Politik und Gesellschaft Online
International Politics and Society 3/2000

Peter Wahl
Howard M. Wachtel
Margareta E. Kulessa / Jan A. Schwaab
Barry Bluestone
Heiner Flassbeck
Franz Waldenberger

Kai Hirschmann


Peter Wahl:
Between Hegemonic Interests, Global Governance and Democracy. On the Crisis of the WTO

The failure of the WTO ministerial conference in Seattle was not a one-off "slip-up", but the expression of deeper structural and political problems. The main one is the trend towards the unilateral dominance of the United States. In the case of the WTO, the increasingly manifest US hegemony in all areas since the end of the Cold War has led to a crisis in multilateralism. Since the United States is the only country with the exclusive strategic option of being able to achieve its interests both unilaterally and multilaterally, or in a combination of the two, its own interests are not significantly affected by the failure of Seattle. One sign of this was that, even before Seattle, the United States placed the emphasis on far-reaching liberalization in the services sector. In the light of the revolutionary changes resulting from Internet-based electronic commerce, the US hopes to be able to extend the competitive advantage it already enjoys. Amongst other things, the liberalization of services aims to open up sectors like education and health, which in Europe have traditionally been in the public sector, for American firms. The position with regard to the liberalization of audio-visual services is similar. In the view of the United States, the WTO is far too cumbersome an instrument for agreements in this area. The increasing rivalry between the United States and the European Union is causing a blockade of the WTO, and the situation is exacerbated by the growing conflicts of interests between industrial and developing countries. The structures of the WTO are not able to deal with this in a democratic manner. For example, a lack of money is preventing many developing countries from participating adequately. Furthermore, the complexity and pace of negotiations in the WTO is creating a structural dilemma between efficiency and democracy. The inclusion of groups from civil society will not produce any solution to this problem. It is therefore necessary to devote greater thought to concepts of decentralization and regionalization. The developing countries have so far been the losers of liberalization and deregulation. The externalization of "non-trade concerns", like the environment, consumer protection and social issues, is resulting in a loss of public acceptance of globalization in many industrial countries as well. This could prove to be the most important factor in the crisis affecting the future of the WTO.



Howard M. Wachtel:
World Trade Order and the Beginning of the Decline of the Washington Consensus

The term “Washington Consensus” emerged in the 1990s to denote the triumphant role of markets in organizing economy and society and the dominant position of United States’ policies in promoting marketization throughout the world. Appearing after the end of the Cold War and the collapse of non-market systems, the Consensus differed from a more general deference to markets in organizing economies in that it claimed jurisdiction over a broader set of non-economic aspects of society and a supremacy over economic affairs that denied a refereeing role for the political system. It appeared most aggressively in the international economy of trade, investment, and finance. At the turn of the twentieth century we are witnessing the first fractures in the Washington Consensus. The flashpoint for emerging debates has been the arena where the Consensus was most sharply codified: in international trade and investment organized within the World Trade Organization (WTO). Two opposing groups have emerged, one from the Third World and one from the G-7 countries, united only in their opposition to the present structure of the global system as represented by the triad of WTO, World Bank, and IMF. The WTO embraces only one legal principle – the commercial, which requires goods and services to move freely across and within borders of countries with no restrictions. Environmental laws have been interpreted as being incompatible with this commercial principle and by extension the same can one day happen to labor laws, since the only legally binding regime is the commercial. Labor and environmental groups in the G-7, therefore, want specific provisions for labor and environmental rights in the WTO’s legal structure. 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 a  problem of phasing in liberalization. Import liberalization can be directly controlled but export markets take more time to develop and are less assured. By seriously addressing Third World concerns about market access G-7 countries could muster the support needed for incorporating labor and environmental standards into the WTO structure and, thus, reconfirming peoples’ right to politically shape their affairs rather than surrendering them to the market. These are the first steps. In the longer run, a comprehensive discourse over globalization and its discontent should lead to a new social contract, one that is integrated with new economic realities.


