post 2

THE EVOLUTION OF A NEW WORLD ORDER 35

CHAPTER 3

( ', )" The Evolution of a

. New World Order

The history of global capitalism is marked by a number of distinct eras or periods that are defined by the way the system as a whole accumulates sur­ plus value. Shifts from one era to another have been occasioned by crisis. The specific nature of each crisis is beyond the scope of this book, but the topic has been the subject of much debate. 1 The mechanisms for accumulation in­ clude a variety of institutions and a political and ideological apparatus to sup­ port them. The currently popular term "globalization" is more accurately a distinct approach to accumulation that describes the present period. I have chosen to call this period the new world order.

A thesis of this book is that the new world order caused a shift in U.S. urban policy, which has had a negative impact on working people in the United States. That impact has come through the destruction of residential places and places of work And in the wake of that destruction many have found themselves working harder for less pay and without a decent place to live. To understand the nature of the shift it is important to understand some key features of the evolution of the previous Fordist period and some aspects of its collapse in the early I97os.

From Fordism to a New World Order

The early twentieth century was marked by global capitalist crisis, labor up­ heaval, and a major shift in the nature of the production process that resulted in greater worker productivity. Henry Ford initiated the technological basis of this shift when he instituted the assembly line. The concept and tech­ nique of mass production that evolved was thus termed Fordism. Fordism advanced by bringing more and more parts of the production process under

one roof. Ford Rouge, for example, was a massive industrial complex in De­ troit that produced automobiles in a process that also included the production of steel, glass, and practically everything that went into the final product. In addition to Fordism, the new mode of accumulation employed the princi­ ples of scientific management known as Taylorism after its founder Frederick Taylor. Taylorism examined every movement each worker in the production process made, measured the time these movements took, and devised more efficient movements that would increase productivity. The combination of Fordism and Taylorism literally turned workers into parts of a huge industrial machine.

The combination of crisis and the beginnings of the shift to the Fordist era

also gave rise to militant unionism in the United States. That included forma­ tion of the Industrial Workers of the World(IWW), wbo attempted to organize the workers in entire industries and posed their vision of 11one big union" as an alternative to capitalism itself.z During its existence many key leaders were assassinated, and during World War I the remaining leadership was imprisoned for their opposition to the war. This effectively destroyed the organization. But in the aftermath of the Great Depression another militant industrial union movement, the Congress of Industrial Organizations (CIO), founded an inde­ pendent federation of unions. Their break from the more moderate American Federation of Labor (AFL), who organized their members by craft rather than industry, was preceded by a series of strikes that were often violent. President Roosevelt attempted to secure labor peace by instituting new labor legisla­ tion that affirmed the right of workers to organize, form unions1 and bargain collectively. Employers' refusal to recognize these rights generated continued militant strikes that often resulted in the occupation of factories.

It wasn1t until World War II that both economic crisis and labor militancy

( 1 )dissipated as workers supported the war effort. In the aftermath of World War IT new institutions were put in place that created the structure that would enable Fordism to become a global system. By the summer of I944, the war was winding down. In July a conference attended by forty-four nations in Bret­ ton Woods, New Hampshire1 mapped out a strategy for postwar development. The United States was in a position economically1 militarily1 and politically to determine the terms of this strategy. The United States had both its indus­ try and infrastructure intact. The nations of Europe were in shambles. The resulting Bretton Woods Agreement became the basis for the development of the capitalist world until the early 1970S. It was designed for the rebuilding of Europe on U.S. terms.

The U.S. dollar was established as the international medium of exchange.

The value of the dollar was fixed relative to the currencies of other nations and backed by gold. Institutions were created (the IMF, the World Bank, and the General Agreement on Tariffs and Trade [GATT]) to facilitate this system. The IMF and the World Bank had well-defined roles in the rebuilding of Western Europe. The IMP's purpose was to maintain stable values for currencies to fa-

36 CHAPTER 3

cilitate international trade. If shortages and development bottlenecks caused inflationary pressures, the IMP would provide short-term loans and technical assistance to resolve the problems. The World Bank was established as a fi­ nancial intermediary between U.S. lenders and the countries of Europe and Great Britain, who needed dollars to buy exports and engage in long-term de­ velopment projects. The funding of these two institutions came from mem­ ber nations. Voting rights on IMF and World Bank policy was based on the size of each nation's financial stake. This arrangement enabled the United States to maintain po tical

The GATT was established to facilitate trade among nations by preventing costly trade wars.

These arrangements enabled U.S. corporations to expand their profitability and blunt the effects of cyclical crisis. The Bretton Woods Agreement had as its U.S. domestic counterpart government fiscal and monetary policies that used government powers to spend, tax, print money, and establish the terms of borrowing and extending credit. These powers were used to stim­ ula_te economic growth. The war effort had consolidated Fordism and Tay­ lonsm as the global method of production. Productivity growth was thus on

the rise.

Organized labor in the United States initially attempted to use both the postwar prosperity and the favorable labor legislation that had been won dur­ ing the clashes prior to the war to press its advantage. Militancy returned to the United States in the early years of postwar development. But it was short­ lived. In order to gain a share of the growing U.S. pie, labor union leaders decided to accommodate their objectives to the new Fordist era. A share of the growing prosperity of U.S. business was traded for labor peace at home and support for U.S. foreign policy. The accommodation of an evolving 11busi­ ness unionism// emboldened big business to make a move on the legislative front that undermined past labor gains. The resulting Taft-Hartley Act of r947 remstltuted s: 1ke

cotts, and facilitated lawsuits against unions. It was a serious setback for the

union movement. U.S. foreign policy was directed toward the cold war with the Soviet Union, and access to cheap resources in the developing world was oftethe battle ound.

of bemg subversive. In 1955, the CIO merged with the AFL, creating the AFL­

CIO. In the 1960s, the AFL-CIO established a series of overseas institutes in the developing world that were designed both to export business unionism abroad and to participate in destabilizing governments or unions that opposed U.S. foreign policy.'

The ordist popul on.

the ab1hty of l!·S· corporations to extract natural resources from recently in­

depend_ent nat10ns of the developing world brought great economic power to the Umted States. The terms of the accommodation with labor meant that the

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THE EVOLUTION OF A NEW WORLD ORDER 37

. caine derived from this power was shared with U.S. workers. Incomes rose, Jll d many workers were able to buy cars, homes, and appliances and move into wly

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an in the mid-1950s and exploded in the 196os andmto the early 1970S. C1vll

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unions, where discrimination was rampant. In addit10n, many workers ?egan to resist the increasing pace of work that was generated by the extensiOn of Fordist production into automation. Throughout the 1950s, there were waves of wildcat strikes in the mining, auto, and steel industries. Black worker cau­

cuses led many of these strikes.

A major sign that U.S. dominance under the Fordist regime was weakening

was Vietnam. Between 1965 and 1975, the United States was bogged down in an unpopular war that it eventually lost. The war began to weaken the United States both economically and politically. As the anti-war and civil rights movements in the United States gained momentum, post-World War II growth began to falter. In the late 1960s and early 1970s, the United States suffered major bouts of inflation. Meanwhile, the falling profit rates of U.S. and other capitalist corporations, the economic and political impact of the Vietnam war, and the continued labor and general social upheaval inside the United States and in other developed nations brought on an economic cri­ sis. In the early 1970S, the U.S. economy particularly began to show signs of weakness with major bouts of inflation. Also, the United States began to run a trade deficit (more foreign goods coming into the United States than U.S goods going out) and a balance of payments deficit (more money going out than coming in). The terms of the Bretton Woods Agreement had made the dollar the international reserve currency. Specifically, the exchange rates among currencies were all pegged to the value of the dollar and all curren­ cies were readily convertible to dollars or gold at a value of $3 5 to one ounce of gold. The deteriorating economic and political conditions in the United States meant that other nations in the developed world had to adjust their domestic economic policies to conform to the fluctuating demand for dollars. In practice, that could mean restraining prices and employment at home.4 In the political economic context of the early 1970s, faith in the U.S. economy and the strength of the dollar began to dissipate and led to efforts to convert currencies to gold. In 1971, President Nixon initially devalued the dollar and eventually took the dollar off the gold standard. Under considerable pressure from other capitalist nations, he also announced that the value of the dollar would be allowed to float based on market demand for dollars. That act consti­ tuted a cancellation of the Bretton Woods Agreement and essentially brought a formal end to the Fordist period. The scene was now set for a period of deep social, political, and economic crisis, which would either destroy capitalism altogether or give birth to a new mode of accumulation.

