Global free trade, multinational corporations and an international financial system are bad for democracy, for communities, for ordinary citizens and for the environment.
Here is an agenda, a manifesto to restore sustainable economic order.

THOSE OF US WHO seek to intervene in policy debates in favour of economic justice and environmental sustainability are regularly assured by the world's power brokers that they are fully committed to these goals as long as economic growth and the expansion of free trade are not compromised by governmental restraints on the market. So sacred have growth and free trade become in our modern culture that only rarely do we find the courage to ask why they should be given precedence over the needs of ordinary people and nature. Indeed, why should we consider accelerating growth and trade to be of any importance at all unless it could be proved that they serve people and nature?

When the proponents of growth, market deregulation and free trade tout their benefits, it is well to remember what some of the most outspoken of these proponents really have in mind. Take this account from a recent issue of Forbes magazine. "As disillusion with socialism and other forms of statist economics spreads, private, personal initiative is being released to seek its destiny. Wealth, naturally, follows. The two big openings for free enterprise in this decade have come in Latin America and the Far East. Not surprisingly, the biggest clusters of new billionaires on our list have risen from the ferment of these two regions. Eleven new Mexican billionaires in two years, seven more ethnic Chinese."

Taking a slightly more populist view, Business meek presented its own special report entitled "A Millionaire a Minute", providing this breathless account of what the free market has accomplished in Asia. "Now East Asia is generating its own wealth on a speed and scale that probably is without historical precedent. The number of non-Japanese Asian multi-millionaires is expected to double to 800,000 by 1996. East Asia will surpass Japan in purchasing power within a decade. There are new markets for everything from Mercedes Benz cars to Motorola mobile phones to Fidelity mutual funds. To find the nearest precedent, you need to rewind US history 100 years to the days before strong unions, securities watchdogs and antitrust laws."

Neither article made more than passing reference to the 675 million Asians who continue to live in absolute deprivation. So there we have it. In the eyes of two leading business journals, economic success is about creating millionaires and billionaires by denying workers the right to organize independent unions and giving free rein to securities fraud and the extraction of monopoly profits.

Everyone is aware that we live in an unequal world. Few realize, however, just how extreme the inequality has become or how fast the gap between the poor and the super-rich is growing. Forbes tells us the world now has 358 billionaires. Their combined net worth exceeds the combined net worth of the world's poorest 2.5 billion people. This is but one manifestation of the extreme economic and social distortions created by the globalized free-market economy idealized by business publications such as Forbes and Business Week.

EVIDENCE IS MOUNTING that economic growth and free trade are not leading us toward economic justice and environmental sustainability. To the contrary, they are taking us in the direction of increasing economic injustice and environmental unsustainability. The debates over jobs versus the environment miss a basic point. Assuring everyone the means to meet their basic needs and achieving a sustainable balance with the environment are mutually supportive goals. Indeed, there are powerful theoretical arguments why, in a resource-scarce world, neither is possible without the other.

There is, however, an irreconcilable conflict between the goal of creating economically just and environmentally sustainable societies and embracing sustained economic growth, unregulated markets, and free trade as the organizing principles of public policy. The resulting policies are well suited to producing more millionaires and billionaires. They are ill suited to achieving justice and sustainability.

The money game

In truth the world is not ruled by the giant global corporations. Rather it is ruled by a global financial system that is running out of control.

Each day half a million to a million people - primarily Western Europeans, North Americans and Japanese arise as dawn reaches their part of the world, turn on their computers, and leave the real world of people, things and nature, to immerse themselves in playing the world's most lucrative computer game: the money game. As their computers come on line, they enter a world of cyberspace constructed of numbers that represent money and complex rules by which those numbers can be converted into a seemingly infinite variety of financial instruments, each with its own distinctive risks and reproductive qualities. Through their interactions, the players engage in competitive transactions aimed at acquiring for their own accounts the money that other players hold.

Players can also pyramid the amount of money in play by borrowing from one another and bidding up prices. Indeed, the money game players have been so successful in creating play money that for every $1 now circulating in the productive world economy of real goods and services, it is estimated that there is $20 to $50 circulating in the world of pure finance - "investment" funds completely delinked from the creation of real value. In the international currency markets alone, some $800 billion to $1 trillion changes hands each day, unrelated to productive investment or trade in actual goods and services.

Not only is the money game challenging and fun, the play money it generates can be exchanged for real money to buy things from people who work in the real world - lots of things. Unfortunately for the rest of us, though it is played like a game and the transactions involve nothing more than moving numbers from one electronic account to another through a global web of computers, the money game has enormous real consequences. Take the recent Mexican peso crisis as an example.