Margareta E. Kulessa / Jan. A. Schwaab:
Concepts to "Ecologize" International Trade and Economic Policy

In the process of globalization, national policies to protect the environment are in danger of becoming less enforceable and less effective. In order to compensate for this, international economic and environmental policies need to be better integrated. If such integration is to work in the long term, it needs to be institutionalized. A whole range of proposals have been developed which aim to "ecologize" international economic relations. Some of them involve considerably greater risks than opportunities, both in environmental and in economic terms. Others, if properly designed, do seem to offer suitable ways to make a contribution towards global sustainability. Much public attention is focused on the "ecologization" of the world trade system. This process has begun, but is making slow progress, not least due to conflicting interests of industrial and developing countries. But even if individual countries are given greater scope to restrict international trade in order to safeguard environmental policies, this will only be of limited benefit to the environment. Overall, it is more effective to conclude multilateral agreements on specific environmental problems (such as the conventions on biodiversity, the protection of the world’s ozone layer or "trade" in toxic waste) and to bring these into line with the world trade system. The competition to attract business and investment chiefly takes place within the continents and the triad of industrial nations. This creates scope for international environmental policy, which is not primarily global, but rather regional or plurilateral, in nature. Since a large proportion of imported goods, and almost all inward investment from abroad in the "South" comes from the "North", the latter can make a significant contribution towards a viable economic development in the "South" by disseminating comparatively environmentally friendly products and technologies and by playing a pioneering role, without running the risk of restricting the opportunities for development through environmentally motivated protectionism.



Barry Bluestone:
The Battle for Growth with Equity in the 21st Century

America seems to be mapping out the road to success for the other industrial countries. Its growth has averaged 4.3 % p.a. since 1995. Unemployment has fallen to its lowest level for decades. Yet prices have remained generally stable. The following explanation is usually given for this phenomenal recovery of the US economy after some 20 very weak years: spending discipline has cut the public-sector deficit and has thus created scope for higher private-sector demand for goods and credit. The resulting lower interest rates have fostered productive investment. This in turn has boosted both production capacity and productivity. Inflation had already been defeated – by an uncompromisingly stability-oriented monetary policy, but also by the freeing up of the labor market from rigidities deriving from trade unions and the welfare system, and by the systematic opening up of the US market to cheap imports (NAFTA, GATT process). Low inflation and low interest rates unleashed the spectacular boom on the stock markets which in turn fuelled both investment (and thus, again, the rise in productivity) and consumer demand. The consequence: higher profits, fresh investment, rising share prices – a virtuous circle. This explanation is dubbed the "Wall Street model". But the explanation is wrong. The actual causes of the American economic miracle of the 1990s lie elsewhere: it started from the rise in productivity which was finally made possible, after a long period of learning, by the ground-breaking inventions in data processing. These inventions have their origins in government-funded research and development in the 1960s, 1970s and 1980s. The acceleration in productivity gains after two decades of relative stagnation made inflation-free growth possible. It is to the credit of US monetary policy that it recognized this potential and did not step prematurely on the interest-rate brakes. But neither the reduction of the government deficit nor the flexibilization of the labor market nor the high share prices are causally connected to the economic boom of the 1990s. Instead, the high share prices result from the massive productivity gains and the related – actual and anticipated – increases in profits. However, a continuation of the high level of economic growth – disregarding normal cyclical downswings – is imperilled. The output of further technological breakthroughs, on which future productivity gains depend, threatens to dry up, because the state is drastically cutting down on its investment. It is adhering to the mistaken dogma that a balanced budget is good per se, and budget surpluses even better. Also, it is important for the expansion in demand, which necessarily has to go hand in hand with an expansion in the production potential, to be secured by a rise in wage incomes. At present, it is still over-dependent on the highly uncertain wealth effect of rising share prices. Ensuring demand by increasing wages would also be a precondition for a lasting improvement in the distribution of incomes.



Heiner Flassbeck:
Wanted: An International Exchange Rate Regime
The Missed Lesson of the Financial Crisis