The economies of the developed capitalist world continued to decline. Two

38 CHAPTER 3

oil shocks added fuel to the fire. In 1973, in retaliation for the U.S. support of Israel in the Arab Israeli

Middle East Organization of Petroleum Exporting Countries (OPEC) withheld oil production needed by the United States and other industrial nations. This created oil shortages that drove prices sharply upward. In 1979, there was a second oil shock related to the revolution in Iran. Both cases demonstrated that the post-World War II system of capitalist accumulation depended on the political-military control of the Middle East. As that dissipated, the sys­ tem, which depended on an unlimited supply of oil at stable prices, was in jeopardy. Both shocks caused high levels of inflation. The industrial nations, including Japan, responded by instituting national economic policies that re stricted industrial expansion and led to unemployment. The result was what was called stagflation-high levels of inflation and unemployment occurring

simultaneously.

A New Strategy for a New World Order

The crisis had now become both economic and political and it had reached every capitalist nation. Without the Bretton Woods system in place, and with the strategy institutionalized by that system in disarray, there was a void. Between 1972 and 1977, highlevel discussions about an alternative strategy occurred. These involved leading academics and politicians in much of the developed capitalist world. They occurred in many forums, including such influential institutions as the Trilateral Commission and the Organization for Economic Development and Cooperation (OECD). There had also been a significant experiment in the aftermath of a coup in Chile in 1973 in which the military dictator Augusto Pinochet overthrew a popularly elected socialist government and endorsed an economic program promoted by University of Chicago trained economists and their mentor, Professor Milton Friedman.5

The Chile economic program included tight money to end inflation, drastic reductions in government spending, currency devaluation, and the opening of markets for goods and capital to foreign investors.

The Chilean experiment provided the outlines of a broad alternative strat­ egy for surplus value accumulation that was evolving between 1972 and 1977. Essentially the strategy was to cheapen the costs of production and expand markets. A key focus of the strategy was the cost of labor, but other kinds of production costs were also targeted. These included the cost of raw materi als and other inputs into the production process; the cost of environmental controls and cleanup; and costs associated with the demands for worker and human rights. The second element of the developing strategy was mobility of capital, goods, and services. Mobility was at the heart of the effort to cheapen produ_ction costs while expanding markets. Mobility involved developing a capac1ty to produce goods and services in a more flexible way and with greater

THE EVOLUTION OF A NEW WORLD ORDER 39

f£ciency, meaning less cost for each item produced. Mobility included both ilie ability to produce things in different geographical locations and the ability to move out of one kind of economic activity into another. The cheapening of production costs was discussed at length in the early Trilateral Commis­ sion papers. The commission's discussion stressed the need for greater effi­ ciency and competition through free markets. There were some statements roade during this period that put the issue more bluntly. Jacques de Larosiere, chairman of the International Monetary Fund in 1984, for example, stressed the need to reduce labor's share of profits.6 A decade later, the OECD argued that lack of "flexibility in labor markets" caused unemployment and poverty, and that a key to the solution was to lower real wages_? The 1990s call for flexibility extended to work hours as well as social welfare policies for the unemployed. The OECD strongly recommended that the developed nations take measures to lower production costs through flexibility, which included wages, benefits, working hours, and a reduction of public benefits to the un­ employed.8 The broad outlines of a new mode of accumulation emerged from these developments.

Jumpstarting the New World Order

A new mode of accumulation doesn't just start by itself when the old sys­ tem has broken down. Nor can it simply be imposed by politically powerful people. Workers in the developed world were demanding a bigger share of a shrinking pie. They were essentially making greater claims on value produc tion than the system was capable of producing. Adding to the crisis, liberation movements in the developing world were demanding independence and often embracing socialism. U.S. corporations backed by their government had been at the center of the dying order. But the United States had lost its economic and political ability to continue to play this role. Moreover, capitalist profit rates were falling.9 The mechanisms through which swplus values could be accumulated and used to create even more surplus values were deteriorating or were gone altogether. To create a new mode of accumulation it became necessary both to destroy claims on the value that had been generated under the old regime and to gain some more capital to get something new going. Unlike the previous period, where two world wars had destroyed claims on value while creating a demand for the expansion of production, the new pe­ riod lacked a start up

"primitive accumulation" through which new capital could be accumulated and demands on capital destroyed. The source of new capital turned out to be credit. Credit expansion served to jumpstart the new mode of accumulation and continues to play a critical role in its ability to function. The need to destroy claims on value was accomplished, as I detail below, by a massive deindustrialization and an attack on organized labor in the developed world

40 CHAPTER 3

and a regime of austerity (such as that imposed on Chile) in the developing

I world. It was only through these mechanisms that new institutions could be

fully built to implement the envisioned new world order.

i

Credit Expansion

Credit is a form of fictitious capital-fictitious in the sense that it is not pro· duced by living labor and thus contains no value. Credit has always been a key feature of capitalist development. But its use and role have varied in different periods. In the waning days of the Bretton Woods Agreement, international banks were active making loans in Eurodollars, U.S. dollars being held by foreign banks. These dollars were initially used to finance the international operations of the emerging global corporations. At one point Business Week complained that these huge corporations were creating an uncomfortable de mand for 11stateless money."10 But even after President Nixon ended the gold standard in 1971 and Bretton Woods by agreeing to allow the value of interna tional currencies to fluctuate in 1973, most international business was still conducted in dollars. The reason was simple: the old system had left dollars

1: in the reserves of nations, corporations, and banks throughout the world. The

THE EVOLUTION. OF A NEW WORLD ORDER 41

beginning to live beyond their means. But with the coming of a new world order, household debt began to climb rapidly. By 1979, the debt burden of U.S. households was up to 63 percent of total personal income." And only about

30 percent of this burden was due to mortgage debt, which at least could pro­

vide a tangible asset. Seventy percent of the debt was consumer debt. Many

people were accumulating interest and principal obligations faster than the means to pay them off. This was not true of everyone. Rich people go into debt to "invest" or speculate on the growing array of opportunities in the stock market or more high-risk ven ures.

ferent. A I990 study concluded that U.S. families with lower incomes, who comprised 40 percent of all families, borrowed in order to make up for falling or stagnating wages. 16 And the trend continues as the new world order gains steam. Between 1979 and 1989, household debt as a percentage of personal annual income climbed from 63 percent to 76 percent. Estimates for 1997 put the figure at nearly 85 percentY During the 1990s, the use of credit cards in the United States exploded. Between 1990 and 2000, credit card debt as a percentage of disposable income increased by 6r percent and the amount of such debt went from $432 billion to $1,173 billion.18 Balances averaged more than $7,000, which meant that more than $r,ooo per year was being paid out

:·!

world was literally awash with dollars. 11 And the OPEC oil crisis added even

more because the oil-producing nations decided to take their windfall profits in dollars. These profits, which were the fruits of the OPEC-induced price

increases of 1974-77, were deposited in international banks.

