Brave new money world

What is the right response to globalization?

Josef Göppel, Member of the German Bundestag

The temptation

One day everybody will be prosperous and happy. How will this come to pass? All the frontiers will come down. Goods and services will be created only where they can be produced most cost-effectively. This will make everything cheaper. World trade will bring the blessings of progress to the furthest corners of the earth. Economists call this exploiting comparative cost advantages and avoiding misallocations. To them, it is simply a matter of leaving the economy to run itself and curbing government intervention. But until this happens, considerable sacrifices will have to be made: wages will have to be reduced, social services cut back and unproductive regional structures dismantled.

Who supports this view? The proponents of the liberalist economic model . One of its founding fathers was the economics professor, Milton Friedman, who taught at the University of Chicago in the 1970s. His followers were called the "Chicago boys" and they set out on a march through the institutions. They believe there should be no barriers to deregulation, liberalization, greater flexibility and the reorganization of the social state. Since the end of Communism in around 1990, the liberalist model has swiftly taken hold as a worldwide economic ideology. After the resounding offensive of the Nineties, surprising parallels are emerging ever more clearly now. Distant prospects of salvation and sacrifices on the way: that has a familiar ideological ring to it. If we were not already suspicious, we should be by now. Where is the borderline between taking necessary steps to clean up the social market economy and undermining it completely?

The drawbacks

After two decades of globalization, the disadvantages are slowly emerging: growing unemployment around the world, a fall in real standards of living, a bleeding of the middle classes, public budgets starved of resources and an accumulation of wealth in private hands. Even in so-called rich countries, disparities in wealth are growing. In many cases the new world order relies on cheap labour and the exploitation of the environment. Capital moves freely without restriction, migrating from one country to the next on the search for lower social and environmental standards. People who migrate in pursuit of wealth are held in check by harsh laws.

Since the Eighties, over a third of workers in the USA have been forced out of jobs protected by collective wage agreements and into low-paid work. 18% (1) of people in the world's leading nation live below the poverty level; over 50% have no secure old-age pension. According to the UN Global Environment Outlook for 2002, the gulf between the rich and poor is growing all the time. In 1960 the ratio of the richest to the poorest fifth of the world's population was 30 to 1; by the turn of the century it had increased to 70 to 1(2).

Globalization has overshot its mark. It is homogenizing the world. But evolution needs diversity. Better solutions are best created from a variety of independent approaches. To take an example, the developing countries suffer most under the licensing system. The system provides multinational corporations with control over local markets. It starts with packets of seed / plant protection / fertilization and extends all the way through to industrial production methods and particular management processes. What makes this possible is the protection of intellectual property afforded in the WTO Treaty. Products from industrialized countries are flooding local markets in developing countries, displacing the traditional structure of small businesses there. International big capital is destroying regional small capital. We are witnessing a new wave of colonization. But this time it is not states that are the colonists, but big business. The winners in the system are the global financial organizations, the oil and energy conglomerates, the military industrial complex, biotech companies and media businesses. Those who are suffering most are the raw materials' producers. And our farmers know a thing or two about that. In 1980 the price of a 100 kilos of wheat was still 23 euro; today the market price is 9 euro. Coffee is also cheaper than ever before. Since 1995 the producers' price has fallen by two thirds to around 5 cents for 500 grams. Consumers in Europe who pay € 2 to 5 for the product scarcely give a thought to the fact that only 1 or 2% of this price is left over for the growers. In the industrialized countries support payments out of the general tax pot provide some compensation; in the developing countries the drop in price leads to dire poverty.

So the call for the payment of a fair price for the earth's natural assets is growing louder. At the Johannesburg World Summit in 2002, the developing countries demanded their fair share for clean water, raw materials and genetic diversity. One typical case is that of the pharmaceutical companies which develop expensive drugs from tropical plants, while having paid next to nothing for the raw materials themselves. One hears a lot here about free goods. This is set to change with the setting of minimum ecological and social standards, which will result in a rise in the price of raw materials.

Globalization and democracy

The unregulated global market is also increasingly undermining democratic control of decision-making. Multinational companies are placing themselves above national legal norms and playing countries off against each other. Company bosses keep prime ministers in suspense about decisions on company locations - and make them pay a high price. Companies with worldwide operations can bypass national governments in pursuit of their interests. The words of a sacked worker to a German regional premier make the point very well: "I elected you but you have no power and I can't vote out those who have the power."

Privatizing public services takes away the scope for individual citizens to participate and wield influence. Ballot papers and public decisions mean nothing if the water supply system or local senior citizens' home is operated by a private company. Those services over which individual citizens have no genuine local choice are simply not suitable for full privatization.

Globalization and public finances

Globalization has placed a huge strain on public finances. There can certainly be no denying that home-grown errors have contributed to the problems, but, nevertheless, a clear trend can be discerned. Increasing amounts of value added are evading the taxation system via a system of supranational linkages. The multinationals stride over national borders as if on stilts, and form their own network, over which states within their fixed territorial borders no longer wield any influence. Those who are left to bear the brunt of the tax burden are workers and small and medium-sized companies; they also have to compete with the products of the multinationals, which pay hardly any tax. Voices are calling ever louder now for a tax source that takes into account this new world situation. In the same way as value-added tax has to be paid on goods and services, capital transactions on the stock exchanges are also to be subject to tax in the future to fund international development cooperation.

The European development model, which involves giving less developed regions a share in general prosperity by way of structural funds and thereby giving them a hand up, is also a model for global North-South cooperation. Clearly the only way for this to happen is internationally, but it is precisely for this reason that it is important to open up the discussion now on a broad front.