The world financial crisis is over – but all the problems remain. After the devaluation of the currencies of most of the Asian countries and Russia the acute symptoms of the crisis are gone. But the underlying problems of the world monetary system have not been treated properly. The weakness of the Euro and the strength of the Yen in the first months of the year 2000 reveal that there are again huge misalignments between the major currencies which may spill over into the emerging markets. Short-term capital flows to the weakest countries are piling up again. The next crisis is just a question of time. When it occurs the Western world will be as unprepared as it had been in 1997. There have been many international meetings but international economic policy has been unable to come up with solutions for an adequate exchange rate regime for small open economies as well as for the major players. The dominance of the „market“ as the global symbol of wisdom and efficiency has prevented an adequate assessment of what has happened in Asia and elsewhere. According to the US-Administration and the IMF, the attempt of governments to be better than the market and thereby fixing their exchange rates instead of leaving them to the knowledge and the forecasting power of exchange markets has been at the root of the trouble. But it was just the other way round: The decision of so many governments in Europe and Asia to abandon the market solution and to find ways to stabilize the external value of money by means of an anchor approach was  the result of many frustrating experiences to cope with the volatility and irrational movements of flexible exchange rates. The anchor approach did prove dangerous because of its built-in incentives for short-term, quickly reversible, capital inflows and its tendency towards real appreciation of the domestic currency. But to recommend to these countries now just to return to the „solution“ the failure of which had been the reason to switch to the anchor approach at the first place is as just as dangerous.


Franz Waldenberger:
From Corporatist to Market Capitalism?
Japanese and German Systems of Corporate Governance Facing a Changing Environment

Both in Germany and Japan, concerns of labor used to carry much weight in management decisions. This management style faces a changing environment to which it must respond. But the conclusion that it will have to be replaced by a shareholder orientation of management is too simplistic. The stakeholder-shareholder dichotomy does not capture the essence of corporate governance. The main task of corporate governance systems is to protect the interests of the various parties that participate in the process of value creation in private enterprises. Observed national differences result from the use of different protection mechanisms. Companies in the US or the UK rely more on (labor) markets as a means of protection whereas Japan and Germany have in the past emphasized the explicit commitment by management to protect employees’ income interests. This commitment was supported by stable relationships with major equity owners and banks. Without these stable relations on the capital side, management could not have made a commitment to the protection of employee interests. The German and Japanese choice was both dictated and supported by a late-comer position in the process of industrialization. In order to catch up, firms had to invest in the human capital of employees. As a result, labor qualifications were to a large extent firm-specific which meant that the respective income interests were not protected by an external labor market. Instead, they had to be protected by an explicit commitment on the management side. The exploitation of the growth potential associated with the late-comer position allowed German and Japanese companies to conciliate conflicting labor and capital interests. At the present level of economic development, conflict resolution through growth is no longer an option that is available nation-wide. In most industries, management will no longer be able to commit itself to the protection of qualified labor. In Germany, external markets for qualified labor have basically taken over the protection function. In Japan, such markets are still underdeveloped, which explains not only the strong reluctance of Japanese management to lay off qualified personnel, but also the great difficulties the Japanese economy faces in coping with structural change in the 1990s.

Kai Hirschmann
The Changing Face of Terrorism

Although terrorism today is still mainly a „game of bomb and gun“, it has been „enriched“ by new forms and new actors. In contrast to the typical terrorist group of the past, today's terrorists are part of amorphous, indistinct organizations, operate on a linear rather than a hierarchical basis, have less easily defined or identified objectives, are more willing to inflict indiscriminate mass casualties and claim credit less frequently than they did in the past. Moreover, today's terrorists are operating increasingly on an international level, not just in one region or country. World-wide networks are rooted in transnational migrant communities. Connections with international organized crime can be found. As far as motivation is concerned, new kinds of discontent have emerged in the wake of post-Cold War political change but also in the wake of globalization and cultural change. Today, almost a quarter of the terrorist groups active throughout the world are motivated by religious concerns. A new kind of terrorism is related to single issues such as animal rights, environmentalism or the fight against abortion. Another new phenomenon is the private „Bin-Laden-type“ terrorist, who combines large personal financial resources with extremist political or religious beliefs. The prospect that terrorists might get hold and make use of nuclear, chemical and biological weapons has attracted much attention. But while it is well possible that terrorists acquire such weapons it his highly unlikely that they will be able to inflict mass casualties with them. Enhanced conventional devices such as explosives appear potentially rather more effective. But even without mass casualties does the use of ABC weapons suit the central purpose of terrorists, i.e. attraction of public attention, extremely well. But terrorist attacks with chemical and biological weapons appear more likely than nuclear  attacks. However, the most potential of all lies with „cyberterrorism“, i.e. the disruptive interference with computer-controlled public or private operations, such as air-traffic control, food processing, financial transactions or telecommunications.

© Friedrich Ebert Stiftung | net edition malte.michel | 7/2000