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Neoliberal Globalization:  Expropriation from Above

Dr. Betsy Bowman, Research Associate, Center for Global Justice
Expropriation: removing property from an owner.   from Investopedia.com
October 2009

In March of 2004, I made my first public presentation here at the Biblioteca Publica of SMA on globalization.  Over the intervening 5 years, I have made many more.  And by now, almost two years into the Great Economic Collapse of the early 21st Century, we can evaluate the successes and failures of neoliberal globalization, or the Washington Consensus.   Over the last 30 years, promulgated by Wall St., business and governments elites world wide, and international financial institutions, its two pillars are deregulation and privatization.  Legitimized by the ideology that “free trade” would benefit everyone, these policies were imposed world-wide, except in the US. 

The recipes were uniform.  The following 4 sets of policies could improve any country’s economy.  Specific benefits would result, it was claimed. Fifteen years later what is the reality?  And since NAFTA was the model for subsequent efforts at corporate globalization generally, what is the reality in Mexico?  Let’s look more closely.

First: cut taxes and social spending. Claim: fiscal budget deficits would decline as competitiveness grew;  increases in effective demand and employment would result. Reality:  persisting lack of increases in education and health have not reduced national indebtedness. Competitiveness of Mexico’s workforce has decreased relative to nations like Korea and India which in the same period have increased such spending. The gap between private education and health and Mexico’s public health and education systems, has grown further fostering poverty in a 2-tiered society.  Additionally, Mexico has cut state support for campesino agriculture, making it even harder for peasant farmers to compete and sell their corn on the market.  (Just last week, I bought sweet corn from the US at Costco!)

