“The other Davos”

Noam Chomsky

Attac, January 26, 2001

I am sorry I can’t be with you on this important occasion. In fact, I can do little more than express enthusiastic support for what you’re doing and hope for success in this endeavor and many others like it throughout the world. The challenge faced is enormous as there is an increasing willingness to undertake it, which is very heartening for people who look forward to a more decent world.

In the few moments that I have, I would like to recall some basic facts about what is called globalization, highlighting this misleading term which is used to refer to a very specific form of international integration designed by the powerful states, imposed on the rest, in the interests of private concentrations of power, and with the interests of people only incidental. There would be no reason to oppose globalization as such, which if properly structured, it would be a very welcome prospect.

Since World War II, the integration of the international economy has been proceeding; it is by now returned to something like the level of about a century ago by gross measures. The fine structure however is considerably more complex. During the post-war period this process has gone through two sharply different phases. The first was the phase roughly until the early 70s, the Bretton Woods period. The second is the period since the dismantling of the Bretton Woods system, a system of regulated exchange rates and controls on capital movement. It is this second period that is generally called globalization and it is associated with the so-called neo-liberal policy, a term neither new nor liberal. This means structural adjustment programs along the lines of the Washington consensus for the poorer countries and versions of the same policies in the more advanced societies. The two phases are quite different for very good reasons. The first phase, the Bretton Woods phase, is called a golden age of industrial state capitalism by many economists, while the second phase, the globalization phase, is often called a leaden age with a marked deterioration in standard macroeconomic measures that would be things like greater growth of economy, of productivity and so on. As it is a common claim that globalization, the second phase, has brought remarkable prosperity, although unfortunately some have been left behind, and have not shared in the grand benefits, and we have to do something about that.

These claims are only partially true. It is true of the first phase. In the second phase, it is true that inequality has grown very rapidly. But beyond that, the claims are completely wrong and un-controversially so. The record has been dismal in every region of the world. That is apart from some Asian countries that have been able to break the rules of the game for a while at least. So consider the richest country in the world, the United States. Here, there’s supposed to be what is called a fairy-tale economy, which is indeed true for a very small part of the population, which happens to include those who are telling everyone else the wonderful news. For most workers, the non-supervisory workers, about 80 per cent of the workforce, wages have declined since the 1970s. In the last 10 years, particularly the last few years, gross wages returned roughly to the level of 1989, the last business cycle, they are still well below the level of 20 years ago. For male workers, median wages have not even risen to the level of 1989 despite the growth of the last few years. For families in the middle range who are called middle income families, they have been able to sustain incomes, but only by a much heavier workload. The middle-income families could earn about six weeks a year of more work than they do 10 years ago to maintain essentially stagnating incomes. The United States now has the highest workload in the world, past Japan a couple of years ago. Growth such as this has been driven by consumer spending which in turn has been driven by a massive propaganda campaign and now has consequences too: household debt has soared; it¹s now on an unprecedented level, it is actually beyond disposable income for the first time. The main part of the fairy tale is the stock market which soared up till about a year ago. That caused a lot of exuberance but that¹s the main source of the world¹s growth in the recent period. However it is worth remembering that almost half the stocks are held by one per cent of the population and the bottom 80 per cent of the population altogether hold about 4 per cent. Poverty rates are still higher than they were 20 years ago. That¹s worst, by far worst in the United States and Britain, worst than the industrial world. And these are the countries that have had the most rigorous imposition of neo-liberal policies. During the golden age, the Bretton Woods- first phase, income did grow rapidly and across the board, it was quite egalitarian. In fact the highest growth was in the lowest 20 per cent of the population, and the lowest growth was in the highest 20 per cent. In the leaden age, that¹s been completely reversed. So it is highly in-egalitarian. The income growth was in the top, concentrated in the top few per cent, while the incomes of the lowest 20 per cent have actually declined. Take a look at the star performer ­ the new economy of California ­ there was recently a study about what happened in California in the past 10 years. They found that purchasing power per family had declined by about a thousand dollars during the 1990s. Average wages and incomes have declined. Poverty levels have risen. Only New York State has higher inequality. And that picture pretty well generalizes worldwide. It¹s harsher in the poorer countries. There is an exception. As I mentioned the countries that were able to violate the rules, for example most dramatically China, but not for long. China is now being welcomed into the Club with a recent free trade agreement or more accurately a free investment agreement as the Wall Street Journal describes it. It¹s been hailed in the national press as what they call really good news for financial services, telecommunications , Boeing, other corporations, but if you read on you discover that it is not all rosy. In the small print there is a problem of tens or maybe hundreds of millions of Chinese workers who are driven out of inefficient factories. Just as American factories were so inefficient in the 1980s that the Reagan administration, the most protectionist in post-war American history, had practically banned Japanese imports to try to reconstruct them with state support. But in China that¹s not going to be allowed, it¹s a poor country . These inefficient factories provide not only livelihood but benefits, insurance, what amounts to pensions. There is also another small problem mentioned: a million American workers will loose their jobs as low cost production shifts to China. That could be a benefit to China in theory, it might improve wages there, except for another small defect of the free investment agreement, namely 900 million Chinese peasants who are expected to be driven off the land and will be in deep trouble when their country becomes flooded with subsidized US agribusiness exports, and as they flood the labor market driving down wages. That picture is quite familiar next door between the United states and Mexico: the neo-liberal reforms in early 1980’s, and since that time, for about 80% of the population, living standards and incomes have declined and continued after NAFTA, contrary to all predictions by main-stream economists. At least others (some economists) pointed out that it was going to happen. Nafta may be one of the rare trade treaties that succeeded in harming the majority of the population in all the participating countries. It is all too easy to continue. Furthermore the rules of the game established by the rich are very likely to extend these effects. So for example the rules of the world trade organization have barred outright the mechanisms that were used by every rich country without exception as to reach its current state of development, and the mislabeled trade agreement, actually investor rights agreement, if you look at it closely, it is a combination of liberalization and protectionism designed to allow major corporation to gain enormous profits by monopolistic pricing of products, which typically are developed with a very substantial contribution of the public sector. There has been an enormous explosion of speculative capital transfers which is the defining feature of the globalization period. Such flows sharply restrict planning options for governments, assign a veto power to financial capital, undermine popular sovereignty when the government is democratic, and reduce constructive social and economic policies that might benefit the population rather than investors. What is taking shape is a kind of corporate mercantilism, it is a liberal or international regime in which decisions over social and economic political life are increasingly concentrated in the hands of unaccountable private capital with high concentrations of power, and which administer markets and are the “tools and tyrants” of governments ­ to use Madison’s words about the threat to democracy 200 years ago. Not surprisingly the second phase of globalization has aroused very substantial public protest taking many forms around the world. It has brought together recently varied popular forces from different constituencies, from the poorer and the richer countries. That is something new and quite encouraging. This meeting offers new opportunities to carry this process forward and offers new alternatives to help defend the great majority of the population of the world from an assault on fundamental human rights and, beyond that, to dismantle the illegitimate power concentrations and extend the domains of freedom and justice.