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Politik und Gesellschaft
Online International Politics and Society 3/2000 |
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Howard M. Wachtel World Trade Order and the Beginning of the Decline
of the Washington Consensus It is fair to say the Washington Consensus evinces some
signals of decay, a very early state of fragmentation, a fraying of
its force at the edges without any significant challenge to its core
principles, at least among opinion leaders and policy makers in the
United States. Both major political parties support the consensus wholeheartedly.
With rare exceptions, such as the former chief economist of the World
Bank, Joseph Stiglitz, all those with access to the media and opinion
formation look upon dissenters as strayers from the fold of free trade,
closet protectionists at best, and at worst proponents of a return to
some dreaded world that is characterized as revanchist, reactionary,
and that most damning epithet of all: populist. Nevertheless, we can mark the century’s turning
as the beginning of the decline of the Washington Consensus. What is the Washington Consensus
How does the Washington Consensus differ from a more
general deference to markets in an economy that predates this 1990s
phrase? It differs in three ways. First, it appears at the end of the
Cold War and carries with it a sense of triumphalism that adds a dimension
of hubris – a celebratory lap around the track after a victory in the
marathon that lends an air of ideological certainty to what had previously
been one of assurance but tempered by restraint. Coupled with the apogee of globalization that had started
some two decades before, the Washington Consensus secondly extended
the affirmation of markets beyond the economy to a wider range of society’s
activities, heretofore subject to economic as well as other forces,
and to all societies, those in transition from central planning and
to those in transition from etatist modes of economic organization.
Markets became not just one of several instruments to achieve economic
and social objectives but the only instrument. They became transcendent,
over-riding boundaries established by the political process, answerable
neither to a public through the political process nor to civil society.
Markets set the rules and enforced them, as if a football match was
played by the rules established by the players and the referees answered
to the players not to an independent authority. It is this transcendence
of markets, its application beyond what had previously been defined
as the limits of its jurisdiction to non-economic aspects of society,
and the absence of a „neutral“ refereeing process that separates the
1990s version of markets from its predecessors. Thirdly, the place where this appeared most aggressively,
and in a form that can be described as bordering on revolutionary, was
in the international economy of trade, investment, and finance. Here
markets began to tear down what had been defined borders, regulated
by states in a blend of market and political forces. The free trade
argument directly and concretely challenged the sovereignty of countries,
their authority to regulate borders, evoking a confrontation between
nation states and markets, where the market position was represented
by the Washington Consensus. It
is not surprising, therefore, that the manifest clash between the Washington
Consensus and its doubters has occurred in the World Trade Organization
(WTO), precisely in this arena where a new globalization has organized
the world economy around markets and by extension imposed that organization
inside countries. The newly framed argument of „free trade“ – which differed from the way this term had
been used since the first quarter of the nineteenth century – was used to pry loose from a blended regulation
of markets and governments not only the movement of goods and services,
but capital movements, intangible intellectual property such as patents
and trademarks, and the movement of money and finance. Encouraged by
technological transformations in information systems, communications,
and transport, the carrying capacity of an open and publically unregulated
global economy was offered as a solution to virtually every economic
and social problem that existed and in virtually every type of economy,
those in transition, newly industrializing economies, the poorest or
the poor, as well as the most advanced industrial economies. The Washington Consensus comprised all of these dimensions:
a post-cold war organizing principal, its transcendent and exclusive
reach into nearly all dimensions of economy and society, and its application
in an open global economy to carry all the weight of economic reform
and vitality. The Washington Consensus is under stress not because
of the legitimate brief that can be made for free trade and the globalization
process that underwrites the entire set of ideas behind it. A large
measure of the problem in the debate over free trade as presently conceived
derives from the particular connotation given to the word „free,“ a
specific meaning that goes beyond its original 19th century usage and
that was in vogue throughout most of the 20th century. The debate suffers
from a paucity of language. If one is not a free trader, you must be
a protectionist. Not so. There are numerous shadings in between these
polar positions in which supporters of trade legitimately reside. It
would be useful if we could get beyond a rigid terminology that inhibits
rather than stimulates debate. Perhaps the term, open trade, is a more
effective phrase that could rally disparate sides in the discourse. Globalization and the Washington
Consensus Much the same applies to globalization. Genuine discourse
lies not in defending an extreme position, for or against globalization,
but in working out the numerous and complex arrangements that govern
such a far-reaching institutional transformation. The Washington Consensus,
as a representative of globalization and open trade, likewise has considerable
merits. One only has to live in an economy that has not become part
of the international system to realize how limiting that arrangement
can be. The problem lies in the added evangelical and missionary dimension
that surrounds much of the Washington Consensus advocacy, a new secular orthodoxy which deflects attention from the merits
and demerits of its case. The Washington Consensus became controversial because
it confronted the mid-20th century social contract in the advanced industrial
countries and challenged autonomous paths to development in the Third
World. This challenge was in part a set of conscious decisions but also
was motivated by the technological and institutional changes that fall
under the rubric of globalization. The extent to which it was independently
driven by a new political ideology and the extent to which it responded
to technological and institutional transformations can be legitimately
debated. The response by the political process to globalization, however,
could have taken many turns and was not predetermined. Not only does globalization confront the mid-20th century
social contract and autonomous paths to development, but it erodes the
importance of the nation state, thereby taking on national systems of
social organization and national culture. In this way it is a revolutionary
process that evokes, understandably, sharp resistance. There is a tension
between the unbounded global reach of markets and the bounded territorial
jurisdiction of nation states. The new globalization in every way punctures
the bounded space of the nation state and sets up a conflict over sovereignty.