Massive dollar reserves caused the banks to seek new and expanded mar­

kets for their dollars. Financing the expansion of international corporations thus continued. By 1986, the debt of non financial

a staggering twenty-two times the value of after-tax profits. 12 But loans also went to the developing world. The sources of these loans included both the commercial banks that saw opportunities to make money and governments, whose motivation was political. Government loans to developing nations be came a ticket to political influence. The United States and other capitalist governments began to compete with the Soviet Union, using loans to draw nations into their orbit. Developing nations, some newly free of colonial rule, were in dire need of loans for development. Friendly governments could be bought. Debt in these countries rose from $roo billion in 1973 to over $goo billion by r984. 13 During 1977-82, net capital flows from developed to devel­ oping nations were, on average, US$30.5 billion a year. Loans accounted for over $29 billion in positive flows. 14

The expansion of credit was not confined to the developing world. Credit

was used inside developed nations to maintain markets for goods and services there. Domestic credit expansion in the United States can be seen in the rise of consumer debt relative to income. In 1949, debt as a percentage of per sonal income was 29.5 percent. But as early as the late 196os, the percentage had climbed to 59 percent. As the old regime crumbled, people were already

in interest and related fees. 19

The expansion of credit in the developed world can also be seen in the debt incurred by governments. This has been particularly dramatic in the United States. Outstanding debt of the U.S. Treasury had been high at the end of World War II (6r percent of gross domestic product [GDP) in 1952). But the postwar expansion under the terms of the Bretton Woods Agreement had greatly reduced these obligations. By r974, outstanding debt had dropped to only 23 percent of GDP. But then it began to shoot up again.20 By 1996, it had reached 5 r percent of GDP and interest payments on that debt were 17 percent of GDP. The expansion of government debt in the developed capitalw ist world was not confined to the United States. In 1996, debt in the Euro pean Monetary Union nations amounted to 59 percent of GDP, with interest payments of II percent.21 Outstanding debt is the accumulation of annual budget deficits when the government spends more than it gets in taxes and other revenues. Budget deficits in the United States accelerated sharply un­ der President Reagan in the I98os. While Reagan slashed social spending, he greatly increased military spending and cut taxes for corporations and rich people. The resnlt was huge budget deficits that virtually exploded beginning in 1982. The deficits continued well into the 1990s and caused the amount of debt held by private investors to triple over a decade. 22 In 20oo, total outstand ing government debt in the United States stood at $5.7 trillion. in the Fordist era deficit spending by governments of developed nations had been used as a positive policy tool to stimulate the economy and pursue a full employment policy. But deficits during the twenty-year period from the mid-1970s to the mid rggos

42 CHAPTER 3

discuss in Chapter 8, this sort of positive fiscal policy has been abandoned. So growing government debt has become simply a part of the expansion of credit that jumpstarted and now sustains the new world order.

Corporate debt is also part of the picture of credit expansion. Borrowing

money to buy assets that will increase profits is considered good business prac­

tice. But some uses of corporate debt can have negative social consequences. U.S. corporate bond debt, which is one indicator of the size of credit expansion to U.S. corporations, stood at about $3.3 trillion in 1997. For non-financial cor­ porations the debt grew from 13 percent to r8 percent of GDP between 1980 and 1997. The growth was more dramatic for financial corporations, where the debt went from 3 percent to 17 percent.23 As noted earlier, some of this debt was used to move capital to other nations. Since the mid-198os, the growth of U.S. direct investment abroad (which involves having at least a 5 percent interest in a firm) has increased faster than comparable investment in the United States.24 Also during the 198os, there was the rise in so-called junk bonds, which involved lending at very high rates of interest to risky ventures that did not have much in the way of collateral. Finally, much of corporate debt has been used to finance mergers. Between 1980 and 1997, U.S. non­ financial firms spent $3 trillion on buyouts of one sort or another.25 Records in the value of mergers are set year after year.In1997, for example, that value was $828 billion, eclipsing the record of $626 billion set the previous year according to a report from Securities Data Company.26 If one were to add the money borrowed for these mergers to the money paid out for stock dividends and interest, non financial-firms' distribution of funds to financiers was 5 percent more than their capital expenditures between 1985 and 1997. These funds were simply plowed back into the stock market, which contributed to the rise of stock prices but not production (more about that later). 27

It should also be noted that a considerable amount of debt was acquired

in the 1990s in order to invest in the stock market. A number of analysts, in­ cluding the chairman of the Federal Reserve, Alan Greenspan, expressed great concern about this because a sharp adjustment in the stock market could lead to massive debt default. What is important to note, however, is that credit expansion drove up stock prices. During the 1990s, margin debt of New York Stock Exchange members, which is the money they borrowed to buy stocks, increased from about $so billion to over $270 billion."This happened despite the fact that since the mid-1970s investors were required to put down half of the initial cost of buying a stock. The size of margin debt accelerated in the latter half of the 1990s. It was estimated that between 1995 and 1999, margin debt of New York Stock Exchange members as a percent of their stocks' mar­ ket value increased by 190 percent. The growth of debt incurred through on­ line brokers was even more staggering-459 percent during the same period.29

Using the Standard and Poor soo Index, it is also believed that the rise in debt

margin is outpaced by the rise in stock prices. Margin debt as a percentage of total consumer debt increased from 7 percent to over 16 percent. Between Oc-

THE EVOLUTION OF A NEW WORLD ORDER 43

tober r999 and February 2000 alone, margin debt soared by $83 billion. That is more than the book value of the equity capital of the ten largest investment firms in the United States.30 The fall in stock prices in response to possible recession has put the rise of margin debt on hold. But it is nonetheless a part of the credit expansion that jumpstarted and sustains the new world order.

The Destruction of Claims on Value

Workers need to purchase goods and services that are a prerequisite to self­ development-food, housing, clothing, health care, education. These create claims on the value they produce that conflict with capital's need for surplus value to keep the system going. Moreover, there are social claims on value that include environmental cleanup, social services like public education, and entitlements that maintain a basic standard of living for those who are unable to work. There are public claims on value for public health and safety. And there are claims generated by the cost of military forces and weapons. During a crisis the conflict between these claims and the need to accumulate surplus value becomes very great. And in order to begin again with a new mode of accumulation, some of the claims from the old 'order must be destroyed. War is one path to the destruction of value. So is an economic depression, which destroys businesses and puts workers on the street. But war and depression can be system-threatening. The Fordist period was ushered inwith the cataclysms of both depression and two world wars. And these crises did pose a threat to world capitalism.

The new world order could only come into being with a similar destruction

of claims on value. But this time the mechanism was quite different. The costs of production were cheapened by moving capital and by limiting the ability of labor organizations or governments to resist. In the United States, the post-World War II deal with labor to trade labor peace for a share of world capitalism's surplus was brought to an abrupt halt. It came in two ways. One was an out-and-out attack on labor. In the United States, the opening round came in the early days of the Reagan administration. Air traffic controllers who were forced to work long, stressful hours under frightful conditions be­ gan organizing and demanding a better deal. Ultimately they went on strike, which was forbidden by special federal government laws. President Reagan refused to bargain and fired everyone, replacing them initially with military controllers and then training new employees. This action broke an informal, yet critical part of the postwar deal. No one was supposed to replace striking workers permanently. When President Reagan did, he gave a signal that the practice was now politically acceptable. And corporations from that point on began to replace their workers routinely.

