The march of iso­la­tion­ism

Trump's vic­tory shows grow­ing dis­com­fort with glob­al­i­sa­tion

Down to Earth - - CONTENTS - RICHARD MAHAPATRA AND SUBHOJIT GOSWAMI

Is Don­ald Trump's vic­tory a win for an­tifree mar­ket forces? Is it the death knell for cap­i­tal­ism and glob­al­i­sa­tion?

THE DE­VEL­OPED world’s poor­est coun­try—the United States of Amer­ica (usa)—has voted for its new pres­i­dent. The vic­tory of Don­ald Trump was un­ex­pected. But the anger that fu­elled his vic­tory was very much ex­pected, and sends out a clear mes­sage. It ques­tions the free mar­ket model of econ­omy that has been the only model in ex­is­tence for more than half of the world’s pop­u­la­tion.

Cham­pi­oned by the de­vel­oped world, the free mar­ket econ­omy has been un­der scru­tiny since 1990. But de­vel­op­ments in the af­ter­math of the re­ces­sion of 2008 show that coun­tries are in­creas­ingly los­ing in­ter­est in this model of econ­omy. The re­ces­sion wiped out 13 per cent of the global pro­duc­tion and 20 per cent of the global trade. In fact, its im­pacts are still be­ing felt across de­vel­oped coun­tries. Bri­tain’s sur­prise vote to leave the Euro­pean Union (Brexit) was the big­gest re­al­ity check on the ef­fi­cacy of glob­al­i­sa­tion, while high unem­ploy­ment in Spain and se­vere eco­nomic cri­sis in Greece that led to adop­tion of aus­ter­ity mea­sures across the coun­tries were wake-up calls. Opin­ion poll af­ter opin­ion poll, in­clud­ing the one from the Pew Re­search Cen­ter, a Wash­ing­ton-based fact tank, sug­gests that many Euro­pean coun­tries want to fol­low in Bri­tain’s foot­steps and exit the Euro­pean Union to pur­sue their sovereignty over de­ci­sion-mak­ing and econ­omy.

This sen­ti­ment was re­flected dur­ing the US pres­i­den­tial elec­tion cam­paigns when un­usual re­ports filled the news­pa­pers. “No­body is talk­ing about the 43 mil­lion poor of US”. “Vot­ers can’t buy bus tick­ets to go to the poll sta­tion”. “usa just closes its eyes to the in­equal­ity”. Then there were the kind of slo­gans Trump made: Stop out­sourc­ing Amer­i­can job to In­dia and China; De­port il­le­gal mi­grants from the coun­try. The cam­paign slo­gans had an un­canny sim­i­lar­ity with those made in de­vel­op­ing coun­tries: free the mar­ket econ­omy; cre­ate jobs for the lo­cals; erad­i­cate poverty. This is the rea­son Trump won, even though he has ac­cu­mu­lated his for­tune by reap­ing the ben­e­fits of free trade.

For the world yet to over­come the Brexit shock, Trump is just a rude re­minder that there is some fun­da­men­tal prob­lem with the free mar­ket model. “Don­ald Trump’s vic­tory should serve as a les­son for Europe’s main­stream forces ahead of their own bal­lots next year. Pol­i­tics as usual just does not work on both sides of the At­lantic. Clearly,

peo­ple are not feel­ing they profit from the ben­e­fits of glob­al­i­sa­tion and free trade,” says An­thony L Gard­ner, the US am­bas­sador to the EU.

The vic­tory of Trump also in­di­cates that the de­vel­oped world now strug­gles with the third world prob­lems. Its economies are in tat­ters; in­equal­ity is fur­ther widened, with a hand­ful of peo­ple amass­ing the ma­jor chunk of prof­its gen­er­ated out of a free mar­ket; and hu­man de­vel­op­ment in­dices have de­clined sharply.