Second:  eliminate tariffs.  Claim: In the new global market Mexico’s competitiveness lies in what she does best, and only a free market will allow her to find that niche. That done, employment, wages and quality will all rise as out-migration is stemmed. Reality:  fifteen years later it hasn’t happened. Multinationals do enter and leave as they please, but they destroy domestic industries, raise unemployment, and introduce systemic instability. Internal corn markets have been wiped out by subsidized U.S. corn. The resulting rural unemployment, which we at the Center see daily, is a true disaster. Mexico’s debt is higher than ever and she still can’t create enough jobs to employ her people. Out-migration has doubled, and labor-market competition has depressed wages on both sides of the border.
Third:  eliminate all controls on foreign capital such as limits on foreign ownership and requirements to use local in-puts and re-invest locally a percent of profits. Claim: successful competition for capital with its new global mobility will ultimately raise wages and long-term employment and reduce immigration. Reality:  as Jeff Faux points out, political insiders who got Banamex cheap, plus permanent  government subsidies, turned  around and sold it to Citibank, with the subsidies, at a 300% profit.  Over 90% of Mexico’s banks are today owned by U.S. and other foreign investors. Liberated from requirements to re-invest in Mexico, their banks search the globe solely for the highest return. With her finances in such hands, Mexico’s governments have become slavish vis a vis global capital.
Lastly, and most importantly: privatize all government-owned productive enterprises and public goods like water, electricity and land. Claim:  for-profit management is always more efficient and hence better serves the public.  Reality: the agrarian reform or ejido system made possible by the Mexican Revolution and understaken by President Lazaro Cardenas starting in 1938 and continuing well into the 1980s has been stopped and reversed.  Just outside of SMA, the former Secretary of Agriculture under President Vicente Fox, Usabiaga, has bought 7 or 8 square miles of formerly ejido land and grows crops for export to the US – crops tended by the former ejido owners.  Another case in point is Carlos Slim, the third-richest man in the world, acquired, aided by his extensive political connections, a near-monopoly of Mexico’s telephone service.  As owner he could abandon all pretense that telephone service was a utility.  Free to raise rates for all who can pay he did just that.  The vaste majority who cannot pay or cannot pay enough, get passed over or get very inferior service – in effect narrowing the world of Mexicans without monety.  Slim uses the resulting super-profits to invest round the world, with zero protest from the Mexican government. 
These four sets of policies, it was claimed, would enhance Mexico’s competitiveness on the new, free, global market. But in fact godfathers of NAFTA like Treasury Secretary Robert Rubin (Democrat) and former Federal Reserve chair Alan Greenspan (Republican), sought no such improvement in Mexico or even in the U.S. -  capital knows no patriotism. On the contrary, as Faux points out, such representatives of finance and corporate capital sought to harness and benefit from that competition by more forcefully pitting all nations against each other. That is the effect of free global capital markets. By disconnecting themselves from the fate of any particular country, these representatives could make all countries and all working classes compete for their favor (and investment), opening up new possibilities for profitable investment.
NAFTA was just the start. The World Trade Organization, the opening of the US market to China and a parade of bilateral trade agreements followed it with a sole mission:  enhance and protect capital mobility, even if it generated an increasingly angry world.
NAFTA has proven a good deal for US investors and Mexico’s political and economic elites.  The U.S. side got control of Mexican bank deposits and elites on both sides got cheaper labor. Lots of money was made on both sides of the border. But since the economic crisis took hold last September, a sea change is unfolding. Until recently out-migration freed Mexico's oligarchs of unemployed workers who might be politically bothersome. And until recently Mexico’s economy survived on hard-currency remittances migrants sent home. Those sources of political stability and economic health are now closed off.
Replacing remittances as source of cash, is the roughly $25 billion in drug exports. Narco trafficking, some observers hold, could be Mexico's largest single earner of hard currency. Last year 6,ooo died in episodes of narco-violence.
NAFTA is not blameless here either. It created a two-way superhighway over which drugs and guns can move smoothly.  Farmers made destitute by NAFTA corn, and especially their children, form a  pool of the unemployed available for narco-recruiting.  And thanks to NAFTA, banks can more easily launder money.  You want free trade without regulation?  Narco-trafficking cannot be eliminated out of hand as an example.  Mexico has become a paradigm of the way neo-liberal policies tear apart a country’s social fabric - to the benefit of ruling elites of the world, including those of the U.S.
By going back on his promise to re-negotiate NAFTA Prsident Obama has missed a chance to connect the conditions that foster greater migration north – and the resulting injury to family unity - with the new “free market” in corn.  Or to connect the general chaos of Mexican political life – the possible theft of the presidency from Lopez Obrador by Calderon being an example – with the  increase in power this past July by the authoritarian and notorious PRI.
Where, then,  have these policies gotten us?  Obviously big corporations have gotten bigger, richer, more powerful.  Smaller players have been eliminated.  Social safety nets have been shredded.  There is more hunger in the world today and slavery has returned (human trafficking here is just one example).  The world is a meaner place.  Once again, we can say of our times as was said of the Middle Ages, life is short, ugly and brutish. 

Part I:  the basic argument: 

--The mature stage of capitalism is one of stagnation, not growth.  Capitalism is a contradictory system that can survive only through growth but which stagnates because of its very growth.   Put simply, there is simply too much stuff produced; this is what is called a crisis of overproduction.  But all the money is in a very few hands and thus the vast majority has no money to buy the stuff produced.  This is called a crisis of overaccumulation. 

--This stagnation has led to what some call “the great decline.”   Since the mid 1970s, the stagnation of the economy, the slowing of growth, has meant that the elites have had to abandon the traditional exploitation of labor and production of goods as a means of accumulating more wealth and invent a new strategy.  That new strategy is precisely neoliberal globalization or the Washington consensus.  This strategy worked for a while. 
This strategy worked for a while.  Production was moved to third world countries.  Goods were produced at lower cost; profits kept growing though at a slower rate.  But the collapse of the Asian tigers and Russia in the late 1990s, then the collapse of the US economy in the dot.com bust (in addition to the many “small” crises along the way such as the collapse of Argentina in 2001-2) forced a new strategy upon the elites.  It is estimated that in the US alone the dot.com bust erased $7 trillion of value off the New York Stock Exchange. 

