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Rethinking Trade - Season 1 Episode 5: A Progressive Shock Doctrine on Globalization?

To try to address human needs during the COVID-19 crisis, many governments have shredded the concepts and laws underpinning corporate-managed hyper-globalization. A quick return to business-as-usual is not likely.

In this episode, we discuss Lori’s recent piece in Le Monde Diplomatique, where she identifies four main ways in which the current moment provides unique opportunities to win significant structural changes to make the global and domestic economy fairer, more resilient and more sustainable.

What comes next depends largely on how we mobilize today. With many people who had been sheltered from the ravages of hyperglobalization now personally affected and fuming about the United States not being able to make or get essential goods needed to save lives, it’s time for a progressive “Shock Doctrine.”

Transcribed by Lauren Martin

RYAN HARVEY: Welcome back to Rethinking Trade, where we don’t just talk about trade policy, we fight to change it. I’m Ryan, and I’m joined once again by our in-house trade expert Lori Wallach. So Lori, you just wrote this big piece in Le Monde Diplomatique called “The State Steps in To Save Global Economics,” and in the intro you say, "trying to respond to COVID-19 has essentially forced governments to override the rules and the ideological underpinnings that define corporate globalization, and that there are ways that this upheaval could be organized into structural change to the neo-liberal hyperglobalized order." And then finally you describe what the world looked like before this era and how there are already some models from before that could be resurrected. Do you want to explain the piece briefly? 

WALLACH: The basic gist of it was that, for all of the horror and pain of this pandemic, it is revealing things about the inherent structural, frailty downsides, damage, inequities of our current so-called neo-liberal, globalized, corporate-led regime that create conditions for organizing for some big structural changes. And in the way Naomi Klein often talks about corporations seizing moments of disaster, “the shock doctrine,” to double down on policies that benefit them, in a certain way in this moment, the things that are being revealed are the things that show the corporate-rigged system is the problem, which means there’s a moment, perhaps (if we do the work) for organizing something like a progressive “shock doctrine,” to use this awareness of the status-quo’s problems to get some of the long-standing structural changes to make the rules of both our national economies and the way they connect globally to work for more people and to safeguard the planet’s environment.  

HARVEY: In the article, you list these four main reasons why the COVID-19 crisis could unhinge the current corporate-led, globalization regime. And the first one you bring up is forced solidarity. Do you want to explain this part? 

WALLACH: The pandemic has forced most residents of developed countries – many for the first time – to personally experience pain and anxiety from this regime of corporate-rigged hyperglobalization. For a long time, millions of industrial workers and small farmers and their neighbors in gutted communities, typically not in our major coastal cities, in the United States but also throughout the developing world, knew that this system was a disaster. It had hit them personally. But now we are seeing so many other people who haven’t been affected, suddenly realizing that there are inherent, unaddressed menaces to this system that they could ignore in better times, that they thought wasn’t their problem, it was those other people’s problem. That means, in a way, we’ve been forced into a solidarity, a way of the makers and the buyers, to realize this is a system that really doesn’t work for any of us. This is really important for two reasons. First, it’s mainly been the developed countries’ governments that have been pushing the trade and investment agreements that formalized and implemented the system of hyperglobalization, and that the politics in these countries could be shifting because of this experience, is key for change. A corollary to that is that it’s been the marginalized people in the developed countries who have become ripe for the picking by right-wing, nationalist political forces and this forced solidarity of a common problem, could help shift domestic politics. But also it’s the suddenness of the catastrophe—say, in contrast to the slower, frog in pot, climate boil—that can really awaken many people who have felt insulated from the damage of hyperglobalization. This is to the point where you even have publications like The Economist and the Financial Times, that have cheerlead-ed the whole Davos-mentality, neoliberalism, globalization is values in themselves, have suddenly started to editorialize that maybe some more regional and localized production has merits, and that we shouldn’t only think of the efficiency gods, but rather also think about issues like reliability and resilience. That is a tremendous shift.  

HARVEY: That kind of is a perfect intro to your second point, which is that there is not likely to be a return to “business as usual,” that this crisis has also seen some of the rules that define “business as usual” tossed out the window.  

WALLACH: Well, this is a very pivotal point. On the one hand, people in countries all over the world have just witnessed their governments break every rule that their government said absolutely could not be broken. Because in the face of having to deal with a crisis, no one in the governments are making the usual excuses of, “well we’re so sorry we can’t do that very sensible thing because of the World Trade Organization (WTO) or a free trade agreement or an economic partnership agreement, or investor state dispute settlement.” There is no thinking about what those rules are. There’s thinking about how the heck people’s lives are going to be saved and goods are going to be produced and people’s needs are going to come first ahead of these rules. And it’s very hard to put that genie back in the bottle, because the sort of the self-enforced “we must follow these rules,” “resistance is futile,” that entire concept has been chucked out the window. You do see some really improbable officials, really people who are the high priests of the current globalization system, saying things like recognizing that in the heat of a crisis you can’t let the market allocate scarce resources, that you have to actually make the government make sure that the health sector delivers for people and not allow speculation and concentration.  