Second, the industrialized nations, led by the United States, began to move their capital into places or other kinds of economic activity where costs were cheaper. These relocations were initially within the United States itself from

44 CHAPTER 3

unionized high-wage areas in the North to the South and Southwest, but even­ tually moved out of the United States altogether.31 Factories and mines were closed wholesale. It has been estimated that in the 1970S, the United States lost 30 million jobs to capital mobility. And in the I98os, the loss was from

!.5 to 2 million jobs a year.32 Furthermore, this massive job loss ultimately meant that workers suffered a loss of income.33 Eventually, much manufactur­ ing production in the United States departed to other nations. Between I966 and r986, the U.S. share of manufacturing exports fell from r7 percent to rr percent, while the share of foreign affiliates of U.S. corporations rose from 8 percent to ro percent. Also, U.S. direct investment abroad has been outpacing U.S. investment in the United States.34 It is hard to measure the net effect of this in a comprehensive way. But anecdotal evidence suggests that globally la­ bor costs have been cheapened. For example, General Motors opened up a new plant in Mexico in order to expand production of their sport utility vehicle. The new Mexican facility was state of the art and productivity was as high or higher than at U.S. plants. But Mexican workers were paid $1.54, while U.S. workers got $r8.96 per hour. After the move, the sticker price of the GM Suburban actually increased by ro percent.35 Then there is Nike corporation and its famous traveling sneaker. This corporation has consistently moved its production from nation to nation in response to demands from workers for living wages. It went from Japan in I967, to South Korea and Taiwan in I972, to China and Thailand in r986, to Vietnam in I994· Each time work­ ers began to organize, Nike moved to yet a lower cost area.36 Moving capital in this manner would be pointless if it did not result in the expropriation of more surplus. What is more, the mobility of capital also began to give U.S.­ based companies an edge since they could and have threatened to move if their workforce would not work on their terms.37 While incomes of poor peo­ ple and even middle-income people in the United States declined or stagnated between the early I970S and late I99os, some people became very rich. I argue later that the rise of the fortunes of rich people throughout the world, not just in the United States, is in part the result of the acquisition of fictitious capital through speculation. My point here is that deindustrialization and the attack on labor in the United States contributed to the lowering of global social wage. And a similar thing began to happen in other developed nations.

Furthermore, as workers in these nations began to flounder, their political leaders shut the door on their claims to the global surplus value by cutting government spending. President Reagan and British Prime Minister Thatcher enforced austerity on their nations, workers by cutting social spending. Pro­ grams in housing, education, health care, and public welfare-programs that had been a part of the deal with labor in the 1940s-were gutted. And the car­ nage didn't end with Reagan and Thatcher. All subsequent administrations followed suit under various pseudonymS-11a contract with America," "rein­ venting government," "a third way."

Global credit expansion and the destruction of claims on value in the devel-

THE EVOLUTION OF A NEW WORLD ORDER 45

ope9. world established the necessary groundwork for a fuller implementation of the new world order. But the success of the strategy could not be com­ plete without the participation of the developing world. Colonialism was over. As the newly independent nations struggled for independence, new forms of control were sought to make them a part of the evolving new world order. It started when the industrialized nations and their bankers spread money throughout the developing world and the major multinational corporations began to build production facilities and export platforms there. But as that was about to take off, the evolving new world order suffered a major setback in the form of a debt repayment crisis.

A Bump in the Road and an Opportunity

As the capitalist world began to recover from the deep recession of the mid­ I970S, another shock came in the form of a second OPEC oil crisis. In !979, OPEC nations again decided to gain higher prices for their oil by withholding production, and oil prices spiked once again. In the United States, France, Great Britain, and Italy, oil prices touched off another round of general price inflation. And as the increased prices lowered the demand for products, these countries plunged back into a recession, experiencing simultaneous inflation and unemployment. The response of the United States was to increase interest rates to stifle inflation. By I98I, the U.S. Federal Reserve had pushed interest rates up more than 6o percent over the I977level.38 Some U.S. interest rates were over 20 percent. The high interest rates, while dampening inflation in the United States, drove the economy into a deep recession.

But it did not stop at the borders of the United States. As high interest rates

and subsequent unemployment choked off the demand for the world's prod­ ucts, prices began to fall. The price of oil collapsed. While in the previous cri­ sis of the mid-1970S1 the recession was limited to the industrialized nations, this time the crisis spilled over into the developing world. The reason had everything to do with the lending frenzy that had preceded the most recent collapse. Developing nations were vulnerable in three ways now. The only way these nations could pay off their loans was to use revenues from exports. But the deep crisis in the industrialized nations, which had been buying these exports, meant that the markets for the products of developing nations were collapsing. As prices for their products collapsed along with demand, export revenues slowed to a trickle. Second, with interest rates so high in the United States, money from all over the world began to flow there to take advantage of the high returns. That meant that some flowed out of the developing world. This, in addition to the drastic drop in exports, meant that the demand for the currencies of the developing world also collapsed and a devaluation ensued. A devaluation in a nation dependent on the outside world for many products means that many things are suddenly very expensive. So inflation began to

46 CHAPTER 3

cut into the purchasing power of the people of the developing world. And the economies of these nations were thus plunged into deep recession accompa­ nied by high inflation. To make matters worse, these nations were forced to pay higher interest rates on their flexible rate loans. As a result, the payments on these loans went sky high.

This turn of events plunged already poor nations into desperate poverty.

Millions of people were without work and without homes and may

But what got the attention of the industrialized nations and therr mtema­ tional banks was the wave of debt defaults that ensued. In August 1982, Mex­ ico which had been paying off massive loans with oil revenues, announced th;t it would have to default. Other big borrowers-Brazil, Argentina, Yu­ goslavia, Romania, and India-followed suit. And numer us

ished nations-Ghana, Zaire, Bolivia, Peru, Bangladesh, Sn Lanka, Somaha­

also became insolvent.

The cost of the debt crisis in terms of human suffering in the developing

world was enormous. But for the industrialized nations, despite creditor con­ cerns about default, the crisis presented an opportunity. The threat of debt default offered a wedge through which some aspects of the vision of a new world order could be institutionalized. Expanded credit, mobile capital, and cheapened production costs could now become part of the economic devel­ opment program of developing nations. The mechanism used was to offer "bridge loans" to insolvent nations through the International Monetary Fun . These loans enabled these nations to make their debt payments. The credit crunch in the United States and other developed nations was thus offset by a credit expansion in the developing world, enabling the emerging system as a whole to be sustained by credit even when some parts of the system were raising interest rates.

Moreover, in return for the bridge loans, the IMF imposed a number of con­

ditions that amounted to wholesale restructuring of entire national econo­

mies. These conditions, known as structural adjustment programs (SAPs), did not come out of the blue. As noted above, there had been some earlier exper­ imentation in Chile. The mid-1970s Chilean stabilization package included devaluation of the Chilean peso, privatization, and an end to price supports. It also refocused the economy toward exports and removed trade barriers. These provisions were replicated in the later IMF structural adjustment programs.

Another predecessor to these programs was far less dramatic than .the Chi­ lean coup, but nonetheless provided an important set of building blocks for the emerging new world order. In the late 1970s, the World Bank had identified four Asian economies-Hong Kong, South Korea, Singapore, and Taiwan­ as models for economic development. They were given the designation of "newly industrialized countries" (NICs). Their rapid growth rates and rising export economies also earned them the nickname of the"Asian Tigers." By

1978 these four economies, along with Brazil, Mexico, and India, accounted for 7percent of the manufacturing exports from the developing world. 39 In

THE EVOLUTION OF A NEW WORLD ORDER 47

1979, the former U.S. secretary of defense during the Vietnam War, Robert McNamara, announced a major policy shift on the part of the World Bank. McNamara was now the bank's president. At a meeting of the United Na­ tions Conference on Trade and Development (UNCTAD), McNamara called on poorer developing nations to emulate the economic development policies of the NICs and announced that the World Bank would play a role in helping them do so. Developing nations throughout Africa and Latin America were the target for the World Bank's new venture. They were designated as "less developed countries" (LDCs), and the idea was for them to become NICs. In the past the World Bank had been the source of major development loans that were focused on infrastructure-highways, dams, and the like. The "plan of action" announced by World Bank President McNamara proposed '1structural adjustment loans" (SALs) that would focus on major export sectors of LDCs and be conditioned on policies focused on the development of export markets, liberalized trade, privatization, and reduced public-sector expenditures. One of the first SALs was awarded to the Marcos government in the Philippines. The $200 million loan was focused on the Philippine industrial sector.

