Vol. XII, Bulletin No. 7                                                          July 2007

Zoellick and the Wall Street-Treasury-World Bank Power Complex
 
The U.S. Elite Game of Musical Chairs

"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....This powerful network, which may aptly, if loosely, be called the Wall Street-Treasury complex, is unable to look much beyond the interest of Wall Street, which it equates with the good of the world."
 
Jagdish Bhagwati, a world-renowned economist, published the above analysis in a 1998 Foreign Affairs article and later in his 2004 book, "In Defense of Globalization."  In both works, he backed up his point with a list of some of the prominent men who had moved around within that Wall-Street-Treasury complex.  Among them: Robert E. Rubin, U.S.  Treasury secretary in the Clinton administration,  previously from Wall Street (Goldman Sachs), who for the past seven years has served on Wall Street (Citigroup executive committee chairman) and now also serves as advisor to several Democratic presidential aspirants.

Bhagwati's list now needs updating.  The most prominent new entry is Robert B. Zoellick, the new president of the World Bank Group, succeeding Paul Wolfowitz, former U.S. deputy secretary of defense. President Bush announced his nomination at a May 30 press conference attended by the man who led the search to replace Wolfowitz, Treasury Secretary Henry M. Paulson Jr.  Until a year ago, Paulson was chairman and CEO of the premier Wall Street establishment, the Goldman Sachs Group.
 
In Transit from One Group of Power Complex to Another

Zoellick's record as a revolving-door member of the Washington-Wall Street elite is impressive.  He is moving to the World Bank Group directly from the Goldman Sachs Group, where he held a top-level job for a year.  Before that, he held the State Department's No. 2 job for 16 months.  His most notable service before then was his four years (2001-2005) at the cabinet-level post of U.S. Trade Representative (USTR), an office that shares with Treasury the responsibility for making and managing U.S. policies on international trade and investment -- on globalization, in short.

Highly creative, Zoellick seized the tragic 9/11 attack to champion free trade and investment as a key anti-terrorism policy. He changed the name of the major piece of trade legislation, "fast track," to the more enticing "Trade Promotion Authority." He rejected the idea of postponing a WTO summit that was held in held in Doha, Qatar, a few weeks after 9/11, and thus had a key role in launching the new round of multilateral trade negotiations called the Doha round.  But when Doha later failed to gain traction, mainly because a newly united group of developing countries opposed to the U.S.-inspired agenda, Zoellick switched his tactic to unilateralism. 

It was a much easier negotiating route.  His trade deals with individual countries, mostly with smaller ones, enabled him to emphasize policies especially appealing to Wall Street, two in particular -- strong pro-investor protections and strong restrictions on a country's ability to manage the in-flow of capital  -- policies stronger, in fact, than those contained in the WTO's world-wide agreements.

Promoting 'Competitive Liberalization' vs. Multilateralism

He called this "competitive liberalization," and the Congress is currently struggling with several controversial Free Trade Agreements negotiated in that mode.  (Three of them, those with Colombia, Panama, and Peru have been retitled Trade Promotion Agreements. Who can be against trade promotion?)

"I can't think of a single developmental economist who would say this [unilateralism] is a good idea," Bhagwati recently told The New Republic, "and it suggests a cavalier interest in developing countries."  Of course Zoellick's new role is that of a multilateralist, and he has pledged that he will use his new job to work with WTO members to bring the Doha multilateral round to a successful conclusion.

The big question is whether at the World Bank Group he will be able to free himself from equating the interests of Wall Street with the good of the world.

Hyping the Benefits of Globalization

You will add $4,500 a year -- wow! -- to your family's annual income when barriers to free trade are removed.
So Congress should act, and fast.

The trouble is that the higher income figure is wrong.
But the U.S. Trade Representative and the media vouch for it.   

They are wrong. Their error is exposed in a new report, Marketing the Gains from Trade, by L. Josh Bivens, an economist with the Economic Policy Institute, a nonpartisan think tank based in Washington. 