Well, to a lot of people I'm talking to, they're saying, you know, that sounds really sensible to be the rule when there isn't a crisis, also, when it comes to essential goods. Why should we have rules that promote monopolies, thin unreliable supply chains, inequality, etc.? So in a way, as a practical matter, because the premises have gotten shattered, but also because things are not going to go back to normal in a matter of weeks, there's going to be a period of time where governments are going to have to be much more engaged. And we've just seen dozens of countries, when push came to shove, decide they needed to try and make sure they had medical supplies for their residents. The U.S. was one of the last to look into this, but the rest of the world started thinking about these issues. We have both as an intellectual matter, but as a practice, a context where basically the smashing of the golden calf of efficiency and globalization as a goal is going to be in place for a while. And that creates openings. 

HARVEY: And one of those openings, Lori, is what we're seeing now in the debate around corporate globalization. And what you point out in the piece is that this debate is no longer a left versus right paradigm. And you say that while acknowledging the dangers of ceding this critique to the far right. Why don't you tell us a bit about this point, and also how you see progressives engaging in this kind of terrain. 

WALLACH: So while all of these paradigms of globalization have been smashed in the short term, team status quo, the corporations, a lot of officials are in a totally tone-deaf way, claiming that the answer is to double down, that we need to cut all the tariffs on all the medical goods, somehow that will make things better. Well, obviously, that's not the problem. The problem is no redundancy, not enough capacity, no system for organizing priorities of where supplies go, where the sickest people are. So while team status quo is trying to use this opportunity to double down, what's emerging is a new dynamic that is, if you will, team status quo for the old policies and the corporatists vs. populists from the Bernie Sanders, Elizabeth Warren progressive populist spectrum all the way over to say the Josh Hawley, very conservative Missouri Republican senator version, all of whom are calling for interestingly similar structural changes that have the government much more involved in making sure that the economy that comes out of this crisis is one that is more resilient to deliver necessary, essential goods to people, that strengthens our national resilience, our national security, in a broad sense, national security, our health, our infrastructure, etc. And that divide is super interesting because you basically have more of a chance of having structural changes when you have broken out of some of the binary left-right dynamics in this country. 

The example of this, for instance, is, listen to this: quote, this pandemic also exposed a Grand-Canyon-sized fault in our supply chain. We don't make critical products in America anymore. It's a threat to our health, our national security and our economy. Americans have long known about this problem. Washington is just waking up to it. And Wall Street was hoping it wouldn't get caught. End quote.

So that sounds like Bernie Sanders or Elizabeth Warren, pick your choice. But it is neither of them, could be. That actually was the guy, Josh Hawley, the Missouri Republican. So what's ending up happening is odd combinations of Democrats and Republicans are coming together with solutions where, for instance, you have Pramila Jayapal, co-chair of the Congressional Progressive Caucus, and that guy Hawley, both calling for a guaranteed national income to be paid by the government to basically get around the inefficiencies of all of these different loan programs and bailout programs, or the money goes to the companies, and then they're supposed to pay people's salaries. And that kind of really smashing of partisan lines is the moment when there are opportunities to make really big change. Now, at the same time, we have to be super careful because the left and the right in the populist space can both identify the problem and even identify some of the policies that are to be the fix. 

But it's super perilous if it is the right part of the spectrum that owns that, because part of the biggest fix here is accountability and democracy. And you're not going to get those kinds of fixes from the likes of, say, a Steve Bannon who can do the critique of what's wrong with the current system, but also was, you know, in love with authoritarianism. This gets back to where we started, which is this is a moment where progressives need to really step up. It's not going to happen by accident. The changes will happen if we organize for them.

HARVEY: And Lori, point four is a really big point, and obviously this is a really short show, but let’s talk about rebalancing relations with China and decentralizing the global production economy. What could this look like? 

WALLACH: Well the fourth factor in all of this is something that was starting to happen before this crisis. And this crisis has sort of shone a spotlight on, which is, not just in the United States but in countries around the world, there’s a growing recognition that the role China, as the government, and it’s government-structured economic system in this current structure of globalized economy is really unsustainable, unhealthy, perilous, to both numerous countries’ essential-goods supply chains like medicine and personal protective equipment (PPE), but also serve more broadly to their infrastructure. Heaven forbid the next crisis is that there is a horrible computer virus, not a medical virus that is introduced that crashes our electric grid. And part of that virus destroys some of the switches and mechanical aspects of the system and we need a lot of new electric-grade steel, and we need to remake a lot of infrastructure. Right now we are way too reliant on imports that could take weeks and weeks to get to us, if they’re available to us, to be able to do that.  