Mexico became touted as an economic miracle by attracting $70 billion in foreign money over five years with high interest bonds and a super-heated stock market. As little as 10% of this money went into real investment. Most of it financed consumer imports, capital flight, and debt service payments. It also helped to create twenty- four Mexican billionaires. The bubble burst in December of 1994 as the hot money flowed out. Mexico's stock market and the value of the peso plummeted. The resulting Mexican austerity measures and a shifting terms of trade between Mexico and the United States resulted in massive job losses on both sides of the border. US president Clinton put together a $50 billion bailout package at taxpayers expense to assure that the Wall Street firms that held Mexican bonds would be repaid. The new link between the dollar and the peso made currency speculators nervous and the value of the dollar fell sharply against the yen. Not a penny of the bailout money went to the 750,000 Mexicans who would be put out of work by government imposed austerity measures or the million Americans expected to lose their jobs to NAFTA by the end of 1995.

These are real world consequences of an out-of-control financial system in which reckless young traders backed by the massive financial assets of leading private financial institutions send billions of dollars sloshing around the world in a high-stakes gambling frenzy with an almost complete absence of oversight.

At Kidder Peabody, a major US investment house, a lone trader reported $1.7 trillion in phoney trades over a period of 21/2 years before his superiors noticed anything amiss. During this period he claimed he had earned the firm $350 million in profits, for which he was rewarded with an $11 million bonus. Only later was it found that he had in fact lost the company $85 million on the few trades he had actual made.

In one month a twenty-eight-year- old trader at Barings bank lost $1.3 billion on had derivatives bets and forced a venerated 233-year-old bank into bankruptcy.

The global financial system is wildly out of control and no one is tending the store.

Socializing costs and privatizing gains

In a deregulated global market economy global corporations are accountable to only one master, a rogue global financial system with one incessant demand - keep your stock price as high as possible by maximizing short term returns. One way to do that is to shift as much of the cost of the corporation's operations as possible onto the community. The pressures involved make it almost impossible to manage a corporation in the larger community interest. Indeed, any publicly traded corporation that attempts to manage its assets responsibly will almost certainly be bought out by a corporate raider.

Take the case of Pacific Lumber Company. It pioneered the development of sustainable logging practices on its substantial holdings of ancient redwood timber stands, provided generous benefits to its employees, fully funded its pension fund, and maintained a no lay-offs policy during downturns in the timber market. This made it a good citizen in the local community. It also made it a prime takeover target. Corporate raider Charles Hurwitz gained control in a hostile takeover. He immediately doubled the cutting rate of the company's holding of thousand-year-old trees, reaming a mile-and-a-half corridor into the middle of the forest that he jeeringly named "Our wildlife- biologist study trail".

He then drained $55 million from the company's $93 million pension fund and invested the remaining $38 million in annuities of the Executive Life Insurance Company, which had financed the junk bonds used to make the purchase - and subsequently failed.

Turning reality on its head, corporate raiders refer to this process of pirating a firm's assets as 'adding value".

Once upon a time local communities looked to corporations as sources not only of jobs, but also of tax revenues to help cover the costs of essential local infrastructure and public services. For example, in 1957, corporations in the United States provided 45% of local property tax revenues. By 1987 their share had dropped to about 16%.

Indeed, local governments are now forced by the dynamics of global competition not only to give most large corporations tax breaks, but also to directly subsidize their operations with public funds.

The state of South Carolina in the United States has been warmlv praised by the business press for its successful competitive bid for a new BMW auto plant. The company was attracted in part by cheap, non-union labour and tax concessions. In addition, when BMW said it favoured a I ,000-acre tract on which a large number of middle-class homes were already located, the state spent $36.6 million to buy the 140 properties and leased the site back to the company at $1 a year. The state also picked up the costs of recruiting, screening and training workers for the new plant, and raised an additional $2.8 million from private sources to send newly hired engineers for training in Germany. The total cost to the South Carolina taxpayers for these and other subsidies to attract BMW will amount to $130 million over thirty years.

THIS IS WHAT GLOBAL competition is really about local communities and workers competing against one another to absorb ever more of the production costs of the world's most powerful and profitable corporations.

Another tactic for externalizing costs is through "downsizing" a process by which the US Fortune 500 companies reduced their total employment by 4.4 million jobs between 1980 and 1993 - a period during which their sales increased by 1.4 times, assets increased by 2.3 times, and CEO compensation increased by 6.1 times. Some observers claim that downsizing means the largest corporations are losing out to smaller, more agile and competitive enterprises. The claim has as much substance as the claim by tobacco company executives that cigarettes are not addictive.