Susan C. Schwab, the U.S. Trade Representative, used the figure in her February 15 Congressional testimony supporting proposed trade legislation.  She told the Senate finance committee that the "elimination of remaining [trade] barriers would add another $500,000,000,000  to annual income or $4,000 per U.S.  household," and Washington Post columnist repeated the claim.  An article in the July-August issue of Foreign Affairs magazine titled "A New Deal for Globalization" repeats the $500,000,000,000 gain three times. 

"Is it a generally accepted proposition by economists that trade liberalization should be expected to add this much to the U.S. economy?" Bivens asks, and answers:  "Nope."

Other economic studies find the gain to be much lower, he points out.  Less than $45 per family, according the latest calculations of the U.S. International Trade Commission.

All such figures are estimates derived not from original empirical research but from mathematical models dependent on assumptions and data chosen by the model-maker.  Bivens examines in detail the assumptions and data contained in the model and trade theory behind the Schwab estimate.  A major flaw Bivens detected is that they take into account "only those workers directly displaced by trade" (Bivens' italics).

Absent from the Studies: the Impact on American Workers

However: "The largest cost from trade," he explains, "is the permanent and steady drag on the wages of all American workers whose education and skills resemble those displaced by trade. Waitresses, for example, do not generally lose their jobs due to trade, but their pay suffers as workers displaced from tradable goods industries crowd into their labor market and bid down wages."

Ignoring those high and enduring costs, he explains, "is a very good way to minimize the total debit column in the balance sheet of globalization's impact on American workers."  (And to exaggerate the future gains possible through trade liberalization.)

Commenting on his findings, Bivens said: "This should be a flashing red light to anyone trying to make sense out of the clamor for more trade agreements."

James Markusen, professor of economics at the University of Colorado, recently made another comment that should be a warning signal.  "I am confident," he told the Economist, "that I can concoct a model to generate any result desired by a reader with a deep pocketbook."

Economists' Illusion about Free Trade

Economic thinking in the United States is stuck in ideological traps, Paul Craig Roberts, an assistant secretary of the treasury in the Reagan administration, charges. In a column titled "Losing the Economy to Mythology," he writes:

"Economists are governed by the illusion that America's post-World War II prosperity is based on free trade.  It is not.  America's post-war prosperity was based on the destruction of the economic capability of the rest of the world by World War II and communism/socialism.  America was prosperous in its trade, because no on else could produce anything."

Since then, he adds,  the collapse of world socialism and the rise of high-speed Internet have opened access to a huge global labor force for manufacturing goods and delivering professional services -- creating massive off-shoring and massive trade deficits in the United States.

One remedy that he favors is a return to tariff protection.  "However, many economists believe that the decimation of unprotected American industry and professional occupations is a small price to pay for lower consumer prices.  These economists ignore that the U.S. prospered under tariffs."

Follow the Money: UN Study's New Path
Good news.  The special UN project on transnational corporations and human rights is starting to look into a neglected issue: how international investment protection agreements affect the human rights practices of business.

Starting on June 1, Andrea Shemberg, formerly legal advisor to Amnesty International UK, joined the team of Professor John Ruggie, the UN secretary general's special representative for business and human rights.  Ruggie is in the midst of preparing a comprehensive report on the human rights responsibilities of multinational corporations for the UN Human Rights Council, which on June 18 formally extended his mandate to July 2008, with the option of adding another three-year term.

"Issues surrounding human rights in the context of investor/host government agreements are still poorly understood," Ruggie said in a statement on Shemberg's appointment.  Her research will focus on the impact that regional and bilateral investment protection agreements have on the ability of host countries "to adopt and implement policies intended to protect and insure human rights."
*   *   *
Why Investment Protection Agreements Need Reform
Meanwhile, Oxfam International has issued a report charging that those agreements -- bilateral investment treaties (BITs) and free trade agreements with investment provisions  -- have a negative impact on poorer countries. The agreements are pressed on developing countries to get terms that rich countries "are unable to obtain at the World Trade Organization (WTO), where developing countries can band together and hold out for more favorable rules."