For ex­am­ple, in the US the per capita gdp grew by 14 per cent be­tween 2001 and 2015, but the av­er­age wage grew by only 2 per cent. An anal­y­sis by the McKin­sey Global In­sti­tute shows that the real in­comes of about two-thirds of house­holds in 25 ad­vanced economies were flat or fell be­tween 2005 and 2014. The si­t­u­a­tion was the worst in Italy, where 97 per cent of the mid­dle-class saw stag­nant or de­clin­ing take-home pay. In usa, the fig­ure was 81 per cent. About 193 mil­lion peo­ple, or one-third of those whose in­come has not been ad­vanc­ing, ex­press neg­a­tive opin­ions about free trade and im­mi­gra­tion.

The pos­si­bil­ity of cre­at­ing the world’s big­gest free trade mar­ket now looks bleak due to this ris­ing dis­con­tent against eco­nomic lib­er­al­i­sa­tion in de­vel­oped coun­tries. The pro­posed Transat­lantic Trade and In­vest­ment Part­ner­ship (ttip) be­tween the EU and the US, dubbed one of the most am­bi­tious free trade ac­cords ever at­tempted, has at­tracted op­po­si­tion in Europe as vot­ers have grown doubt­ful of the ben­e­fits of glob­al­i­sa­tion. The vic­tory of Trump, who has pan­dered to the antiglob­al­i­sa­tion sen­ti­ment, is likely to re­sult in the demise of the deal. He has al­ready vowed to with­draw the US from an­other free trade agree­ment, the Trans Pa­cific Part­ner­ship that cov­ers 12 coun­tries, on his first day in of­fice. “In­stead, we will ne­go­ti­ate fair, bi­lat­eral trade deals that bring jobs and in­dus­try back onto Amer­i­can shores,” Trump said while un­veil­ing plans for his first 100 days in of­fice.

Small won­der that im­me­di­ately af­ter the US pres­i­den­tial elec­tions, mul­ti­lat­eral fi­nan­cial or­gan­i­sa­tions like the World Bank Group and the In­ter­na­tional Mone­tary Fund (imf), who cham­pion the free mar­ket econ­omy, de­fended the model. Ad­dress­ing a press con­fer­ence at the World Bank-imf An­nual Meet­ings, World Bank Group Pres­i­dent Jim Young Kim cited the ex­am­ple of China that has lifted 700 mil­lion peo­ple out of poverty us­ing the same model of econ­omy. Chris­tine La­garde, man­ag­ing di­rec­tor of imf, was more vo­cal. On Trump’s idea of get­ting Amer­i­can jobs by adopt­ing pro­tec­tion­ism, she said, “The rhetoric against [free] trade would do harm to the coun­try. I call it eco­nomic mal­prac­tice.” Just a few months ago, the re­search depart­ment of the imf had al­leged that the pro­po­nents of ne­olib­er­al­ism have been over sell­ing the ben­e­fits of free mar­ket.

Trump had cam­paigned on a prom­ise to scrap in­ter­na­tional trade deals that trans­ferred US jobs over­seas and flooded do­mes­tic mar­kets with for­eign goods. His call for “Amer­i­can­ism, not glob­al­ism” struck a chord with the white work­ing-class vot­ers at a time when the US was still lick­ing the wounds of the North Amer­i­can Free Trade Agree­ment (nafta), an agree­ment signed be­tween the US, Mex­ico and Canada in 1994. nafta had re­sulted in the loss of man­u­fac­tur­ing and ship­ping jobs for the Amer­i­cans.

Ver­dict against ris­ing in­equal­ity

There is an­other rea­son Trump’s brand of pro­tec­tion­ism has found tak­ers in usa. Free trade, which served the coun­try for two decades fol­low­ing Europe’s and Ja­pan’s wartime col­lapse, en­sured en­rich­ment of an al­ready rich part of the so­ci­ety. The pro­tec­tion­ism, as de­manded and up­held by Abra­ham Lin­coln, is now looked upon as a more fit­ting an­swer to “ex­clu­sion­ary cap­i­tal­ism” that helped the eco­nomic elite reap all the fruits of un­re­strained in­ter­na­tional trade.