It was in this context that the IMF responded to the debt crisis with its own version of the World Bank's SALs. In 1982 the IMF instituted its 11extended fund facilities," which were ten year, highly conditioned bridge loans.In 1982 the IMF granted twenty loans in excess of $so million each. Twelve of these went to the LDCs that had been designated by the World Bank as potential NICs. 40 What is important to note here is that two key Bretton Woods Insti­ tutions, the World Bank and the IMP, had begun to change their mission in the wake of the collapse of the Bretton Woods Agreement. The World Bank had been created to provide long-term development loans for the rebuilding needed after World War II. The IMP was created to maintain fixed currency exchange rates through short-term adjustment loans. Now these institutions had become a key vehicle for opening the developing world to the program of the new world order. By the end of the 198os, seventy-five countries in Africa, Asia, Latin America, the Caribbean, and Eastern Europe had received more than $41 billion and r8yloans from the World Bank and!MF that were condi­ tioned with structural adjustment programs.41 The debt repayment crisis was a bad bump on the road to a new mode of accumulation. But the U.S. govern­ ment, the IMF, and the World Bank turned that bump into an opportunity.

Institutionalizing a New Mode of Accumulation

SAPs, the conditions for both IMF extended fund facilities and World Bank structural adjustment loans, are a part of the institutional structure of the global economy. SAPs vary from one nation to another, but tend to have some common elements.42 A typical SAP from IMF includes two phases. The first is a stabilization phase, which is a program of severe austerity. Stabilization

48 CHAPTER 3

nearly always includes currency devaluation, which makes exports cheaper

challenge he

THE EVOLUTION OF A NEW WORLD ORDER 49

I I I

1:

', i

so the nation can gain revenues to pay off loans. But it also makes imports ex­ pensive, thus causing domestic inflation that cuts real wages. The practice of indexing wages to inflation is also outlawed so that wages are contained. Price supports and subsidies are eliminated so that the nation's products compete on the basis of world prices. Internal credit is often restricted. Government budgets must be balanced, which is generally done by cutting social programs. Once the stabilization program is in place, the second phase of structural re­ form is instituted. Reforms include the removal of tariffs and other barriers to trade, removal of barriers to the flow of capital in and out of the nation, and privatization of state enterprise. Development is then focused on export industries that can earn foreign exchange to pay off the loans. These programs have such a harsh effect on the populace that force is sometimes required to contain social movements against them. Thus, human rights and labor rights abuses are common. Negative effects on the environment due to the single­ minded push on developing an export sector are also common.

The point of SAPs, in addition to paying back loans, is to open the develop­

ing world to foreign investment. As I argued earlier, this meets the objective

of cheapening the costs of production, thus reducing claims on value. The rise of SAPs should be seen in conjunction with the expansion of credit and the destruction of living wage manufacturing jobs in the developed nations. They are a significant part of the institutionalization of the new world order.

The process of institutionalization also included the promotion of so-called free trade agreements. This development began in 1986 when negotiations over the restructuring of a third Bretton Woods institution, the GATT, began. The GATT was created as part of the Bretton Woods Agreement in order to facilitate trade among the nations of Europe, the United States, and Canada. Originally, the GATT had only eight members who met to establish a set of general guidelines that would be the basis for bilateral trade negotiations. Over the years, the membership of the GATT grew to include many of the nations of the world. These additions included new rounds of GATT negotiations, not only to add new members, but to agree on increasingly complex issues that came with new partners. Through seven rounds of GATT negotiations, how­ ever, the basic structure of the association remained unchanged. It was still a forum to seek consensus about the basic features of trade among nations. Its focus was primarily on tariffs and quotas on the goods that were being traded among its members. Enforcement of rules could only happen through consensus. Formal trade agreements were bilateral-nation to nation.

But the eighth round of GATT negotiations, known as the Uruguay Round, marked a sharp departure. A sweeping transformation of the GATT was pro­ posed. By 1995, these negotiations resulted in a new organization, the WTO, which is charged with enforcing a broad set of global regulations. Majority vote rather than consensus makes these rules enforceable. Members, who now include 135 nations with thirty-two nations having observer status, can

whose deliberatiOns are closed, adjudicates charges of rule violations. GATT

rules are greatly expanded by including a variety of 1'non-tariff barriers to trade" that impact domestic food safety laws, product standards, and invest­ ment policy.

The GATT negotiations, involving so many nations, were contentious and many specific proposals governing investment, agriculture, and trade in ser­ vices were voted down. These were taken up, however, in more limited bilat­ eral and multilateral venues. In 1989, the United States entered into a bilat­ eral agreement with Canada known as the Canadian-U.S. Free Trade Agree­ ment (CUFTA). It was signed despite a vigorous opposition campaign from a coalition of Canadian trade unions, environmentalists, women, and human rights activists known as Action Canada. CUFTA contained many of the el­ ements that were included in the negotiations for the WTO. After the sign­ ing of the CUFTA, President George H. Bush presented publicly in July 1990 his vision of a new world order that would proceed initially throughout the hem sphere

MeXIco would be the next step, he initiated negotiations among the United

States, Canada, and Mexico for NAFTA.

Negotiations for NAFTA concluded in 1993 and the agreement was signed by all three nations in 1994. This time there had been vigorous opposition from coalitions in all three nations. President Clinton, who defeated Bush and assumed office in 1992, never missed a beat in the pursuit of the vision of a new world order. He concluded the negotiations and made a series of deals with different factions to push NAFTA through Congress. The terms of NAFTA are important to understand because they were the most comprehen­ sive institutionalization of the new world order to date.

Half of NAFTA's thousand-page text is devoted to tariff schedules-size of tariffs and a calendar for reduction-for individual products. The rest of it is a set of global rules that contain many of the elements of the IMF and World ank 1'na­ twnal treatment" that makes it illegal for a nation to give special treatment to any of its domestic firms. Thus, it is impossible to use subsidies domestic buying regulations, marketing restrictions, or any other measureas an in­ dustrial policy to achieve domestic economic development objectives. Con­ verse!,

on an mtematwnal scale more mobile. There are also "rules of origin" pro­ visions that specify for every single product traded a percentage of value of total output that has to be produced inside the area. The different percent­ ages for different products reflect the prevailing political interests of various industries. What this does in practice is to allow large global corporations to source components of their product outside the three-nation area to make it cheaper to produce and still qualify for NAFTA benefits when they sell it in North America or when they want to move some parts of the production

50 CHAPTER 3

process within the NAFTA region. NAFTA also limits the use of food safety standards by forcing advocates of high standards to prove that they are not needlessly denying market access.

A major innovation in NAFTA is detailed rules dealing with investment and financial services that deregulate flows of capital within the region. It is illegal to give inducements to investors to purchase from local suppliers. It is also il­ legal to require that businesses that operate locally have some minimum local

ownership. There are bans on any local economic development strategy that is exclusively directed toward corporations that are locally or nationally owned. Restrictions on what any corporations can do with their investments are il­ legal. Among the prohibitions on the list of illegal performance requirements is the practice of using subsidies to promote the development of particular industries within the nation and local purchasing requirements to increase locally produced content. It is illegal to require restrictions on the transfer of profits out of the country by requiring corporations to hold a portion of revenues or retained earnings in national banks. There are very strict rules governing the expropriation of foreign investments that enable corporations to mount legal challenges to practices that they perceive restrict their prof­ its. This includes real sanctions that enable corporations to sue governments. There are similar provisions governing the activity of banks and other finan­ cial service firms, including a ban on rules that might prevent or discourage speculators from rapidly moving portfolio investments in and out of nations. The expansion of these basic features of NAFTA, built on the earlier efforts

to institutionalize the terms of the new world order in Chile, SAPs, and the WTO, continues. As I write this, negotiations are well under way to expand the scope of the WTO and to turn NAFTA into a 11Free Trade Agreement of the Americas" (FTAA). The FTAA would include the remaining nations of the hemisphere (except Cuba) in an agreement to include the basic provisions of NAFTA while expanding directions of investment and financial services liberalization and the trade in services generally. The terms of SAFs, NAFTA, and the WTO all promote an agenda of cheapening production costs through full capital mobility. Tremendous technological advances are supportive of this direction. Telecommunications, computer hardware and software, and transportation technologies make these changes feasible and give them mo­ mentum.

