'Globalization': Short for Global Privatization
Nation-states are no longer the only players on the world stage. National and transnational corporations, mass media companies, international and regional agencies, and non-governmental organizations now join them. Today's powerful international financial institutions dwarf the budgets of national Central Banks. Not even the richest nations can command the vast sums that international investors leverage on a daily basis.
In spite of these new actors, the world economy is still following old scripts: the eighteenth century economics of self-regulating markets; nineteenth century politics of comparative advantage and national hegemony; and twentieth century management emphasis on corporate monopoly and global consolidation.
All are scenarios ill-suited to the digital transparency and interdependence of the twenty-first century, as the forces of technology, finance, and global economic convergence explode at a pace beyond the markets' ability for self-correction, governments' ability to react, and managements' ability to subdue destructive market forces.The world's closer integration and dazzling connectivity could be used to better distribute its benefits; instead, globalization has meant increased concentration of wealth in fewer hands. For all the spectacular growth of the last few decades in world trade, production, and finance, global economic disparities have deepened. Surplus is smothering demand. Speculation and debt are starving local development.
Twentieth century history has repeatedly demonstrated that markets – not regulation – are the most efficient means of creating wealth and distributing resources. That should not obscure another vital fact from the business pages of the last century: markets are only effective in societies where development and regulation have already produced an orderly environment. Where there is no satisfaction of basic needs, baseline educational levels, social and economic infrastructure, local ownership of economic development services, or effective community rules, unsupervised markets result in major domestic upheaval. In many developing nations, and now at the global level, the dismantling of market regulation has led to staggering consequences, as profits are privatized and the costs are socialized.
In the post-modern era, government power has been trimmed decisively in favor of the international marketplace. What were formerly state-owned enterprises and public services are increasingly privately operated. People of the world never had a say in this ideological swing toward global deregulation and the sale of their assets at bargain prices. During this thirty-year drift in world economic policy and corporate-political doctrine, at least $2 trillion in national resources – including public gas, water, and electricity industries, as well as schools, health services, and other utilities – have been sold to private investors across the world.
Deregulation of the International Economy
||Unstable exchange and interest rates, leading to currency crises
||Immense capital surges and abrupt shocks in local economies
||Low export prices, wages, and labor standards in poor nations
Deregulation is a central principal of monetarism, which has become the world's preeminent monetary and financial philosophy. Basically, it is the theory that economic growth depends on open markets and private investment, and that demand will normally keep up with whatever supply is provided. The emphasis, therefore, is on building up the supply of goods and services, rather than priming demand. First practiced in the major developed economies in the early 1980s, monetarism spread across the world in the 90s with the close of the Cold War.
During this period, supply grew faster than demand in developed economies, but stock market gains, increased borrowing, and steady labor income spurred consumer spending. American and European purchases of goods and services also kept pace with rapidly accelerating productivity because new high-tech equipment resulted in greater business efficiency, which held inflation down. In 1999, however, Central Banks in the US and Europe raised interest rates to cool what they perceived as an overheated economy and artificially high stock prices. For the first time in many years, consumers were squeezed by mortgages, student loans, car payments, and credit card debt.
Debt payments became more difficult, and new loans more expensive. By 2000, total household debt exceeded personal disposable income in the United States, Britain, Germany, and Japan. Consumer spending slowed. At the same time, investors realized that the anticipated returns from their investments were indeed overvalued, as the Central Banks had signaled. Share prices fell, leaving investors with even less money to spend.
Along with the plunge in technology stocks, orders for products plummeted and corporate profits fell. Companies suddenly had much more capacity than needed. Stuck with goods piling up on their shelves and dwindling sales from clothing to cars, from fiber optic cable lines to airline flights, business went into emergency mode, slashing production faster than demand was falling. As a recession began in 2001, companies laid off workers, cut expenditures, stamped huge markdowns on goods, and offered low-rate financing plans. The terrorist attacks of September 11 made the situation worse. Facing high costs, unused capacity, vanishing profit margins, diminishing liquidity, and tighter equity markets, companies were forced to cut back on capital spending, particularly for high tech equipment. The result was a downturn across broad sectors of the economy.
This 'inventory correction' was the result of a speculative bubble, magnified, in part, by a heightened emphasis on the production of goods.
Basically, investment in output of goods had exceeded the capacity of consumers to buy them. As global deregulation and privatization continued apace through the 1990s, each sector – production, trade and finance – experienced growth and ran a surplus, while consumer purchasing power lagged. Too many producers with too many goods were chasing too few buyers; and too much labor with too little income was unable to buy the glut of goods.
Just as producers and investors uncorked the champagne to celebrate their surprising prosperity at the Millennium, the financial bubble burst. The collapse of high-tech stocks, and the numerous corporate bankruptcies that followed, led to unprecedented revelations about the unbalanced economy. The supply-side stimulus had encouraged widespread accounting and auditing misrepresentation, allowing capital to accumulate more in glamorous investments geared to boost corporate shares, than in investments less attractive but more beneficial to society. For everyone, facing this new century means facing a sobering reality. The economies of developed nations are ailing, traditional remedies are not working, and a vigorous recovery is in doubt. For many, the party is over and the hangover has only begun.