Fac­tory work, which was once the back­bone of the mid­dle class, is now all but gone. It has been re­placed by low-pay­ing ser­vice jobs. In 1980, one in five Amer­i­cans worked in man­u­fac­tur­ing units. Now it is one in 12. Ohio now has one-third fewer man­u­fac­tur­ing jobs than it had in 2000. Es­ti­mates by Mas­sachusetts In­sti­tute of Tech­nol­ogy econ­o­mist David Au­tor show usa lost a mil­lion man­u­fac­tur­ing jobs to China be­tween 2000 and 2007—this is a quar­ter of the jobs lost across the US dur­ing the pe­riod.

Po­lit­i­cal sci­en­tist Fran­cis Fukuyama, who had pre­vi­ously sup­ported the Amer­i­can model of cap­i­tal­ism and free trade, also high­lights this fall­out of glob­al­i­sa­tion. “We thought to make the best of glob­al­i­sa­tion by pro­duc­ing noth­ing our­selves and of­fer­ing ser­vices in­stead. This was a mis­take. We for­got that so­cial­ism never was a big is­sue in the US, be­cause enough peo­ple al­ways man­aged to move into the bur­geon­ing mid­dle class. Nowa­days, this is no longer the case, be­cause they have worked in in­dus­tries that we have out­sourced to coun­tries like China,” he says.

Other than soya beans and corn, which in a highly mech­a­nised agri­cul­ture are prac­ti­cally pro­duced with­out hu­man labour, the US sells ser­vices like patents and li­cences, and tech­no­log­i­cally so­phis­ti­cated prod­ucts like in­dus­trial ma­chines, semi­con­duc­tors, elec­tric ap­pa­ra­tus and med­i­cal equip­ment. Un­for­tu­nately, high-tech in­dus­tries and re­search do not cre­ate jobs for the ma­jor­ity of Amer­i­can peo­ple. This ex­plains why the Rust Belt (Penn­syl­va­nia,

Trump's vic­tory in­di­cates that the de­vel­oped world now strug­gles with the third world prob­lems. Its economies are in tat­ters; in­equal­ity is fur­ther widened; and ba­sic hu­man de­vel­op­ment in­dices have de­clined sharply

Ohio, Michi­gan and Iowa) has been de­ci­sive in Trump’s vic­tory. These are the states where work­ing class peo­ple and union work­ers have seen dein­dus­tri­al­i­sa­tion and man­u­fac­tur­ing de­cline.

A study by the Pew Re­search Cen­ter finds that 65 per cent of Amer­i­cans agree that the gap be­tween the rich and the rest has widened in the last 10 years. In 2013, the me­dian wealth of the na­tion’s up­per-in­come fam­i­lies ($639,400) was nearly seven times that of mid­dle-in­come fam­i­lies ($96,500), the widest wealth gap seen in 30 years when the Fed­eral Re­serve be­gan col­lect­ing these data.

Ob­vi­ously, the US is no stranger to the trend of rich dic­tat­ing the po­lit­i­cal agenda, fi­nanc­ing the can­di­dates who pro­tect their in­ter­ests and en­sure that the laws are in the in­ter­est of the cor­po­rate. The six-month-old Dakota Pipe­line Ac­cess protest is the most re­cent spec­i­men. De­spite hun­dreds of in­dige­nous peo­ple up­ping their protests against this pro­posed pipe­line, Kelcy War­ren, the chief ex­ec­u­tive of­fi­cer of En­ergy Trans­fer—the pro­moter of the project—says, “I am 100 per cent sure that the pipe­line will be ap­proved by a Trump ad­min­is­tra­tion.” In June, War­ren do­nated US $100,000 to the Trump Vic­tory Fund and an­other $3,000 to the Trump cam­paign.

So, Amer­i­can po­lit­i­cal sci­en­tist Larry Bar­tels was not off the mark when he re­cently said the US sen­a­tors are five to six times more likely to lis­ten to the in­ter­ests of the rich than to the in­ter­ests of the mid­dle class. “There is no dis­cernible ev­i­dence that the views of low-in­come con­stituents had any ef­fect on their sen­a­tors’ vot­ing be­hav­iour,” Bar­tels said. Econ­o­mist Joseph Stiglitz says from the 1980s un­til 2007, dereg­u­lated cap­i­tal­ism in the US brought greater ma­te­rial well­be­ing only to the very rich­est in the rich­est coun­try of the world (see ‘How Trump hap­pened’ on p28). “Over the course of this ide­ol­ogy’s 30-year as­cen­dance, most Amer­i­cans saw their in­comes de­cline or stag­nate year af­ter year,” says Stiglitz.

