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17 April 2000

The left is wrong about free trade

As the opponents of globalisation regroup, this time in Washington, Meghnad Desai argues that the Wo

By Meghnad Desai

The commonplace view on the left is that the World Trade Organisation allows multinational capital to dominate the hapless south. To stop free trade, according to this view, is to halt, or even reverse, the onward march of globalisation. The collapse of the Seattle conference last December was therefore a triumph for the forces opposed to capitalism, to multinational corporations, to ecological devastation and to greed.

But the truth is that, although the poor outside the Seattle conference thought they had won, the rich inside really did win. Seattle will cost the developing world many years of lost growth. Highly paid jobs will be sheltered for a few more years at the expense of lower-paid workers in the developing world. The trade union forces outside the conference were defending their well-paid jobs and, as paymasters of the Democratic Party, they got their returns. President Clinton sabotaged the talks from the inside.

To understand this, we need a dose of history. There was a globalised economy between 1870 and 1914 – organised by empires rather than independent nation states. There was then a growing and vigorous anti-capitalist movement in the north (as it was not then called) including the Socialist (Second) International and many nationalist movements on the periphery, including the Serbs, whose assassination of Archduke Franz Ferdinand started the First World War. This war ended that episode of globalisation, not because of revolt from below, but because the powerful nations could not agree on the division of benefits from globalisation.

The next 30 years were a nightmare of protectionism, depression, fascism and the Gulag. That is why the post-1945 order was built on a commitment to promote and expand freer trade. The General Agreement on Tariffs and Trade was to be its instrument. In the 1990s, GATT grew into the WTO at the behest of the south.

The golden age of Keynesianism was not so golden for the south. There was a shortage of capital flows from north to south and foreign aid came attached with cold-war strings. Only when Keynesianism broke down, and the oil price rise led to stagflation in the north, did developing countries begin to find a place in the world economy. Capital began to flow to some – only a few – newly industrialising countries.

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The Asian tigers were successful in exporting to the rich north. Asia’s share in world GDP (excluding Japan) was about 10 per cent from 1960-75, but rose to 20 per cent by 1999. The US share came down from 35 per cent to less than 25 per cent.

In the establishment of the WTO, the developing countries had secured the first and only post-1945 global institution in which countries were treated equally. Neither the UN (with its veto powers for five permanent Security Council members) nor the IMF/World Bank (with votes weighted by shares in favour of the rich countries) has that equality. This is why both of the giant trading blocs, the US and the EU, have lost cases before the WTO and had to comply. The UN, by contrast, has never reprimanded the US. Nor did the IMF ever criticise the US for irresponsible fiscal policy during the 1980s. The WTO is the only weapon the weak south has ever had against the powerful north.

Globalisation has been seen as much more of a threat in the north than it has in the south. Complaints about the “end of work”, about American jobs being stolen by Mexican “wetbacks” as a result of the North American Free Trade Agreement (Nafta), or about American wages being decided in Beijing, are heard all the time. There are more books on my shelves about first-world fears about globalisation than there are about third-world development.

But the truth is that the flow of capital (foreign direct investment not just short-term portfolio capital) to the south has been greater since the late 1980s than at any time since 1914. It is certainly true that not all countries benefited from these flows, but then, nor did they receive foreign aid in anything like fair or equitable amounts. Capitalism does not work as a charity; it is a mode of production. It seeks profits where it can, and it happens that, in a number of mature product industries, it is more profitable to produce in the south: textiles, shoes, steel and, increasingly, cars. This is the fastest way the south can industrialise. Countries that have not yet received foreign investment, especially those in sub-Saharan Africa, will have to integrate into the global order if they are not to be left even farther behind. The third world needs capitalism because capitalism alone will lead to growth. No other feasible alternative has yet been found.

In the 1950s and 1960s, there was a strongly held view on the left that the third world would never develop under capitalism because of monopoly capital; the only answer was socialism of the Leninist variety. Ever since, there has been an anti- capitalist streak in development studies. Now it is clear that, far from monopoly capital stifling growth, capital goes wherever it will make profits. As Marx said 150 years ago, capital has no country.

The world as it is now is unequal. In 1975, the OECD countries had around 80 per cent of world GDP. By 2000, that proportion has come down to 70 per cent. And this is what the first world fears. For the first time in the history of capitalism, the metropolis is worried. This is because capital is finding more profitable niches abroad and is prepared to desert the industrialised north. These rich countries must now find jobs for their unskilled male manual workforce. They have to invest in training and to restructure their welfare states. The rich have problems and so they want to slow down the pace of trade liberalisation. They want to impose social and green clauses to stop poor countries exporting.

The WTO meeting in Seattle was the south’s opportunity to register its demands. But the exigencies of the US presidential elections and the financial needs of Al Gore’s campaign were more important for Clinton than the needs of the third world. So he sabotaged it. The rich will use any excuse to hang on to their privileges – even anti-capitalism.

Lord Desai is a professor of economics at the London School of Economics. His article is extracted from After Seattle: globalisation and its discontents published by Catalyst on 18 April, £5.99. Full details on www. catalyst-trust.