In its report, "Signing Away The Future," Oxfam urges rule changes that would put international trade and investment at the service of development through provisions that, for example, recognize the right of host governments to impose capital controls and to protect the rights and interests of their own citizens.  Two specific criticisms that Oxfam makes of many existing and proposed investment protection pacts:  
Currently the United States has 40 Billateral Investment Treaties (BITs) in force, plus a wide range of bilateral and regional free trade agreements with strong investor protections.  These investment agreements, and others still pending, are amazingly comprehensive, both in their broad definitions of investment and in the broad provisions protecting investments and their unfettered mobility.  Take, for example, the Korea-U.S. Free Trade Agreement now before Congress.

In it "investment means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. Forms that an investment may take include:

"an enterprise; shares, stock, and other forms of equity participation in an enterprise; bonds, debentures, and other instruments, and loans; futures, options, and other derivatives; turnkey, construction, management, production, concession, revenue-sharing, and other similar contracts; intellectual property [defined at length in another section]; licenses, authorizations, permits, and similar rights conferred pursuant to domestic law; and other tangible or intangible, movable or immovable property rights, such as leases, mortgages, liens, and pledges."
 
(Joining unions in Korea and the U.S., the International Trade Union Confederation on June 28 announced that it opposes the Korea-U.S. FTA, among other reasons because it would increase capital mobility and financial speculaion, thereby undermining wages, working conditions, and employment stability.)

Strong on Investor Rights, Silent about Investor Responsibilities

Under globalization, national legislation is no longer adequate to protect the rights of cross-border investors.  The investment protection agreements, bilateral, regional, and multilateral, are designed to fill that gap.  Their basic flaw, however, is that they grant investors and investment overly generous rights and privileges without corresponding responsibilities or accountability, and they make no provision for the rights of host countries and their citizens.

"It is never a good thing to have rights without responsibilities," says Howard Mann, senior law advisor of the Canada-based International Institute for Sustainable Development.  (See "Linking Global Rights with Responsibilities.") 

The Institute has prepared a model international agreement that seeks "an overall balance of rights and obligations in international investment between investors, host countries, and home countries."  The existing and the proposed U.S. agreements protecting investments all fall miserably short of meeting that balance of rights and responsibilities.

A Victory for Union Rights -- in Canada
In a historic decision on June 8, the Supreme Court of Canada declared that the right of collective bargaining between employers and unions is guaranteed under Canada's Charter of Rights and Freedoms, part of the country's basic constitution. 

It thereby overturned previous Court rulings, explaining that "the grounds advanced in the earlier decisions for the exclusion of collective bargaining from the Charter's protection do not withstand principled scrutiny and should be rejected."

Significantly, the Court took into account international jurisprudence by declaring : "The right of  collective bargaining is a fundamental right endorsed by the members of the [International Labor Organization], which they have an obligation to respect and to realize in good faith."

The decision on the guaranteed right of collective bargaining came in a complex dispute between health service workers and health service employers in British Columbia.  Although its full implications are not yet clear, it is warmly welcomed by Roy J. Adams, a Canadian scholar who has long campaigned to make the fundamental human rights of workers binding under law.

In a chapter he contributes to a book, "Solidarity First: Canadian Workers and Social Cohesion" (University of British Columbia Press, forthcoming), he writes that the June decision has "the potential to radically alter Canadian industrial relations" for both public and private employers.  For workers already covered by collective bargaining contracts, for example, "it seems likely that the courts will no longer permit governments to strip key contract clauses as they did in the British Columbia Health Services, nor unilaterally to impose new terms, nor order workers on a legal strike back to work."

Leaders seeking to organize workers, Adams speculates, might now be able to base their claim for recognition on Canada's charter alone, rather than on specific statutes.

Meanwhile, in Washington, D.C., on June 26 Republicans in the Senate defeated the Employee Free Choice Act, designed to overcome bureaucratic roadblocks that hinder the right to unionize. A majority of Senators voted in favor of the bill, but the margin (51 to 48) fell short of the 60 votes necessary to bring the measure up for consideration.  The White House had earlier signaled that the President would veto the bill if it passed.

Mission to China: Solidarity with Whom?
Teamster President James P. Hoffa and Service Employees International President Andy Stern led a top-level delegation from Change to Win on a 10-day visit to the People's Republic of China in May.  In a press release, Anna Burger, Chair of Change to Win, an alliance of seven former AFL-CIO unions representing 6,000,000 workers, said that the visit was part of the alliance's plan "to build a new generation of solidarity to lift labor standards around the world."