“There are many Amer­i­cans who work two jobs to make ends meet,” says Her­shey Fried­man, pro­fes­sor of Busi­ness at Kop­pel­man School of Busi­ness, Brook­lyn Col­lege. “One of my friends, a col­lege pro­fes­sor, is hav­ing trou­ble pay­ing his rent and is heav­ily in debt. He is con­sid­er­ing work­ing at night driv­ing a cab. There is a large num­ber of peo­ple like that in the US. They are op­posed to an econ­omy slanted to ben­e­fit the rich,” Fried­man says.

In­creas­ing in­equal­ity and stalled growth in the wake of global fi­nan­cial cri­sis are also the rea­sons most na­tions in Europe seem to de­nounce the ide­ol­ogy of free trade. This be­comes ev­i­dent from the rise of anti-glob­al­i­sa­tion move­ments and na­tion­al­ist par­ties in sev­eral coun­tries.

Brexit ex­posed the anti-EU feel­ings and anger against the power struc­tures that are alien­ated from the so­ci­ety and in­ef­fec­tive in tack­ling global down­turn and the Eu­ro­zone cri­sis. The ref­er­en­dum is the re­sult of a re­al­i­sa­tion that the ben­e­fi­cia­ries of glob­al­i­sa­tion have been pow­er­ful cor­po­ra­tions, af­flu­ent fam­i­lies and skilled and ed­u­cated work­ers; the work­ing-class con­tin­ues to strug­gle with stag­nant wages, job losses and stag­ger­ing debt. “A UK de­par­ture is go­ing to make the en­tire EU in­ward-look­ing and more de­fen­sive on glob­al­i­sa­tion,” says Fredrik Erixon, di­rec­tor of the Euro­pean Cen­tre for In­ter­na­tional Po­lit­i­cal Econ­omy, a pol­icy re­search think-tank based in Brus­sels.

In both Europe and the US, the grouse has been ev­i­dent among older and less-ed­u­cated cit­i­zens whose liveli­hoods were af­fected by au­to­ma­tion and cheaper for­eign labour—two main fea­tures of glob­al­i­sa­tion. Branko Mi­lanovic, a lead­ing econ­o­mist of in­equal­ity, ex­plains in one of his books that the re­cent surge of in­equal­ity in the West has been driven by the rev­o­lu­tion in tech­nol­ogy, just as the In­dus­trial Rev­o­lu­tion drove in­equal­ity about 200 years ago.

Rise of re­stric­tive trade mea­sures

Way back in 2011 when the Oc­cupy Wall Street took roots, high­light­ing in­equal­ity and the fail­ure of the econ­omy to meet peo­ple’s ex­pec­ta­tion, the In­ter­na­tional Labour Or­ga­ni­za­tion (ilo) hinted that the grow­ing un­rest had an un­canny pro­tag­o­nist: the youth. Cur­rently, the pop­u­la­tion in the age group of 15-24 is at a his­toric high. This group has not seen any eco­nomic model other than the free mar­ket. Com­par­ing the cur­rent cri­sis of unem­ploy­ment among the youth to the Great De­pres­sion, ilo said, “There have been se­ri­ous fi­nan­cial crises, none have been as deep, as pro­longed, and as glob­ally con­ta­gious as the cur­rent cri­sis.” It also in­di­cated that a gen­er­a­tion is grow­ing up with­out ac­cess to the labour mar­ket, fur­ther pre­cip­i­tat­ing the cri­sis. It is no sur­prise that a ma­jor­ity of Trump’s vot­ers are less ed­u­cated un­em­ployed youths.

