Vol. III, Bulletin No. 10. May 14, 1998
A Revelation in Foreign Affairs
Wall Street's Self-Interest in IMF Bailouts
Read the indented paragraphs below, and try to pass a little quiz. Keep these three questions in mind: 1) Is the author hostile to the capitalistic system? 2) Was this critical analysis printed in some kind of far-out publication? 3) Is the analysis "leftist" in nature? Read on:Wall Street has exceptional clout with Washington for the simple reason that there is, in the sense of a power elite a la C. Wright Mills, a definite network of like-minded luminaries among the powerful institutions--Wall Street, the Treasury Department, the State Department, the IMF [International Monetary Fund], and the World Bank most prominent among them.Back to those three questions. (Tip: all three have the same answers.) You scored 100% correct if you answered No to each.
Secretary Rubin [of Treasury] comes from Wall Street; [investment banker Robert] Altman went from Wall Street to the Treasury and back; Nicholas Brady, President Bush's Secretary of Treasury, is back in finance as well; Ernest Stern, who has served as acting president of the World Bank, is now managing director of J.P. Morgan; James Wolfensohn, an investment banker, is now president of the World Bank. One could go on.
This powerful network, which may aptly, if loosely, be called the Wall Street-Treasury complex, is unable to look much behind the interest of Wall Street, which it equates with the good of the world.
This Economist Can't Be Written Off as Left-Wing Critic
The author of those words, Jagdish Bhagwati, a world-renowned economist now at Columbia University, is definitely not hostile to capitalism or globalization. In fact he is one of the world's most eloquent defenders of free enterprise and free trade. The above analysis was published in the May/June 1998 issue of Foreign Affairs, which is an esteemed journal read world wide. (Its Website contains only the following summary of Bhagwati's article: "The logic of free trade does not apply to currency convertibility, as the Asian currency crisis should have made clear.")
The excerpt I quoted puts together information that you can find in bits and pieces in any business publication. But Bhagwati ties them together to show how U.S. financial policies are motivated by the financial self-interest of a select group that he calls "this powerful network," or the "Wall Street-Treasury complex."
His central attack is against a policy currently promoted by this elite--the plan to create an unfettered flow of capital around the world. Bhagwati makes the case that capital mobility must be limited because of the high risk of market turbulence--the kind now disrupting Asia. "Wall Street's financial firms," he writes, "have obvious self-interest in free capital mobility since it only enlarges the arena in which to make money." And Wall Street protects itself by getting IMF bailouts for taking misguided investment risks, as in South Korea.
Meanwhile, U.S. Government Goes To the Aid of Investors in Vietnam
Too bad that Bhagwati doesn't subject other U.S. foreign policies to the same sharp scrutiny. Take President Clinton's granting the Socialist Republic of Vietnam a waiver from a law (the Jackson-Vanik Amendment) that bars normal trade with Communist nations. As part of that deal, a U.S. government agency, the Overseas Private Investment Corporation (OPIC for short), made a "determination" that Vietnam is "taking steps" toward respecting the human rights of its working men and women. That's not true--call it a fudge. Properly lawyered, but still a fudge.
As a result, in spite of Vietnam's bad economic environment--or, rather, because of it--investments approved by OPIC will be protected by OPIC insurance. At least 20 firms have already approached OPIC for help. (OPIC does not reveal the amount of financial exposure that such risky investments creates for OPIC and ultimately for the U.S. taxpayer.) If worse comes to worst, investors will scramble to get a governmental bailout of some kind or other. It's Wall Street protectionism at work in an especially risky corner of the world.(Negotiations for a global investment treaty have gone on since 1995 in the Paris-based Organization for Economic Co-operation and Development. That agency has information on the proposed "Multilateral Agreement on Investment," or MAI, at http://www.oecd.org. For links to background info on MAI, check http://mai.flora.org/library/.)
A Surprising Source Has Warning for WTO
Trade bureaucrats are getting some firm advice from within a leading economics think tank: that they'd better get the World Trade Organization to take some action "against the most egregious violations of labor standards." The advice comes from Kimberly Ann Elliott, research fellow at the Washington-based Institute for International Economics (IIE). She couples it with a warning that the WTO needs to take such action "if for no other reason than to prevent steady erosion of support for the institution."