While the giants are shedding people, they are not shedding control over money, markets, or technology. The world's 500 largest industrial corporations, which employ only five hundredths of 1% of the world's population, control 25% of the world's economic output. The top 300 trans-nationals, excluding financial institutions, own some 25% of the world's productive assets. Of the world's one hundred largest economies, fifty are now corporations - not including banking and financial institutions. The combined assets of the world's fifty largest commercial banks and diversified financial companies amount to nearly 60% of The Economist's estimate of a $20 trillion global stock of productive capital.

Concentration of control over markets is proceeding apace. The Economist recently reported that in the consumer durables, automotive, airline, aerospace, electronic components, electrical and electronics, and steel industries the top five firms control more than 50% of the global market, placing them clearly in the category of monopolistic industries. In the oil, personal computers and media industries the top five firms control more than 40% of sales, which indicates strong monopolistic tendencies.

Downsizing is really about consolidating the firm's monopoly control of markets, technology and money in a small, well-paid headquarters staff. Everything else is contracted out to smaller firms that are forced into intensive competition for the firm's business. The contractors - commonly located in low-wage countries - compete by hiring workers at substandard wages under often appalling working conditions.

For example, the popular Nike athletic shoes that sell for US$73 to $135 around the world are produced by 75,000 workers employed by independent contractors in low-income countries. A substantial portion of these workers are in Indonesia - mostly women and girls housed in company barracks, paid as little as fifteen cents an hour and required to work mandatory overtime. Unions are forbidden and strikes are broken up by the military. In 1992, Michael Jordan reportedly received $20 million from the Nike corporation to promote the sale of its shoes, more than the total paid to the Indonesian women who made them.

An unregulated global market is shifting the financial rewards away from those who do productive work to those who control money and are successful at convincing people to buywhat they do not need and often cannot afford. This goes to the heart of growing income disparities around the world.

THE WORLD'S MOST powerful corporations are also active in shaping public policy in ways that virtually force us into a pattern of over consumption that yields large profits to themselves at the expense of our quality of living. Evidence is mounting that to make our societies sustainable we will have to restructure our systems of production and consumption to largely eliminate:

Dependence on personal automobiles;

Long distance movement of goods and people;

The use of chemicals in agriculture; and

The generation of garbage that we cannot immediately recycle.

In each instance, we have an opportunity to increase substantially the quality of our living while reducing our burden on the environment. Why aren't we doing it? Who wants to give over their living spaces to automobiles, take long business trips, eat contaminated foods, or live in a garbage dump?

One important reason we live this way is because it is profitable for politically powerful corporations. For example, the steel, automobile, construction, and oil companies have a major stake in policies that make survival without an automobile nearly impossible in most of our towns and cities. Chemical and agribusiness companies have had a similar stake in maintaining chemical and energy intensive agriculture systems that provide us with foods of dubious nutrition, laced with poisons. Other industries benefit from encouraging our use of excessively packaged low-durability products. So long as these corporate interests are allowed to dominate public policy processes, change is unlikely.

A Common Sense Citizen Agenda

So how do we bring this system under control? Needless to say, it hasn't been easy to create an economic system able to produce 358 billionaires while keeping another 1.3 billion people living in absolute deprivation. It took long and dedicated effort by legions of economists, lawyers, and politicians on the payrolls of monied interests to design and implement such a system. It required a radical altering of the dominant culture and the restructuring of many important institutions. It will take a similarly committed effort on the part of civil society to design and put in place an economic system supportive of economic justice and environmental sustainability.

To reclaim our economic spaces, we must first reclaim our political spaces from the corporations and other big money interests that control them. This will require far more than incremental or marginal changes. The following are among the obvious but ambitious measures probably required.

Prohibit political advertising on television. TV political ads are far more often misleading than informative, extremely expensive, discredit the political system, and give money inordinate power in deciding elections. In their stead, electronic communications media that enjoy access to the public airwaves should be required as part of their public service obligation to provide ample time for debates, interviews, and round tables with political candidates -- thus giving the public in-depth exposure to their ideas and personalities.

Place strict limits on individual campaign contributions. The principle of democracy is one person one vote, not one dollar one vote.

Place strict limits on campaign spending. We want to know what a political candidate can do with a limited budget, not how effectively he or she can manipulate us with large amounts of money.