It establishes an alternative source of reference to that of the national
governing political process.[1] The Washington Consensus lent political muscle
to market challenges to the nation state through international financial
institutions – the World Bank and IMF –
and, most important of all, through the newly inaugurated World
Trade Organization in the mid-1990s. It ratified events on the ground
that had been forged out of institutional, structural, and technological
transformative forces of the past quarter century. The imagery that had been erected in the half millennium
since the advent of the nation state was one of verticality, a series
of vertical borders that figuratively separated one country form another.
The essence of globalization is a set of horizontal functional intrusions
that cut swaths through borders. First financial markets penetrated
„vertical“ borders, then increased trade fostered by a radical reduction
in transportation costs, then foreign investment. Outside of the economic
realm, culture was next, environmental and ecological overlaps, crime,
the movement of larger numbers of people through legal and illegal immigration,
information and telecommunications. In each of these realms the assault
on national borders was nothing new. As Fernand Braudel and the „Annales“
school argues all of this had been going on since the beginning of history.
But what was new was the scale, the scope, the rapidity of movement,
the shrinkage of time and space. It is as if a block of Swiss cheese
stood in for the nation state and small holes previously had permeated
its mass. The functional incursion of globalization makes the holes
ever larger so that at the end they are much larger than the mass, threatening
the stability and structural soundness of the mass itself. When that
happens a threat of collapse and implosion is imminent. This is the
fear that motivated an ill-formed language of dissent, one that tried
to find a voice for saying: „Enough, a pause is needed to take stock
of where we are and what can be done to absorb and assimilate change.“ Antecedents The Washington Consensus predates the 1990s but emerges
at that time with a clear and concise agenda. Its roots go back to the
1980s and the movements for deregulation and privatization, and earlier
to the 1970s with the breakdown of the Bretton Woods system and its
replacement by freely floating exchange rates and unregulated international
financial markets. Applied to the Third World, the foreshadowing of
structural adjustment can be found as early as the late-1970s experimentation
by the IMF with conditional lending to cover emerging Third World debts. The trajectory of the development of a clearly defined
position such as the Washington Consensus follows other long waves in
the development of ideas that shape epochs. Looking back historically,
there are long cycles in the development of ideas that typically lag
technological and structural changes by perhaps as much as a quarter
century. Technological and organization changes that emerged in the
second half of the nineteenth century, for example, only found their
ideological construction at the turn of the century. Economies became
dominated by large-scale enterprises – trusts in the United States and
cartels in Europe – that organized
capital markets on a national basis, from border to border.
