Globalisation's Surprises

By: Hazel Henderson

Economic and technological globalisation was always a project of global corporations, financiers, and their political allies in mature industrial societies. The blueprint was the "free" market enthusiasms of Ronald Reagan and Margaret Thatcher. This Anglo-Saxon model of capitalism was followed by the "Washington Consensus" policies we still see today.

The World Trade Organization (WTO), NAFTA, and the incipient Free Trade Area of the Americas, all follow the same recipe for export-led GNP-growth, open capital markets, convertible currencies, privatization, deregulation, increasing world trade.

Even though a welter of evidence is now in - from the 1997 Asian meltdown, Russia's default, and now that of Argentina, the ideologues who believe in this form of globalisation still promote these policies with the familiar cry: TINA (There Is No Alternative). As psychiatrists know, people who cannot conceive of any alternatives to their current behavior are deemed to be suffering from clinical depression. And scientists note that it is illogical to imagine that repeating a similar experiment could lead to dissimilar results.

But we now see an even deeper set of contradictions, all signaling a lack of systems thinking among the ideologues of laissez faire globalisation. In the West, these interdependencies are recognized as "what goes around - comes around". In the East, the same phenomena are known as "Karma".

Let's examine some of these karmic effects of today's globalisation:

• The USA, globalisation's most fervent promoter, has up to now, reaped the greatest benefits - when the dollar became the world's defacto reserve currency - over valued today by between 15-25%. This has led to unsustainable U.S. trade deficits, the sucking in of the lion's share of world exports and increasing inability of U.S.-based companies to export.
  
  
• The USA's long ride on the over-valued dollar is now coming to an end as its trade deficits continue growing to unsustainable levels (some 4.5% of U.S. GDP). Until recently, countries which export to the USA (China, Taiwan, Japan, Mexico, and many others) kept accepting U.S. dollars in payment and buying U.S. Treasury bills for their currency reserves. This system, with the USA absorbing so much of the world's exports and capital - trying to serve as the world's "locomotive" - is now bogging down in the weakening dollar (currently below the euro).
  
  
• The U.S. Federal Reserve has lowered interest rates to 1.25%, the lowest in 40 years in order to try to hype the domestic economy - so far with little success. The Japanese "deflation malaise" may be in store for the post-bubble USA as well. Countries holding their towering piles of U.S. dollars in their currency reserves are diversifying into euros (now becoming the world's alternative reserve currency).
  

Private holders of U.S. T-bonds and stocks look on with alarm as the dollar continues to weaken and the interest they now earn is close to zero when corrected for inflation. These private investors are worried about the U.S. economy's fundamentals: historically high levels of corporate and consumer debt; over $1 trillion of unfunded corporate pension liabilities in the auto and other "Old Economy" sectors; the corporate crime wave continuing to undermine confidence in auditor's reports and stock markets; the Bushies' foreign strategy of playing global policeman; preemptive strike plans on Iraq; warring worldwide terrorism and evil leading to ever-larger deficits - and the unsupportable U.S. trade deficit. It is only a matter of time before more private investors switch to euros, Swiss francs, and other investments - where interest rates are higher and fundamentals are more favorable.

U.S. officials and economists say that productivity is higher in the USA than Europe - advising investors to keep betting on the U.S. economy. However, closer examination reveals the different ways that Europe and the USA measure "productivity" (the USA method flatters the U.S. - Europe uses a broader measure). When these methods are compared, the difference in productivity is trivial. Add to this, that U.S. capital productivity in the late 1990's was negative - ie: trillions of dollars were wasted in "investments" in half-baked dot com businesses - during the bubble. Indeed, a recent survey of 300 global fund managers by Merrill Lynch & Co. found some two thirds considered Wall Street the most over-valued of the world's top five stock markets.

The global economy was always a power game - and currencies are becoming the weapons of choice. Revulsion against all weapons of mass destruction, as well as land mines and small arms are producing a global backlash. Bullying by military superpower - the USA - is producing a rise in anti-U.S. opinion in many countries, including allies. Even pro-business advocate Jeffrey Garten, Dean of Yale University business school in The Politics of Fortune urges U.S. CEO's to criticize Bush's unilateralist policies for imperiling global stability.

Yet 9/11 showed that the 21^st Century is the age of "asymmetric" weapons - where computer hackers, money-launderers, assorted terrorists gangs, and even currency traders and OPEC now hold a new balance of power. For example, the USA, which blocked and then supported China's entry into the WTO, may regret enforcing "Washington Consensus" policies onto the WTO. China must shortly make its currency the "yuan" convertible, and further open its markets.

Today, China is fast becoming the world's newest superpower - and supplier of many of the world's goods - producing 50% of cameras, 30% of air conditioners and TV's, 25% of the washing machines, 40% of all microwave ovens sold in Europe, and fast moving into computers, mobile phones, and DVD players.

China views its low-priced exports as a boon for the world's poorer consumers - while the U.S. now fears global deflation. Yet lower wages and cheap export platforms used in China and elsewhere by U.S. multinationals were supposed to be the advantage of globalisation. These global supply chains were touted as taming inflation and hyping economic growth. Most central bankers still fixate on inflation, not deflation.

Now the U.S. Federal Reserve is bracing for deflation while its main tool of choice - interest rate adjustments - has stripped the gears of monetary policy. Will the Fed fight deflation by "talking down" the dollar? Or - another surprise - when China shifts to a convertible currency (now pegged at 8 yuan to the dollar) will the Chinese yuan (now undervalued) lead to the dollar's further devaluation?

As sages have said: "Beware of what you ask for - because you may get it." What will happen to Bush's "global policman" ambitions then?