Strip corporations of their fictitious human rights. Take appropriate legislative action to put aside the legal fabrication, created by a corrupted court system, that corporations have the same rights as individuals. Only living things have natural rights.

Get corporations entirely out of politics. Corporations are public bodies created by public charter to serve a public purpose. It is the responsibility of the corporation so created to obey the rules that people chose to set for them, not make the rules. Therefore, corporations should be barred from making political contributions of any kind. Indeed, they should also be barred from any involvement in politics and political advocacy - including the solicitation of their employees, shareholders, sales outlets and suppliers to make either political contributions or representations on political or public policy matters.

Corporate charitable contributions should also be prohibited in recognition of their widespread abuse to advance corporate political aims. The corporation's workers and individual shareholders not corporate management should make their own decisions as to how their shares of corporate income will be allocated for political and charitable purposes.

Eliminate the concentration of media ownership. To avoid concentration of media power and assure a diversity of political voices, the communications media should be subjected to strict provisions prohibiting any single individual or corporation from owning more than one major electronic or print media outlet. This would both increase the diversity of independent editorial voices and strengthen competition in the media industry.

Take back the corporate charter.
Facilitate citizen action to withdraw the charters of corporations that demonstrate disregard for the law or otherwise fail to serve the public good.
Reclaiming our Economic spaces. One of the fundamental points on which Adam Smith and Karl Marx agreed is that workers should own their means of production. Though not widely noted, in the small enterprises of Adam Smith's ideal economy the worker was generally also the owner and manager. Furthermore, Smith assumed that enterprises would be locally owned and that their owners would thus be embedded in a framework of local community values and interests. While Smith believed in the benefits of trade, he considered it logical that most markets would be local because of the costs and uncertainties of trading with foreign lands. He took an especially dim view of large corporations with absentee owners that used their political and market power to extract monopoly profits.

Our present globalized economic system affirms much of the wisdom of Smith's vision. The more economic power becomes highly concentrated and detached from any local interest, the more surely it is used to benefit the power-holders at the expense of larger community interests.

If we intend that markets allocate resources efficiently in the public interest, then we must restructure them to fulfil the appropriate conditions much as Smith defined them. Thus, it will be necessary to break up large concentrations of economic power, re-establish the connection between investment returns and productive activity, create incentives for producers to internalize their costs, and root the ownership of capital locally in people and communities engaged primarily in local production to meet local needs. It will also be necessary to reduce and slow international financial flows, deflate the global pool of extractive capital, and favour long-term over short-term investment.

The needed restructuring is appropriately guided by a vision of a global system of localized economies that reduce the scale of economic activity and link economic decisions to their consequences. Working out the details of an appropriate policy agenda will require our best minds and substantial experimentation. The following are some of the measures that should be considered.

A 0.5% financial transactions tax
on the purchase and sale of financial instruments such as stocks, bonds, foreign currencies and derivatives, to discourage short-term speculation and arbitraging.

A graduated surtax on short-term capital gains to make most speculation unprofitable, stabilize financial markets and lengthen investment perspectives without penalizing long-term productive investment. The surtax on the sale of an asset held less than a week might be as high as 80%.

A 100% reserve requirement on demand deposits to reduce the ability of the financial system to create money by pyramiding loans. This would make it possible to restore the connection between the creation of money and the creation of wealth.

Preferential treatment of community banks. Governments should guarantee only deposits placed in unitary community banks that channel the majority of their funds back to the community.

Rigorous enforcement of anti-trust laws to break up concentrations of corporate power. Buy-out and merger proposals should be subject to intensive and skeptical governmental review, with the burden of proof resting on the proposing party to show that the proposal will advance the long- term public not just short-term investor interests.

Worker and community buy-outs.
Before a major corporation is allowed to close a plant or undertake a sale or merger, the affected workers and community should have a legal right of first option to buy out the assets on preferential terms. The terms should reflect the workers' years of personal investment of their labour in the company and the collective investment of the local community in public facilities that have made its local operations possible.

Bankruptcy rules should be structured similarly to give employees and communities a buy-out option. Similarly, when a company is required to divest parts of its operation under antitrust, employees and/or the community should have first option to buy the divested units. Government oversight should assure that such buy-outs are structured so that workers and/or communities have real control. Rules governing company pension funds might be revised to allow their use by employees to purchase voting control of their firm's assets.

Tax shifting. Corporate tax law should be revised to shift taxes from things that benefit society, such as employment employer contributions to social security, health care, and worker compensation in favour of taxing activities that contribute to social and environmental dysfunction such as resource extraction, packaging, pollution, energy use, imports, corporate lobbying and advertising.