It took about a half century, in roughly 25-year intervals, for
the evolution of the 20th century’s economic and social theory to be
framed and subsequently challenged. The period of the 1920s and 1930s
produced sharp debates as between socialists of all shadings, reformers,
and defenders of the existing systems. This period began to produce
the development of the social contract that accommodated and absorbed
the fin de siecle’s transformations, attaining its apogee from around
1950 to 1975. After 1975 the
social contract of the mid-20th century began to atrophy in the face
of a challenge from a new set of organizing principles and ideas following
on a globalization that began about that time. Capital markets extended
beyond borders and became organized on a global stage. We are now witnessing
another evolution of ideas. Presently they are in the earliest phase
of challenge and response. The origins of globalization can be dated from 1971-1973
with the breakdown of the post-World War II Bretton Woods system and
its replacement by free markets in exchange rates and international
finance. Following on this, privatization
and de-regulation became a second tranche in the challenge to the mid-20th
century consensus. This produced a broader assault on etatism and was
affirmed by the collapse of its most extreme form of central planning
and the end of the Cold War. By the 1990s all of this could be cobbled
together into what became known as the Washington Consensus and applied
universally within countries and across nations. At its apogee at the
end of about a quarter century, these ideas appeared to be impregnable
just at the time when they had reached their crest and were open to
debate. It was precisely at this juncture when the Washington Consensus
was formed that it actually began to peak. At its zenith is when it
became open to challenges. However, its proponents mis-read the text and moved even more aggressively to assert
its transcendence. This is where the Consensus began to run into trouble. Fault Lines and Fractures in
the Consensus The first fracture in the Consensus occurred in 1998
when the Multilateral Agreement on Investment (MAI) was defeated. This
was a reach far beyond previous governing structures implanted to support
globalization. It was launched some years earlier within the OECD when
the euphoria of the end of the Cold War, the completion of the WTO agreement,
and the infatuation with the new technologies of globalization appeared
to be unbreachable. By 1998, however, conditions had changed. The MAI
called for significant new intrusions into national sovereignty. It bound signatories to eliminate national laws
that interfered with foreign investments, whether they be environmental,
health and safety, labor, or whatever. This is consistent with the view
that the unique attribute of globalization is
its challenge to the sovereignty of the nation state and not
merely greater quantitative movements of people, goods and services,
and information as it is conventionally presented. With the proposed
MAI the challenge became clearly identified, sharply
delineated, and evocative of a spontaneous response that was able to
penetrate complex formulations to construct an easily understood contest
among ideas. The MAI emerged from secrecy just at the moment when
oppositional forces were forming. Paradoxically, the vehicle for opposition
was one of the signatures of the new global technology: the Internet.
The confidential MAI draft agreement was obtained and sent over the
Internet. NGOs that had been developing their capacities to communicate
over this new technology pounced upon it and disseminated the document
widely. Coalitions of new NGO groupings formed quickly and opened an
Internet campaign that eventually was successful in forcing first Canada,
then France, and subsequently the United States to pull the agreement
off the table. In effect it was annulled before it could be introduced
for ratification. This was the first Internet insurgency. Most importantly, it was the signal moment in the struggle
for ideas because it was the first outright defeat of a globalization
proposal. Coming about a quarter century after the launch of globalization,
it conforms to the long rhythm of the evolution of ideas, their initial
hegemony, and then their contestibility.. The 1999 Seattle meetings of the WTO exposed the fault
lines in the debate over globalization to a public that had been unaware
of the brewing conflict. The birth of the WTO in the mid-1990s introduced
the singular most important and first regulatory institution for the
globalization epoch. It distinguished itself from the GATT, which had
been in existence since 1948, precisely along globalizing lines. Material
produced by the WTO described GATT as a regulatory regime that stopped
at the borders of countries. GATT encouraged countries to lower tariff
and non-tariff barriers to trade, allowing products to enter countries
on equal terms with those produced inside the country. The WTO inserted
itself inside borders to open up trade and it trumpeted this in its
presentation. It set up mechanisms for changing internal policies within
countries that interfered with the entry of products and services, thereby
establishing itself as a regulator
of domestic policies that affect trade. This has been most clearly identified
with patents, trademarks, and copyrights – aspects of intellectual property
– that countries such as India have been required to alter to conform
to WTO requirements. The WTO received vastly enhanced rule-making authority
over an extended jurisdiction that had not been part of the GATT
and included services, intellectual property, agriculture, and
investment. The WTO became the first institution in the new global era
to receive enforcement authority over its decisions. The Washington Consensus was built around the WTO, and
it became the touchstone for a successful export of ideas about the
new global economy. It also became the point of opposition in the Third
World against a globalizing structure which it saw as biased against
its interests in autonomous paths to development and organization of
economy and society. The integration of markets globally carries with
it an integration of policies and prices. Alongside the import and export
of products and services, there is also an import and export of ideas,
policies, regulatory standards for society, a collapse of all markets
into a uniform price, including the „price“ of social norms. This affects
both North and South but in different ways. Two analytical points highlight the chasm that has developed
between defenders of the Washington Consensus and their opponents, one
that affects the Third World and another that impacts on the G-7. For the Third World there is both a timing and control
problem with liberalizing markets and opening them to trade. Imports
grow more rapidly than exports, creating first a
problem of phasing in liberalization. Secondly and related, is
the fact that import liberalization can be directly controlled but exports
are a more elusive target, subject to the whims of competition and access,
and therefore less responsive to market liberalization. Export markets
take more time to develop and are less assured than import markets.