--Financialization or debt.  Throughout the 1980s and 1990s, rules and regulations governing money and its movement around the planet were relaxed.  In 1999 the repeal of the Glass-Stegall act which separated banking,  insurance and the stock, commodity, and capital markets opened the possibility for further accumulation on the part of the elites, but accumulation based on debt rather than production. The model of the lender/trader became ubiquitous.    In the US and Europe, households maintained their standards of living in spite of falling wages by borrowing money.  People sold their home, cashed out, and retired.  (That’s what Bob and I did.) 
This strategy worked for a while.  And lots of lender/traders became fabulously wealthy along with the dot.com crowd and the real estate speculators.  We’ll call them the hedge fund crowd.   This strategy worked for a while and then it all collapsed. According to the World Bank, world-wide wealth to the tune of $34 trillion has now been wiped out.   That is the amount of losses due to falling asset values.  My house was worth $one million, but now it’s worth less, say half that.  Multiplied around the planet, that asset devaluation comes to $34 trillion.  Some estimate it will increase to $45 trillion.  But wait!  There’s more!!

Part II: Deregulation & privatization mean expropriation

Deregulation and privatization are code words for what is in effect the legalized theft of public goods.  Carlos Slim and Telmex are just one of the more egregious examples.  As Newsweek reported, we have seen an unprecedented creation and accumulation of wealth over the past two decades.  Newsweek doesn’t say WHO has received this wealth, but I suggest it’s the usual suspects.  

Why is one result of this unprecedented creation of wealth a mountain of debt?  Not only in the US where debt at all levels is astronomical:  municipal and state governments, corporate, personal and federal but internationally governments have mortgaged their citizens’ futures in order to enrich their leaders.  Mobutu Sese Seko; Ferdinand Marcos, Suhartu, to name just a few.  Countries such as Argentina which sold off their public patrimony – privatized public industries and services – ended up with far greater debt afterwards than before.  Where did the money go??

The US federal debt is now almosty $12 trillion dollars having risen from one trillion in 1981 when Ronald Reagan took office.   The IMF has recently estimated the dollar amount of the drop in values of homes, stocks, bonds --  assets of all kinds --  at $34 trillion.  In 2001 $7 trillion in value was wiped off the NYSE after the dot.com bust.  $34 trillion evaporating in bad mortgages, credit default swaps, collateralized debt obligations, etc.. is a lot of money. 

My point is that through a million small and not so small ways wealth world-wide has been consolidated in the hands of fewer people; the productivity gains of the past two decades have gone to a tiny fraction of the population.   And the rest of the world is left with an economy that is bankrupt, mountains of debt, and an environment that is almost at the tipping point of becoming unsustainable and unviable for humans.  And it has mostly been done legally. 

Expropriation from above is the legal taking of publicly owned resources, industries, services – everything from the oil, gas and coal under the ground to the educational and medical care systems that have been built over decades to the utilities and energy supplies to industries that have benefitted from all kinds of community support, tax incentives, etc.  So the vast wealth of planet Earth that is our habitat and provides for our very life is being legally taken from us – the owners – and monopolized and kept by a few.   How have we let this happen?   WE are the public in public goods, WE have been expropriated and the resources we need to sustain our very lives have been privately appropriated by our very leaders and elites who were to have provided for our well-being.

So globalization has been a giant, legal swindle that has left most of us poorer and a very tiny few of us fantastically richer!

These are not new ideas.  We’ve been swindled by the very people we voted for to represent us and by their friends.  At least fifteen years ago, while Bob and I were living in Connecticut, the playwright Arthur Miller published an op-ed piece in The New York Times saying that we should private Congress.  Senator Christopher Dodd of Connecticut would be renamed the senator from Aetna, for example.  At the time, I wrote Arthur Miller a letter suggesting that we apply the idea of privatization to the US national debt.  The share holders of the arms industry could repay the share of US national debt used to buy arms.  Arthur Miller replied saying it was an excellent idea.  Adding to it, we might consider that the rich pals of George W. Bush who got $3 trillion of tax cuts between 2001 and 2004 could pay retroactive tax-cut repeals.  Maybe the nine mega banks’ 4,793 bankers and traders who received more than $1 million each in bonuses last year could give those “bonuses” back to the US Treasury.  

                                                        August 2009 

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