There is this notion that interestingly started in the military supply chain world, so there are Republicans thinking about it, about just practically not having us over-reliant on any country. Separate from China, just any country. And I think it really started to come to mind when the Twin Cities had that bridge fail, that horrible disaster some years ago. And that bridge was closed for a lot longer than it needed to be and snarled up that whole community because we couldn’t make that kind of steel to have a long-span bridge. We had to wait for it to be floated up from Brazil or sent over from China. And so that moment had a lot of people who do infrastructure planning and people in the Pentagon saying “Hmm, now that is a problem.” Heaven forbid, from the Pentagon’s perspective, we’re in a war and supply chains got cut. And various people who think about national infrastructure start thinking about, Heaven forbid, we had a major west coast earthquake or name your problem, how would we fix things? So all of that got the right thinking about these practical issues.  

Of course, more on the left, there’s been a lot of concern about how U.S. corporations have plotted with the Chinese government in a mutually-beneficial (at the time) co-habitation of the Chinese government wanting the technology, the know-how, the investment, the employment. The U.S. corporations were enticed with “here’s a billion-plus consumers,” but what they really wanted was “here are a billion-plus people who can work with no labor rights and very low wages,” and the result has been a system where in many different sectors there is an over-reliance on production in China, if not of an entire good, some key element or part or component, or input (the raw material- chemical, steel, etc.) that has become really only made in China, or too much of it is made in China so that there really isn’t redundancy, there isn’t diversification. And to some degree, this crisis is making the whole world realize we need redundancy, we need diversification, but it’s really hard to separate the China factor out of that because it has been the Chinese government’s plan over time, as part of a geopolitical strategy, to dominate in different sectors.

And in the same time that the U.S. and most of Europe, not all of Europe, but a lot of Europe have made words like ‘industrial policy,’ i.e. a plan to invest in dominating a sector in the West, it's become a dirty word. But in China you actually saw a government with goals, making plans, and putting a lot of money, subsidies – you hear a lot about China ‘cheating’ – it’s subsidizing that stuff and then trading it. Or reducing the currency value to make goods that could be exported competitive, not by their actual intrinsic value but because you’re rigging the exchange rate to make imports expensive and exports less expensive. All of those tools the government of China has employed, and in the last 30 years it was to get multinational companies to come in. But now that they have the technology, the subsidies are increasingly not given to foreign companies, they’re actually only being given to the indigenous-created Chinese companies that now have the same technology they got from the foreign companies that were enticed by the labor. And you have increasingly some of the U.S. companies that were the big multinationals that were benefitting from the cheap labor and promised the market who are themselves starting to get squeezed. And at the same time as this sort of military, we-need-redundancy, the big companies are less excited about the prospects of their profits in China, because they’re being squeezed out by the now-new Chinese companies that are getting subsidized. 

You've always had progressives extremely concerned about issues like corporate concentration and issues around labor rights and human rights in China, where, let's be blunt, lot of workers right now in those Chinese plants, that are exporting things to the U.S., are Uighurs and other politically persecuted groups who are in forced labor situations.

So all of that's come together to have a lot of governments, including across the political spectrum in the U.S., a lot of politicians and people, starting to think about the fact we just need a more diversified way of producing. And some governments have gotten very active in that direction. The Japanese government just announced billions of dollars of government funds to get Japanese companies to move from China back to Japan for the sake of redundancy. I think that that also creates a moment when people are thinking about where things are made, to think about how we can have policies both in the global sphere, but also domestically that can try and revitalize more production in more places. Which is to say, some more robust domestic and regional production, not autarchy, which is just the technical word for self-reliance. But redundancy. So, of course, we're still going to have trade.

The question is, under what rules? And can we diversify the sources of those imports, so we're not only overly reliant on one place or if there's a problem, everything falls apart. But also, can we have some more domestic production, which is not only a matter of our security and resilience, but also could have some great corollary benefits in creating some more middle-class jobs for a lot of the folks who have been partially marginalized by this current system.

HARVEY: Lori, speaking of some of these rules, in the conclusion in your piece, you paint a picture of what the pre-neo-liberal era looked like and you describe some of the older rules that exist that can still be utilized today. And you also talk about new rules moving forward. Why don't you close us out with what some of those rules look like?