For the G-7 an unstated but principal objective of liberalization
is capital mobility. NAFTA, the WTO, and other Washington Consensus
goals are as much about capital export as product export. The real objective
is access to low-wage, low-tax, and
regulation-free markets in the Third World, not as places to sell products,
but as places to produce products and sell them back to G-7 consumers.
This has led to the advocacy of introducing labor and environmental
standards by trade unions and NGOs in G-7 countries. The WTO represents the tension between a globalizing
process at odds with the nation state and the interests of political
constituencies within nation states that turn to the democratic political
process for attention to their interests. If an international institution
whose decisions are not transparent and open to review can render decisions
at odds with laws passed by national legislatures, then where does sovereignty
reside? With the established democratic procedures of the nation state?
Or with a WTO whose procedures are understood by only a handful of decision-makers?
This is the form in which the issue became joined in the G-7 countries
where an eruption of resistance emerged around issues different from
– and at times diametrically at odds with –
positions taken by Third World countries on the very same issues. In the G-7 countries two sets of concerns set off alarm
bells following on the raising of awareness of sovereignty questions
during the MAI Internet discussions of 1998 and several WTO decisions.
They concerned environmental and labor issues. The U.S. lost decision
after decision within the WTO to Third World countries that challenged
American laws protecting animal species, as
in the Tuna-Dolphin case with Mexico and the Shrimp-Turtle case
with southeast Asian countries. It also lost an environmental case brought
by Venezuela. Europe lost cases to the United States over beef hormone
and bananas, the latter seen as much of a food quality concern as one
that represented preferential treatment for a region that politically
had been assigned special status through a legitimate parliamentary
process. The problem arises with the WTO’s foundation as a legally
binding commercial treaty that embraces one single legal principle:
the obligation of free access to markets. Legal systems always falter
when only one criterion is available to adjudicate disputes. To function
with legitimacy, legal systems evolve multiple principles within a hierarchy
that allows judges to trade off competing maxims, adapting them to the
specific facts of a case. WTO panels do not have such a menu available
to them. Restrained by one single governing ideal, adjudicators of disputes
cannot allow matters such as labor rights, the environment, or other
standards to enter with the exception of the „precautionary principle“
that protects health and safety. For the WTO to evolve as an effective
rule-making body in international trade it requires multiple principles,
with a defined hierarchy but with trade offs allowed depending upon
the facts of the specific case. The Issue of Labor Rights Standards The MAI debate awakened labor to the role the WTO could
potentially play in placing it at an extreme disadvantage with Third
World regimes that did not abide by minimum core ILO (International
Labor Organization) labor standards.
Labor had always been aware of competition from low-wage Third World
countries which it divided into two categories: those that adhered to
the ILO standards, for which competition was legitimate and accepted,
and those that did not, for which low wage competition was seen as prejudiced
against labor. Costa Rica, for instance, that adheres to core labor
standards, is in a different category from a country such as China that
does not. This distinction is important because it has been represented
in many Third World NGO circles that the U.S. and Europe simply want
to use labor standards as a Trojan horse for protection. Not so and
every reputable representative of the labor rights viewpoint distinguishes
between those countries that accept and attempt to apply core labor
standards and those that do not. Labor and environmental interests argued for inclusion
of these markets within the WTO regulatory system. They had been left
out of the several thousand pages that gave birth to the WTO. If there
is to be a WTO that regulates markets across and within borders so as
to optimize trade, then two critical markets such as labor and the environment
cannot be left out, according to this argument. If they are not part
of the system, then in fact trade is not free because the price in a
market such as labor is set by the state and not free. What is different
from a government setting a subsidized price for a finished product
or service, which is forbidden by the WTO, and setting the price for
labor, or establishing conditions that prevent its increase, which by
default is sanctioned by the WTO? For trade to be open, therefore, all
important markets must be open. This applies to labor and environmental
markets the same as it applies to intellectual property or product and
service markets. The appeal is for one of consistency and completeness.