The alternative plan

There is indeed an answer to the question: what is the optimum economic concept? It is the social market economy. Ludwig Erhard recognized that prosperity for all is possible only if the people profit as well. The proceeds of the market economy must benefit everybody. Erhard was convinced that market forces need rules to keep them in check and warned insistently against "liberalist freebooting". His concept delivered the economic miracle to Germany. At the end of the Sixties our country had a largely equitable distribution of wealth, a strong middle class and many small entrepreneurs. Everybody lived better because self-interest was curbed for the benefit of the community as a whole.

Now there is a danger that globalization will flush away the achievements of the social market economy. It is important to stress here that preserving Ludwig Erhard's social market economy means, among other things, capping excesses, enlarging rules and regulations, and facilitating individual solutions. But all this within a legal framework watched over by democratically accountable bodies. At a time when liberalism as it exists in reality is attacking social justice, the natural environment and cultural diversity, we Germans should not hide our light under a bushel. Instead of allowing the social market economy to retreat, we need to ensure that it triumphs throughout the world! We need clearly defined social, ecological and cultural standards within the market economy, not unfettered competition!

Only a social market economy that takes account of ecological concerns offers a credible response to one of the central questions of the 21st century: how can we live as well as or perhaps even better than we do now using 20% of the material and energy we currently consume? Today the planet is "burning" five times more resources than the atmosphere can support in the long term. We need -- in the words of the Austrian economist, Heinrich Wohlmeyer -- to rein back the trusty steed of the market economy to ensure it gallops in the right direction.

Regional initiatives

As more areas of life come under the sway of globalization, so the striving for regional self-help grows around the world. Regional initiatives are starting up in all corners of the globe, a cultural revolt against the loss of local traditions and emergence of a homogenized civilization in the western mould. Germany alone already has a network of regional initiatives covering 300 areas. People want to share in the possibilities offered by a civilization that spans the world but at the same time retain their roots in a local, manageable space. In a civilized world that is spinning ever faster, people are in particular need of something to cling on to. As more regional economic cycles come into play, new types of partnership between town and country are to be created. It takes around 2,000 km² of agricultural land in central Europe to supply one million people; this is roughly equivalent to the region of West Central Franconia from Uffenberg to Weiβenburg(3). But it is not simply agricultural products that are involved. It is also a matter of an independent energy supply from renewable sources, and of the craft sector and services. The more self-generated capital circulates in a region, the more value added is created, which means that public infrastructure can be better maintained and more young people can make a living for themselves there. Many people here do not yet seem to realize that their buying habits also affect their own prosperity. The more shops and craft businesses close down in a place, the less the home they have worked so hard for is worth!

Where should I invest my money?

Another opportunity for individuals to influence the global way things operate is in the choices they make about how to invest their money. There are now many opportunities for ethical and ecological investment. The returns are often no worse than on conventional investments; indeed, overall, they are even more stable, as the German ecological share index NAI in the magazine Natur und Kosmos demonstrates(4). Yet there are still far too few people who inquire, when they take out life assurance or make any other form of investment, what their contributions will be used for. If more than the current three per cent did so, the major financial services providers would quickly adjust to meet the new demand. Where should I invest my money? -- In view of the immense amount of private wealth in Germany, there is great potential here for responding effectively to the forces of globalization.

Summary

Over the last 25 years, globalization has

increased the disparities between the rich and poor,
enabled private wealth to be amassed in the hands of a few,
cut the developing countries' share in world trade,
forced wages and social benefits down,
given rise to a network of supranational businesses and
drained public budgets by depriving the tax system of revenue.
The liberalist ideology is not concerned about structures that have evolved in the course of time, about the social fabric, or about an intact environment. Trade free of impediments is also trade free of responsibilities. But in all walks of life, freedom has to be coupled with responsibility, or else the law of the jungle prevails. This in turn signals the end of freedom. According to the liberalist economic doctrine, the free market makes everything happen. But such thinking overlooks the fact that the earth's resources are not infinite. Even the economy cannot put itself outside the laws of nature. It is not true to claim that everybody benefits from liberalized world trade. The further unregulated globalization advances, the greater the disparities and injustices will become.

For us Germans this has a special significance. It was we who developed the concept of the social market economy that has brought economic prosperity and social security to more people than ever before. Now the achievements of the social market economy are in danger of being lost as a result of globalization. Urgent steps need to be taken to make global economic activity take greater account of the needs of people and the environment!

The treaty of the WTO World Trade Organization must give countries greater rights to reject imports that do not meet their social, ecological and cultural standards. Free trade has no value per se!

International treaties and UN programmes for development cooperation, environmental protection and workers' and women's rights need effective sanction mechanisms in order to put them on a par with the WTO Treaty

The capital market must in future contribute to taxation in the same way as the market in goods and services.
What is the right response to globalization? This was the question we asked at the start of these deliberations. To make full use of the fascinating possibilities offered by worldwide interactions without destroying the appeal of diversity; to have one's head in the internet but keep one's feet on one's own home ground -- that is a vision of life that many people find attractive. How we master the new world situation will be determined by the trends set by many individual decisions; but we also need more courageous entrepreneurs and politicians who are ready to do what is needed in their sphere. The Umweltbank Nürnberg (Nuremberg Environment Bank) is one such example.


----------------------
(1) Economic Report of the President 2002, US Bureau of the Census
(2) UNEP GEO 3 2002
(3) Calculations of the Swiss Agency for the Environment, Forestry and Landscape, Berne
(4) Natur und Kosmos, January 2003