WALLACH: I think that the key thing for everyone to keep in mind is, there are lots of policy tools to get different outcomes, some of which we've seen succeed in the past. The real issue is getting the goals right. So if we want an economic regime that prioritizes things like getting people the essential goods they need reliably, that prioritizes having more localized and regional production, which both helps for the redundancy that leads to resilience and reliability, but also has the corollary benefit of more production jobs for more people, which is an income inequality remedy, but also honestly at this point, is an urgent aspect of addressing the climate crisis, to not be schlepping things from one production facility at the lowest environmental standard in one part of the world to the whole rest of the world spewing carbon along the way. If our goals are like that, then the tools we can use our many. A couple that I write about are just things that I think a lot of people have forgotten about.

But for instance, before the mid 1990's, establishment of things like the World Trade Organization and free trade agreements like NAFTA, every trade agreement that had been established, including the GATT, the General Agreement on Tariffs and Trade (the post-World War Two standard of trade) they all treated trade in food differently from other goods. Why? Everyone needs food to survive. So those trade agreements ensured that governments had lots of policy space to determine how to make sure there were affordable, reliable supplies of food. So they allowed things like supply management. So you set up a quota system. You have a certain amount of imports, but you always have a certain amount domestic production. That way you knew, no matter what you had both, if you had a bad harvest, you had imports. And if something happened overseas, you had domestic production or stockpiles or subsidies. And that logic, I think, makes sense for food, as we're about to see now with the [COVID-19] crisis in meat packing and the overconcentration in that sector. But also, it should apply to other critical sectors like medicine. The combination of domestic and regional manufacturing and trade is how you maximize your resilience.

Similarly, as far as how you would distribute around the world this kind of production without it being sort of random or playing favorites of the day between countries or companies, there was a whole system that existed until the WTO went into effect which phased it out. And that's it was called the multi-fiber arrangement. It was a managed trade system that distributed production quota, in that case for textiles and apparel. But it was a way to make sure that either countries with smaller industrial capacity, so the Caribbean islands, smaller African countries, or countries with higher wages, the U.S., Europe, would still be part of producing in that sector, so that all the jobs and investment wouldn't run to the lowest wages like it did as soon as the MFA, the multi-fiber arrangement went away. When the multi-fiber arrangement system went away, the corporate-managed trade logic, within years concentrate production in China and a few other Asian countries that had the lowest wages and standards. And those industries in Africa, the Americas, the Caribbean, obviously the U.S. and Europe, were just decimated. The system of basically negotiating a system of quota guarantees that each country can have some level of protected production so that there's some basic fallback.  

And another thing to think about from the past is the kind of rules that we're in, the thing that was supposed to be the WTO before the WTO. That was the thing called the ITO, the International Trade Organization. A sort of quirk of trade history is that the WTO wasn't the first idea of having a global body. The first idea was something that came out of the discussions after World War II. A lot of Progressive's got together and created an agency that—brace yourself, it sounds like, wow, it's taken 50 years to get back to that—sets the International Labor Organization labor standards and competition, anti-trust standards and rules against currency mismanagement as a mandatory floor on which the trade rules were situated. The idea was to elevate human needs without imposing lots of one-size-fits-all dictates. It took international standards. Countries had agreed to as sovereigns and said, OK, here are the other things about equality and wages and fair competition and currency cheating we've all agreed on as countries. And now our trade agreements are cutting of tariffs, are opening of markets. It's going to be premised on our agreement on all that other stuff.

And that ITO, unfortunately, was basically blown up by the U.S. Senate, which didn't want that kind of set of rules. And the GATT was actually just this provisional thing that was just the tariff rules that was in a way like an annex to this ITO that got tanked. But that ITO structure, and there's a full treaty that would obviously would have to be updated, but conceptually it shows how you would re-prioritize different international rules and institutions to create a more lift-up global trade regime, not a race-to-the-bottom one. And, you know, these are just some of the ideas. Entire books, papers, treatises have been written about this. The trick is going to be the fight to win the debate about what the goals are, because these policy tools, there are many of them, lots of good ideas. The battle is going to be really about this moment leading to a more progressive vision of the rules nationally as well as internationally.

Because here's the thing: it could go either way. This crisis is showing the vulnerabilities, but the contest next is of power and politics. It's not a lack of policy options. I think that unless progressives in numerous countries organize to demand an end to business as usual, post the urgency of the crisis, we could see a mildly adjusted version of the status quo. Or we could find ourselves actually subject to some kind of right-wing nationalist alternative. That's on us. Cause like those on the left, the likes of Steve Bannon can critique the extreme failings of hyperglobalization. But the alternatives offered by those who love authoritarianism, like him, certainly will not be the democratic accountability that really is a core antidote to the failings of hyperglobalization. 

HARVEY: That's all for today. Thank you all for listening. Rethinking Trade is produced by Public Citizen's Global Trade Watch. I encourage you to visit RethinkTrade.org, as well as TradeWatch.org to educate yourself and to find out how you can get involved in the work we're doing to fight for a fairer and more equitable trade policies.

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