Grow­ing unem­ploy­ment is one of the rea­sons most de­vel­oped coun­tries are re­sort­ing to eco­nomic pro­tec­tion­ist mea­sures. The wto re­port, which an­a­lysed re­stric­tive trade mea­sures be­tween mid-Oc­to­ber 2015 and mid-May 2016, says the G20 economies have in­tro­duced new pro­tec­tion­ist trade mea­sures at the fastest pace since 2008 eco­nomic re­ces­sion. “G20 economies ap­plied 145 new trade-re­stric­tive mea­sures—an av­er­age of al­most 21 new mea­sures per month, com­pared to 17 in the pre­vi­ous re­port,” it states.

Go­ing by the Euro­pean Com­mis­sion re­port, be­tween July 1, 2014, and De­cem­ber 31, 2015, Rus­sia is­sued the largest num­ber of mea­sures re­strict­ing gov­ern­ment pro­cure­ment. Coun­tries, such as Al­ge­ria and China, used dis­crim­i­na­tory tax mea­sures favour­ing lo­cal busi­nesses. In the field of ser­vices and in­vest­ment, China adopted the high­est num­ber of re­stric­tive mea­sures, fol­lowed by In­done­sia.

China is the EU’s sec­ond largest trade part­ner. But the EU says Chi­nese ex­ports are flood­ing Euro­pean mar­ket. Re­cently, it has taken tem­po­rary anti-dump­ing mea­sures against the im­ports of Chi­nese seam­less steel pipes. “Europe can­not be naive and must pro­tect its in­ter­ests, es­pe­cially when it comes to dump­ing,” says Peter Ziga, trade min­is­ter of Slo­vakia that holds EU’s pres­i­dency.

The Euro­pean Com­mis­sion says emerg­ing economies were re­spon­si­ble for 50 per cent of all trade-re­stric­tive mea­sures in­tro­duced be­tween June 2014 and De­cem­ber 2015. How­ever, de­vel­oped coun­tries, in­clud­ing G20 mem­bers, also take pro­tec­tion­ist mea­sures de­spite re­peated pledges against them. Ac­cord­ing to Euro­pean Com­mis­sioner for Trade Ce­cilia Malm­ström, “Trade pro­tec­tion­ism con­tin­ues to be on the rise world­wide. Open mar­kets are proven to bring more in­no­va­tion, in­creased pro­duc­tiv­ity, eco­nomic growth and pros­per­ity. De­spite this, few bar­ri­ers to trade have been re­moved, while new ones have been in­tro­duced.”

Though usa is of­fi­cially com­mit­ted to free trade, it has lim­ited open­ness since the 2008 re­ces­sion. In fact, it has im­ple­mented the max­i­mum pro­tec­tion­ist mea­sures since 2008. usa had pur­sued pro­tec­tion­ism be­tween the Civil War and the Word War II, be­fore it rad­i­cally changed its mind in the mid­dle of the 20th Cen­tury, when Europe’s in­dus­tries were largely de­stroyed, and turned into the fol­lower of free trade to pre­vent oth­ers from pro­tect­ing their in­dus­trial pro­duc­tion. The op­ti­mism of the first two decades af­ter the World War II is now sag­ging. Un­der the Trump regime, it is most likely to tailor its rules to shut out for­eign com­pa­nies from pub­lic ten­ders.

Like Ja­pan, which prac­tised pro­tec­tion­ism much to its ben­e­fit, the up­com­ing Repub­li­can gov­ern­ment in the US is go­ing to be con­ser­va­tive in for­eign trade deals and pay heed to Abra­ham Lin­coln’s warn­ing to his coun­try­men: “I pro­ceed to try to show that the aban­don­ment of the pro­tec­tive pol­icy by the Amer­i­can Gov­ern­ment must re­sult in the in­crease of both use­less labour and idle­ness; and so, in pro­por­tion, must pro­duce want and ruin among our peo­ple.”

Emerg­ing economies were re­spon­si­ble for 50 per cent of all trade-re­stric­tive mea­sures dur­ing 2014-15. But a WTO re­port says G20 economies in­tro­duced new trade-re­stric­tive mea­sures at the fastest pace since 2008 re­ces­sion

GARON S

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