Partially opened markets fall short of free trade.[2]
This point of view does not address those constituencies that want to
abolish the WTO. It is a case for a consistent WTO if there is to be
a global regulatory regime built for international trade. Labor and environmental standards complete the WTO system.
The labor standards are the minimal core worked out by the ILO governing
child labor, freedom of association to form trade unions, prison and
bonded labor, and discrimination. In short, the core principles of the
mid-20th century social contract that is under siege by globalization.
Adopting core labor standards would protect and advantage those Third
World countries that adhere to them and pressure others to meet higher
standards. It would penalize those violators of human rights and assist
those with better human rights records. So the labor standards case
has benefits for both the G-7 and for those Third World countries trying
to advance human rights in their own countries, while isolating the
violators of core labor standards. It would reinforce comparative advantages
associated with lower wages while preventing a race to the bottom that
will only force wages to decline as gross violators of labor standards
impose their wages on Third World countries trying to adhere to labor
rights. There is considerable disinformation about the consequences
of introducing labor rights standards into the WTO. Wage levels would
not be set and would not even be on the table for discussion. All that
would be mandated would be compliance with the minimal ILO standards
that require countries to make progress toward their implementation.
Trade unions would not be required, only that free association be permitted
so that trade unions and collective bargaining have the possibility
of seeing the light of day and states do not stop the process from occurring.
What is at stake is the extension of an open market for labor, as understood
by late 20th century norms, so that all markets have the potential for
transparent competition in an open trading system. Other voices in the Third World are heard less often
but support the inclusion of core labor rights in the WTO. There is
support among the most democratic and dynamic trade unions in countries
such as South Africa, Brazil, Malaysia, and such countries in transition
as the Czech Republic. Over 50 union leaders from Third World countries
took part in the Seattle representations. The President of the International
Confederation of Free Trade Unions – the largest organization of labor
in the world – is Leroy Trotman from Barbados who has led the organization
in support of including core labor standards in the WTO. In 1997 over
100 countries reaffirmed their commitment to these labor standards at
the ILO. „We are not asking for the moon,“ remarked G. Rajasekaran,
general secretary of the Malaysian Trade Union Congress, „but very basic
things. Worker rights that are already universally endorsed, but simply
not enforced.“[3] The ingredients are not terribly difficult to imagine
for a negotiated resolution of the differences between the Washington
Consensus in the WTO, Third World concerns, and the pressure for including
labor and environmental markets. Labor and environmental markets could
be introduced into the WTO structure in return for three points made
by the Third World: ·
a renegotiation of the textile section of the
WTO that accelerates the removal of quotas and binds the G-7 to their
compliance ·
an opening of agricultural markets beyond existing
WTO agreements and binds the G-7 to their compliance ·
additional time to implement changes in intellectual
property and other internal changes in the legal systems in Third World
countries Concluding Remarks All of the forces that massed in Seattle were present
once again in Washington, D.C. in mid-April, 2000 at the annual mid-year
joint meetings of the IMF and World Bank. Another opportunity for a
constructive dialogue was lost. At some point, however, a comprehensive
discourse over globalization and its discontents will commence or the
opposing forces will repeat what
amounts to a form of drive-by road rage. This should lead
to a new social contract, one that builds on the old, jettisoning those
aspects that are retarding of progress while including new forms, and
is integrated with new global
economic realities. A start would have to introduce international labor
and environmental markets into the WTO’s legal regime, followed by tax
changes that restrain the ability of global capital to use lower-taxed
Third World countries to avoid their legitimate tax obligations, and
a new financial architecture suited to the global structure of finance.[4] [1]. See Howard M. Wachtel, The Money
Mandarins. The Making of a New Supranational Economic Order, revised
edition (Armonk,N.Y.: M. E. Sharpe Publishers, 1990). [2]. I have written about this elsewhere: Howard M. Wachtel, „Labor and the
World Trade Organization,“ The
American Prospect (March-April 1998). [3]. Robert L. Borosage, „Who Speaks for the Third World?,“ The American Prospect (January 17, 2000),
p. 20. [4]. See Howard M. Wachtel, „Tobin and Other Global Taxes,“ Review of International Political Economy (forthcoming).
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© Friedrich Ebert Stiftung | net edition joachim.vesper malte.michel | 7/2000 |