Annual profit payout. Corporate income taxes should be eliminated simultaneously with the introduction of a requirement that corporations pay out their profits each year to their shareholders. These profits would thus be taxed as shareholder income at the shareholder's normal marginal rate. Corporations would then have no incentive to shift profits around the world to the jurisdiction with the lowest tax rate. Interest payments on debt financing would come directly out of profits, rather than out of taxes, thus discouraging the use of debt financing and making most corporate buy-outs unprofitable.

Corporate subsidies. Welfare reform should give top priority to getting dependent corporations off the welfare rolls.

Intellectual Property. The appropriate purpose of intellectual property rights protection is to provide incentives for research and creative contribution, not to create protected information monopolies. Intellectual property rights should be defined and interpreted narrowly and granted only for the minimum period of time necessary to allow those who invest in research to recover their costs and a reasonable profit. The patenting of any life form or genetic process, any discovery funded with public monies, or any process or technology that gives the holder effective monopoly control over a type of research or class of products should be precluded by law.

Advertising. Those forms of advertising that serve to encourage consumption rather than simply inform prospective customers regarding the availability and specifications of products should be banned. This will at once eliminate an important market advantage of large corporations and remove an important underpinning of the consumer culture.

Economic equity and security

Inequality makes it possible for those with economic power to pass the costs of their unsustainable consumption onto the economically weak and encourages extravagant consumption by the few. Economic insecurity creates a significant incentive for individuals to accumulate wealth beyond their real need. Public policies that favour economic equality and assure basic economic security should move us toward sustainability as well. Appropriate measures may include:

A guaranteed income sufficient to meet basic subsistence needs;

Highly progressive income and consumption taxes on levels of income and consumption above those required to comfortably meet basic needs;

Taxation of inheritance income should be at the same rate as any other income, to avoid creating a perpetual privileged class and provide an incentive for the offspring of wealthy families to make their own creative contribution; and

A reduced working week to allocate available paid employment equitably.

International reforms

A number of reforms are required at the global level to remove important sources of injustice and restrain the power of transnational capital. These include:

Eliminating international debts of low income countries. The public international debts of low income countries should be eliminated through a two-step process. Odious debts contracted without public consent or for purposes that did not serve public purposes should be repudiated through appropriate internationally sanctioned legal processes to pass the costs onto the individuals and financial institutions responsible. The remaining debts should be repaid out of an international fund under agreements that preclude recreating them.

Closing the World Bank as part of the plan to end the process of international debt creation. It is time to recognize that creating an institution to increase the debts of poor countries was simply a bad idea.

Placing an international financial transactions tax on all spot transactions in foreign exchange to dampenspeculative currency movements. The funds generated should be used to retire Third World debt and fund the United Nations.

Closing the World Trade Organisation (WTO) and the International Monetary Fund (IMF) and transferring responsibility for international economic management to the United Nations, with the mandate to maintain a balanced and equitable system of economic relationships among nations, that encourages and supports substantial environmental and economic self-reliance. Responsibilities would include negotiating and enforcing agreements establishing standards of conduct for transnational corporations and protecting the rights of all nations to choose with whom they will trade under what terms and to set rules and standards for businesses operating in their jurisdictions. Decision processes should be transparent and open to public participation.

Monitor cross-border environmental flows. Establish an international monitoring system to report imbalances in flows of environmental resources between countries as a step toward limiting the ability of one country to pass the environmental burdens of its consumption to another.

This is an admittedly full agenda. And it is surely incomplete. There is no simple fix. This list is illustrative of the types of measure that must be considered. There is need for a vigorous public debate toward building a broadly based political consensus in support of comprehensive citizen agendas for national and international reforms adequate to the task of building just and sustainable societies for the new millennium.

David Korten is President of the People-Centered Development Forum based in New York and author of the newly released When Corporations Rule The World, published by Kumerian Press and Berrett-Koehler Publishers and distributed in Europe by Earthscan.

Further Reading on Economics

About David C. Korten

When the Corporations Rule the World

Economic Miths

Assault of the Corporate Libertarians

The Betrayal of Adam Smith

An Economic System Out of Control

Markets are for People

A Citizen Agenda

Money vs Life

The Global Citizen: by Donella Meadows

Environment and Development: Macroeconomic Issues

Ending Corporate Governance: Revoking our Plutocracy

Corporate Rule

Return to Combustion in the RainForest

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