Consolidation: Credit as a "Permanent" Feature of the New World Order

The new world order is thus a strategy of capital accumulation that uses cap­ ital mobility to cheapen production costs and destroy claims on value. As the new system becomes institutionalized through SAPs and global 11free trade" agreements, various features of the new world order act to consolidate it. Here

THE EVOLUTION OF A NEW WORLD ORDER 5!

credit continues to play a critical role. It has provided new but fictitious capi­ talto make capital mobile and to open up markets that facilitate the cheapen­ ing of production. And it has financed related technological and institutional developments. But profits generated by credit are not a sustainable basis for ongoing capital accumulation uuless they are gained through activity that employs and compensates human labor. Further, such profits are not sustain­ able unless the labor power used in the ·production process is compensated at wages that can sustain human life and that meet the needs of human self­ development. This has not been the case. The new world order is a mode of accUmulation that continues to destroy claims on value and cheapen the costs of production-particularly labor costs. Credit is being used to perpetuate a system that has become a vicious circle. Credit, in such a system, feeds upon itself. The new world order is not only jumpstarted with credit, it requires expanding credit to survive.

The system's ongoing need for expanded credit became evident in the United States during the economic slump of the late r98os and early 1990s. At the time there was a collapse of a number of credit sources. One of these was the savings and loan industry, which became overextended with highly speculative loans. Another was the growing market for junk bonds (very risky instruments with high interest rates) and exotic derivatives, securities whose "prices are derived from the prices of other securities or even things."43 High rolling financiers had been selling these bonds and derivatives, which were then used to finance highly questionable activities. Their high returns made them attractive to buyers. Orange County, California, was one of them. As many of the speculative ventures went down, the junk bond and derivative purchasers, including Orange County, and a few of the financiers went down with them. The New York Federal Reserve did a study of the economic down­ turn of the late 198os and concluded that a credit crunch-especially the dry­ ing up of bank credit-was largely responsible.44 In other words credit expan­ sion needed a continuous flow of credit to hold up.

Evidence presented earlier also supports the view that credit needs more credit to -sustain itself: the relation of debt to the rise in stock prices, the growth of consumer debt to meet life's necessities, and the growth in govern­ ment debt as social services expenditures decline. Moreover, evidence that continually expanded credit is an integral part of the new world order is not limited to experience in the United States or the developed world. Debt in the developing world has also become an essential element in the ability of less developed and very poor nations to adhere to the new world order programs. The World Bank and the!MF have designated very poor nations who are deeply in debt "heavily indebted poor countries" (HIPCJ. The HIPC nations include much of Africa, Central America, and some countries in Latin America. Other LDCs that have high debt burdens include nations like Mexico, Brazil, and the Philippines. Between r98o and 1997, the debt of both HIPC and LDC nations has increased from $sBo billion to $2.2 trillion;45 $387 billion of this debt

52 CHAPTER 3

is owed by the HIPC nations. The massive growth of debt in the develop­ ing world as a whole has been accumulated as these nations made nearly $3 trillion in debt payments. The payments on this debt have resulted in a net transfer of wealth from HIPC and LDC nations to the developed world. Over the past fifteen years, HIPC and LDC nations have paid $r.s trillion more in debt service payments than they have received in the form of loans and investments. Debt has rolled over again and again. Mexico1 for example1 has had its debt 11restructured 11 eight times since 1982. In the African nations, there have been over S,ooo debt renegotiations since 1980.46

Much of the face value of the debt is not repayable. That has given rise to a secondary market for debt itself, where private lenders package and sell debt

at a price determined by what they think the new debt owner can collect. Each owner of debt gains a return from the payments made by the developing nation and from the sale of the debt to a new debt holder. This process was initiated in

1989 through a plan conceived by Nicholas Brady, who was then U.S. secretary of treasury. The private debt to twenty-nine LDC nations was written down through its conversion to so-called Brady bonds. The bonds were then traded in international markets. While this reduced the exposure of private lenders for debt incurred in the 198os, they continued to extend credit to these nations in the 1990s by purchasing bonds issued on the international bond markets by individual nations. These bonds, like Brady bonds, are bought and sold by speculators.

Further Consolidation: Credit, Speculation, and the New World Order

Credit expansion has become a permanent feature of the new world order. This has caused an explosive growth of the finance industry and the potential profits that go with it. The critical role played by speculation in credit expan­ sion and possibly even 11Ponzi finance" is part of what makes ongoing credit expansion a permanent feature of the new world order itself. Economist Hy­ man Minsky argued that there are essentially three types of credit structures: hedged, speculative, and Ponzi.47 A hedged structure means that the interest and principal due on a debt can be paid for out of current income. Most home mortgages or car loans, for example, are financed this way. You take out a loan and allocate a portion of your income to pay it off each month. If a corpora­ tion or a nation is able to meet both principal and interest obligations out of income or current revenues, the debt structure is 11hedged." A speculative structure means that while you can pay off interest out of your income (or cur­ rent revenues if you are a government), you need to raise additional money to pay all principal. As an individual, that might mean you would have to get a huge raise, sell some assets, or take out another loan to meet these obligations. If you get behind in your mortgage payments, for example, you might have to

THE EVOLUTION OF A NEW WORLD ORDER 53

sell your car or go to some credit institution, which (at a very high price) will give you a loan to consolidate and begin to pay all your debts. Applying that to a national economy or to the international capitalist system, a speculative debt structure means new loans to pay off old ones. Ponzi finance is another matter. Minksy named this practice after a con man named Charles Ponzi.

:He would seek out investors and promise them big returns on some phony investment scheme. Since the scheme was fictitious, Ponzi could pay the in­ vestors off only if he found a second group of investors who agreed to invest an even larger amount. He used the second group's "investment11 to pay off the first group !after taking a handsome profit for himself). The scam went on until he ran out of shills. In Minky's notion of a Ponzi credit structure, there is no income or even assets to pay off debt. Its repayment is fully dependent on finding new sources of money. This framework offers a useful way to look at the use of credit extension as a mechanism to both jumpstart and maintain the new world order.

The ongoing development of a new world order has moved the global credit

structure to the brink of a Ponzi finance scam. The new world order is fueled by a credit system that is at minimum highly speculative in nature. Rapid expansion of debt gave rise to an acceleration in the business of buying and

selling the debt itself. The development of a secondary market lor private debt owed by developing nations is one example. But trading debt is now common with many other kinds of assets. A very large part of the business is U.S. gov­ ernment debt. U.S. government bonds !which mature anywhere between ten and thirty years), U.S. government notes lone to ten years), and T bills (three months to one year) are issued regularly by the federal government at various rates of interest. Their value to a purchaser is based on how much income in interest rate payments they will yield over the life of the asset. They are also valued because there is no risk of default. The U.S. government guaran­ tees them. But holding these assets until they mature does not generate the big profits. Trading debt-based securities in a secondary market makes the most money. There is a secondary market for this debt because big players want safe havens to park their money as the yield and risk on alternative in­ vestments fluctuate. So U.S. government debt tends to be bought and sold. In fact, the average holding period of U.S. Treasury paper (bonds, notes, and bills( is only one month. Other kinds of debt instruments, not only foreign debt but U.S. municipal and state bonds, corporate bonds, foreign currencies, and home mortgages, are traded on the same principle. These developments have been extended to include so-called derivatives, financial"products" whose value is derived from the value of other things. Trading "futures" on govern­ ment debt-a contract for a bunch of bonds at some future date or options to buy in the future-is an example. These developments can be illustrated by looking at the operations of two venerable Chicago institutions: the Chi­ cago Board of Trade (CBOTJ and the Chicago Mercantile Exchange (the Mere(. Both the CBOT and the Mere underwent dramatic changes in response to

54 CHAPTER 3

the collapse of the Bretton Woods Agreement and the birth of a new world order.48

The CBOT was founded in 1848 as a grain exchange where buyers and sell ers could come together in a reasonably orderly fashion. The impetus for the exchange was the wild fluctuations in prices due to the vagaries of weather, the ability of farmers to get their commodities to the markets, and the avail ability of storage facilities. When supplies were low, prices would skyrocket. A glut of grain could cause prices to plummet. CBOT, like similar exchanges in other places, formed because farmers, grain storage operators, and grain users like bakers and millers (known as hedgers) needed a way to gnarantee a stable price. Others (speculators) were willing to take on the risks of the hedgers by speculating on future prices of grain. The hedgers accepted the possibility of receiving less for their grain by selling or buying it before it actually came to market. By buying these 11futures," the speculators bet that the price at that future time would be more than they paid for it and that they could sell their grain futures at a higher price and make money. The CBOT continued to grow by trading commodity futures for more than a century. Their major competitor in Chicago was the Mere, which started in r8so by trading butter, eggs, onions, and pork bellies (bacon).

