global South, where labor is cheaper. Because the question turned out to be, in many cases, again, not where to produce goods but how to produce them, and the answer turned out to be not by owning factories and having employees but by ordering products from contractors and subcontractors and sub-subcontractors in poor countries. EPZs have been instrumental to the success of this strategy.

Bolivia, by the way, has EPZs. Nobody wants to use them, though. Transportation costs alone – in a landlocked country with bad roads and disappearing railroads far from major markets – deter potential investors. Then, there is the country’s tradition of labor militancy, which frightens foreign investment and is not a problem in, say, Thailand (and certainly not in China, where independent labor unions are illegal). Bolivian trade ministers end up in the same position as many trade ministers from sub-Saharan Africa. They would be delighted to have foreign corporations come and exploit their people. But the corporations see better opportunities elsewhere.

-- Sadie
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