In the very first issue of Human Rights for Workers back in 1996, I was very critical of high-level labor missions to China, among other reasons because the official All-China Federation of Trade Unions (ACFTU) and its branches are not genuine unions and because the government jails anyone who tries to form a genuine union. Here is a one-paragraph excerpt from that article:
"Why would any union delegation accept to be hosted by a state/Party bureaucracy that plagiarizes the name 'union' and joins in suppressing the rights of China's workers?  I can see some foreign unionists trying to go to China, accompanied by their own Chinese-language interpreter, on a low-key fact-finding mission that is not under the auspices of the ACFTU or of any of its component bodies. I can also see going there to make the rounds of Ministries to demand the release of the countless trade unionists being held in China's vast gulag  -- and to march across Tiananmen Square with their names on placards demanding, in English, [for example] 'Free Wang Changhuai, serving 15 years for heading the Hunan Workers Federation.'"

Many years ago, in Chicago and Omaha, I worked on campaigns in which telephone workers successfully transformed their company-dominated unions into affiliates of the Communications Workers of America.  I've often asked myself: couldn't the ACFTU, too, evolve into a genuine worker organization of some kind?

The answer is that the ACFTU does not exist in a social and political environment remotely like that in Illinois and Nebraska. The ACFTU exists within -- and is a creature of -- an authoritarian system in which it has an essential role in the state/Party apparatus that exercises strict political control. To continue playing that role, the ACFTU has to adapt itself to the recent large-scale shutdown of state enterprises and its consequent loss of members, stature, funding, and patronage. It has long been under central Party pressure to extend its reach into the private sector. 

Remember, the ACFTU does not maintain itself by membership dues but by money from employers through a 2% deduction of a firm's total payroll.  Once that subsidy came from state enterprises.  Now, with the economy increasingly privatized, the ACFTU is necessarily seeking support from a new constituency of workers and employers, which ironically includes even Wal-Mart.  In that new environment, its high-level meetings with a major part of the American labor movement has conferred on it an air of legitimacy it long sought but never before achieved.

(For CtW's side to this controversy, see a May 22 press release and a posting on the CtW blog by Greg Tarpinian, the alliance's executive director.)

Diary: Keeping Alive Beyond Eighty-Five
On July 21 I turn 86.  It's amazing that I've made it this far.  And it's even more amazing that I'm still in fairly good health -- considering my years.  What that means is that I have several ailments common among my age cohorts, ailments that just don't go away, no matter how many pills I take or how many specialists I see

I have my ways of coping.  Usually, I don't let my health problemsget me down.  Awakening three, four, or five times a night because of a nocturnally dysfunctional body part doesn't upset me.  I just relax, meditate, and sometimes do some mental editing of a paragraph or two written the day before.

My overall strategy is to thwart the natural tendency to slip into a full-retirement mode. I continue doing what I've enjoyed doing most of my life -- writing. You are reading one example of this therapy.

How does it work, exactly?  It's not unusual for me to sit down at my computer with a stiff back that sends waves of restless discomfort throbbing all the way down both legs.  Before long -- presto! -- those troublesome sensations fade away.  Maybe they are neutralized by the adrenaline that flows as I become fascinated with what I am researching or writing.

In recent years I have become especially absorbed in tracking and analyzing 21st-century globalization -- how it differs from traditional internationalization and how that fundamental difference (a mutation, Martin Wolf of the Financial Times, calls it) needs to change international trade and investment policies.  I find that the tracking itself is often exciting, especially when it leads to my discovering information that fits into the larger puzzle.  (See, for example, the article "Follow the Money" above.)

My keenest interest is in new initiatives to civilize globalization, such as the newly launched International Rights Advocates, headed by Director Terry Collingsworth.  It focuses on human rights litigation, such as a precedent-breaking case that comes to trial on July 9 (about which more next month). Reporting on such developments helps keep me not just alive, but alive alive, mentally, spiritually, and physically.
 

Human Rights for Workers: Bulletin No. XII-7           July  2007           

http://www.senser.com  
Robert A. Senser, editor
Copyright 2007
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