But the expansion of debt beginning in the late 1970s and its trading also created a market for financial derivatives. All of this growing financial activity brought with it high risks. Bonds, notes, T bills,

way to hold on to capital until it was needed for some other venture. Trading these assets was also a way to make the money price value of that capital grow

over time. But investors needed a way to limit the risk of not gaining a spec ified rate of return on these investments when they wanted or needed to sell them. Similarly, transnational corporations with operations around the world had to hold foreign currencies and they needed to know what those curren cies would be worth when they purchased or sold things in foreign markets. In short, in the financial world of the late 197os, there was a demand by finan cial hedgers for a degree of certainty in the returns they could expect on their holdings. And just as the speculators had stepped forward in the agricultural sector a century ago, financial speculators were available to meet the needs of the new world order.

The financial derivatives markets brought hedgers and speculators together. Exchanges like the CBOT and the Mere served as a clearinghouse to make sure the buyers and sellers met all their obligations. Initially, the derivatives traded at CBOT and the Mere were futures or options on different forms of debt. A speculator would be willing to sell a contract on a batch of a partie ular type of debt at a specific price to be delivered at a specified date in the future (a bunch of U.S. Treasury bonds, for example). The speculator did not have to own the bonds. He or she was only selling a contract-a promise to deliver the bonds at a particular price on a particular date. If the contract was not offset somehow, however, the speculator was still obligated to deliver the

THE EVOLUTION OF A NEW WORLD ORDER 55

bonds. An oversimplified view of this process is one in which the buyers of the futUres want to make sure that they know they can get the bonds at a known nee on a particular date. In practice, few of these contracts are ever really elivered

As their physical commitments of bonds (or grains, or even Swiss francs) are

satisfied, they lift their hedges in the futures market by taking an opposite pOsition (if they were buying they sell or vice versa), which closes out the hedge. They have no need to take delivery of the product; they only want the price insurance that the hedge offers. The speculator, on the other hand, buys or sells futures contracts because she or he believes that the market is too high or too low for anticipated economic conditions. The speculator never expects to take delivery of anything, but plans on offsetting futures positions held prior to delivery even if it means losing money. Thus, the speculator takes risks in expectation of profit. Futures contracts are traded back and forth as the traders try to make (or lose) money out of thin air. In this world, the line between hedgers and speculators can get pretty fuzzy. If you are a really big time player in this game, you can hedge some of your assets and speculate with the rest. In 1975, only 1.3 percent of CBOT contracts were in financial futures; the rest were agricultural commodities. By 1980, financial futures' percentage of CBOT contracts had risen to nearly 20 percent. The following year finance jumped to over a third of all CBOT business, and by 1985, the vol­ ume of trading was over twothirds. Today finance constitutes over So percent of CBOT business.

The Mere had a similar metamorphosis. It had floundered as a butter and egg

outfit and, by 1960, was in danger of extinction. Their recovery and meteoric rise came when President Nixon took the U.S. dollar off the gold standard in

1971. At this point international currency speculators began to purchase Ger man marks and Japanese yen, driving the exchange rate of the dollar down. But

the rules of the Bretton Woods Agreement called for exchange rates to remain fixed and pegged to the dollar. West Germany and Japan were thus forced to sell their own currencies for dollars. By the middle of 1971, Germany and Japan held over $24 billion.49 The situation was chaotic. World trade and the emerging regime of mobile capital needed some certainty in exchange rates. Yet the economic crisis and the declining political and economic strength of U.S. capital meant that legislated fixed exchange rates were not sustainable. Conservative University of Chicago economist Milton Friedman, who had played a key role in the economy of Pinochet's Chile, also had an essential role in instituting a regime of floating exchange rates. Along with Mere di rectors he advised President Nixon to cancel the Bretton Woods, releasing a paper that made the case for floating exchange rates.50 Days after President Nixon cancelled the Bretton Woods Agreement, the Mere launched its Inter national Monetary Market in which the value of currencies could be deter mined through the relationship of hedgers and speculators.

Since these not so humble beginnings, the trading of financial instruments

56 CHAPTER 3

and derivatives has become an exploding industry. 51 The products being traded at the CBOT and the Mere and throughout the world have grown in numbers and in complexity. The relative compostion of different kinds of contracts has changed. Currency trading at the Mere, for example, has diminished in importance. The creation of the Euro made trading in European currencies less profitable. At the same time, the creation of these futures markets has give rise to big-time speculators whose selective purchase and sale of particular currencies in calculated time frames can and has altered their exchange rates as huge amounts of money enter and leave nations. In addition, both the Mere and CBOT have developed new ''products." There are futures markets, for example, on stock indices like the S&P soo. Buyers of an S&P sao future are likely to be also trading stocks but hedging their risk in the stock market by taking an opposite position in an index. The index is a number that shows the relative growth or decline of a bunch of stocks, and has no actual value in and of itself. But there are 11index funds" that create a physical portfolio of stocks that mirrors the index. Such funds will perform identically to the index. For this reason a stock index future is a perfect hedge for stock investors who are nervous about the future of their stock portfolios. The value of the index is derived from the value of the fund. There are all sorts of derivatives like this. And there are always the speculators who make money buying and selling 11products" like this that are not really products and that they don't really own.

Such activity has carried far beyond the exchange floors of the CBOT and

the Mere. What we are talking about is the explosion of a very old but in some ways new industry in the buying and selling of fictitious capital. Its growth in the 1990s alone can be seen in terms of the amount of U.S. dollars exchanged through banks each day. In 1987, that amount was $6oo billion. By r998, the amount had risen to nearly $r.s trillion.52 Its huge growth was initially a by­ product of the new world order, but it is rapidly becoming the means to sustain it. And we are talking about an industry that has moved from its impetus­ bringing together hedgers and speculators-to the realm of pure speculation. In the terms of Minsky's model, we have moved, at a minimum, beyond a hedged credit structure to one based on speculation and perhaps to full Ponzi finance.

The expansion of credit, the trade of the resulting debt paper, and the subse­ quent expansion of derivative markets have fueled other types of speculation. Stock market activity is one of them. In the developed nations of the world, the value of stock assets is, on average, 81 percent of GDP. 53 In the United States the figure is r r 6 percent. In the LDCs, that percentage now stands at

37 percent, but it is growing very rapidly. And in some LDCs it is already huge. In Malaysia, South Africa, Taiwan, the Philippines, Chile, and Thailand, stock market capitalization as a percentage of GDP is 310 percent, 191 percent, 105 percent, 96 percent, 89 percent, and 54 percent, respectively. Even with the

THE EVOLUTION OF A NEW WORLD ORDER 57

fall.of stock prices in the early millennium years, t ese.prices

States are far above their historical levels, and there ts evtdence to support the

view that the present level is built on speculation and cannot be sustained. 54

The run-up in U.S. stock prices in the 1990s was unprecedented, far surpass­ ing the price run-up prior to the Great Depression of 1929.55 The U.S. stock market does not finance corporate capital_ expenditures. That was its original

urpose. But that has not been the case for some time. 56 Payouts to stock and

ond

were in fact 5 percent greater than the firms' capital expenditures between

1985 and 1997. These payouts went mostly back into the_stock market and have become a factor in stock price rises. Similar to the credit markets, most of

the trading in the stock market involves people buying and selling old shares of stock rather than buying to become an owner of a particular corporation.