One specific "short-run" action that Elliott recommends focuses on the present WTO rule that permits countries to restrict the importation of products made with prison labor. "Given the broad consensus that coerced labor is beyond the pale, it might be useful in bolstering the organization's political legitimacy" if the WTO were to clarify that the rule applies to all kinds of forced labor.
Another recommendation covers export-processing zones (EPZs), areas that developing countries set aside for export-oriented factories with special privileges, including exemption from national labor legislation. EPZs are an "obvious area in which trade and labor standards are intertwined," she writes, and the "derogation from national labor (or environmental) standards" should at least be monitored by the WTO.
Elliott also urges the WTO to take two other steps that don't sound very shocking:
Yet thus far the dominant WTO posture has been to ban labor standards completely from its own agenda. But "some action" by the WTO on labor standards, Elliott writes, "could be both economically efficient and politically wise."
- "appoint a work committee on trade and labor standards to make proposals on how such [EPZ] practices might be disciplined."
- "appoint a study committee to consider the treatment of labor standards in any future negotiation on investment."
Elliott presented her ideas at a mid-April IIE conference in Washington on the Future of the World Trading System. She is working on an IIE trade and labor standards study project in collaboration with a Harvard economist, Richard B. Freeman.
Making Globalization Work for People All OverThe Brussels-based International Confederation of Free Trade Unions has just issued a comprehensive position paper titled "The WTO in the Next Century" for the second ministerial meeting of the WTO in Geneva May 18 to 20.More insights, from a global labor perspective, on the future of the World Trade Organization
The paper is no diatribe against globalization. It acknowledges the benefits achieved from trade growth during the past 50 years since the adoption of the General Agreement on Tariffs and Trade (GATT), the WTO's predecessor institution. But, as the ICFTU points out, globalization also has its downside, including widening inequalities and growing insecurity and tension.
Time for Revitalizing 50-Year-Old World Trading System
The ICFTU urges that the 50th anniversary observance of GATT be a time to "reinvigorate the WTO's work for an open, equitable, transparent, and democratic world trading system that provide a genuine hope for improved living and working conditions for all women and men the world over."
How? In general, by creating "a multilateral framework for core labor standards in the international trading system." Those core standards, embodied in conventions (akin to treaties) of the International Labor Organization (ILO), cover freedom of association, the right to bargain collectively, prohibition of forced labor and child labor, non-discrimination in employment, and equal pay for work of equal value.
More specifically, the first steps recommended by the ICFTU for the WTO are:
Among the specific problems that WTO work programs should address, says the ICFTU, are the "gender implications of trade" and the "inter-relationship between trade and child labor." At present the WTO ignores both these issues. But "hundreds of millions of women work in export sectors or are affected by trends in international trade." Further, "according to the World Bank, there may be more than 15 million children employed in export sectors...certainly an underestimate of the true extent of the problem."
- adopt practical measures for cooperation with the ILO, to include joint ILO-WTO working groups.
- establish a WTO working group on the relationship between trade and international labor standards.
- include core labor standards and other employment-related issues in the WTO's on-going trade policy reviews carried on with member countries.
In its concluding paragraph, the ICFTU statement says: "The global market is a powerful mechanism for dynamic development, but it can also lead to the exclusion and marginalization of millions of ordinary citizens who do not have the advantage of wealth or status. [The market] has to be balanced by countervailing powers. The right of workers to organize together to negotiate decent contracts of employment is one of those balancing mechanisms."
(The full text of this document is available on the ICFTU Website at http://www.icftu.org/english/sclause/escl98wtommr.htm. For background on the issues involved, see previous Bulletins listed at global.htm.)
Bitter Banana Fruit: Chiquita
The TV commercials of Chiquita Brands International show tanned workers happily strolling through verdant banana plantations drenched in sunshine. The real lives of Chiquita's workers in Central America are far different.
Their situation, a vivid example of the downside of globalization, is described in a major series just published by the Cincinnati Enquirer after two years of research into the activities of the banana giant, which is headquartered in Cincinnati. You can read the entire series on the Web at http://www.enquirer.com/chiquita.
Human Rights for Workers: Bulletin No. III-10, May 14, 1998
Robert A. Senser, editor
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