Obviously if so much trading is being done with old shares of stocks, peo­

ple must be making money doing it. They are making money because the price of the shares keeps going up. In theory the prices sho':ld reflect what the non-financial corporations-those that make products, which people use-are doing. Price of stock should depend on what profits might be expected from these corporations. Yet that does not seem to be the case. The stock market is getting farther and farther away from the real economy. What seems to be driving the price of stocks is simply the expectation of investors that other investors will keep buying and driving up prices (or not). In addition, there is evidence that many major corporations are making a substantial portion of their profits not by selling their products and services but by purchasing the stock of other corporations. These profits made by speculating in the stock markets and credit markets make their own stocks look good to other spec­ ulators and drive their stock prices up. In January 2ooo, Intel Corporation made a gain of $327 million in stock trading that boosted earnings for the quarter above predicted levels.In response, its stock jumped 13 percent. 57 Sim­ ilar stories were reported about Microsoft, Compaq, America On Line, Wells Fargo, Chase Manhattan Corporation, Coca-Cola, General Electric, and Delta Airlines. While some intercorporate buying is justifiable if a fum does so to gain a foothold in strategic sections of its industry, worried analysts claim that increasingly the motive is profits through trading. An analyst for a ma­ jor securities firm was quoted in the Wall Street Journal in response to Intel's stock increase: 111£ the market deteriorates, Intel's earnings will as well. Intel's earnings are dependent on the continued strong performance of the stock mar­ ket."58 One analysis of the situation reported in the same article found that

124 firms in. the Standard and Poor's soo stock index had profit gains through stock trading. Without these gains the S&P sao would have been 3 percent lower than the level reported in the fall of 1999· Stock prices boosting stock

prices means that speculation is feeding on itself.

58 CHAPTER 3

Feeding the New World Order: A Ponzi Scam?

It is clear that the new world order has an insatiable need for a system of con­ tinuously expanding credit and that speculation makes this possible. But has the system as a whole become a global Ponzi scam? It is really hard to say. Let's just take the case of mortgages. The question we would have to answer is this: Is the value of and income from the real estate that is mortgaged sufficient to pay off the money price value of the packaged mortgages and derivatives tied to these mortgages that are floating around the nation and around the world? If it isn't, then the mortgage credit structure could be classified as Ponzi using Minsky's typology. But the question is hard to answer because it would be difficult to fix a price on all the instruments tied to mortgages. The various prices are in a state of constant flux. Now, consider the fact there are many many different species of credit.In addition to mortgages, there are consumer debt instruments like credit cards; stocks; government bonds, notes, and T­ bills; corporate bonds; and foreign currencies. All of these are being traded and their money price value on the market varies from day to day, hour to hour, minute to minute. Then there are the related derivative 11products"­ futures, options, swaps, floors, collars, swaptions. And there is the ongoing development of new credit and derivative "products" like junk bonds, options on futures, tuition futures, zero-coupon convertible debt, commodity-linked bonds, exchangeable remarketed preferred stock, foreign currency denomi­ nated bonds, interest rate futures, futures on notes and futures on swaps, and on and on and on!59 Who knows how far this structure of credit has moved from the functioning of that part of the economy that actually makes things or even offers services to people?

( i )Some have called all of this a huge speculative bubble. But to me it more like a giant iceberg that remains largely hidden beneath a sea of frantic finan­ cial activity. From time to time little pieces of the giant chip off and float to the surface and we get a peek at what may be going on. The U.S. sav­ ings and loan collapse in the r98os was a piece of the iceberg. So was the Asian financial crisis that began in I997 when the Thai bhat jthe national currency) collapsed, sparking inflation, capital flight, decline of real wages, rising interest rates, and unemployment not only in Thailand but throughout Asia that threatened to spread to the entire global economy. Another piece of the iceberg surfaced on September r8, I998, at 7:30A.M. At that moment some of biggest financial players in the world gathered for an emergency meet­ ing at the New York Federal Reserve Bank. In addition to representatives of the Fed there were executives from such firms as Goldman-Sachs, Merrill­ Lynch, ).P. Morgan, Salomon, and Bear-Stearns. By the end of the day fourteen major financial firms agreed to put up between $roo million and $350 mil­ lion each--a staggering total of over $1.4 billion-to bail out a competitor who had fallen on hard times. The failing firm was named Long Term Capi­ tal Management jLTCMj, whose top consultants were University of Chicago

: i

THE EVOLUTION OF A NEW WORLD ORDER 59

economists who had recently won Nobel prizes for their work in the invest­

ment field"'

.• LTCM was a "hedge fund." Such funds pool the capital of very rich people

and use it as leverage to borrow money, which is used in turn to buy and sell the ever-growing range of financial products. In the United States today, there are roughly r,ooo hedge funds with combined capital assets of $roo bil­ lion, which are leveraged by a factor of anywhere between s and 20.61 LTCM, however, was huge even by hedge fund standards. In r995, they took their

$4.8 billion in equity capital and leveraged it 27 times. With the proceeds

they reportedly acquired an estimated $1.25 trillion in derivatives and an­

other $r2o billion in borrowed bonds. When the Asian crisis began to spread and Russia defaulted on its debt, LTCM lost over $550 million in a single day. At this point the investors made an assessment of LTCM's financial situa­ tion and concluded that even if they were suddenly to liquidate everything, there would probably not be enough money to pay everyone off. LTCM turned out to be a Ponzi game. Even worse, however, is that if they had to liquidate rapidly, the prices of various financial 11products11 would plunge to such an extent that it could have brought the new world order to an untimely end. The U.S. Federal Reserve Bank intervened, forcing the largest financial insti­ tutions to make good on LTCM's debts and forcing LTCM out of business.

So what does all of this add up to? Is the fuel of the new world order a big

Ponzi scam or merely excessive speculation? Actually, it really doesn't matter. The S&.L collapse, the Asian financial crisis, LTCM, and various debt default crises have all threatened to boomerang into the collapse of the entire new world order. That is why billions and billions of dollars are going to ball out the precipitating speculators. The contradictions of this system become more and more apparent every time a piece of the iceberg breaks off and there is some local collision. The local collisions of the new world order are generally reported in the media in terms of the misfortunes of one or more big players. A trader like a LTCM's Merriwhether does not, however, just bankrupt a few billionaires who get "ruined" to the extent that they are forced to live out their lives as mere millionaires. When big speculators buy and sell financial

11products" and foreign currencies and there are bumps in the road, curren­

cies are devaluated, and prices for real products on which people depend on for survival collapse. Then millions of people starve or sink into unspeakable poverty. And the billions put up in the rescue package go to rescue the spec­ ulators and their system, not the victims.

Constructing a New World Order Infrastructure

Because the new world order has victims and because they are the vast ma­ jority of human beings on the planet, the continued existence of the new world order depends on the construction of an infrastructure to maintain it.

60 CHAPTER 3

Tbis infrastructure includes a military to keep the new world order orderly, the development of a network of economic interdependence, and both inter­ national and domestic public policies that are based on an ideology consis­ tent with the aims of this new mode of accumulation. The construction of such an infrastructure presents the appearance of a system that is permanent. Military power, growing economic interdependence, and a dominant ideol­ ogy expressed as public policy mediates what is "practical" and "reasonable" for those who are being victimized by its day-to-day operation as well as its excesses. Thus, this infrastructure serves not only to manage the operation of the new world order itself, but it also functions to place limits or bound­ aries on appropriate behavior on the part of those who organize to contest its terms.

It is important to note that the development of tbis infrastructure is not the outcome of an egalitarian political process. The new world order has pro­ duced some very powerful stakeholders who have shaped the debate over the direction of its evolution. Because the new world order must be fed a steady diet of speculation-generated credit, the interests of financiers are playing a huge role. And financiers are encompassing an ever- larger portion of world leaders. The division, for example, between financial and non-financial corpo­ rations is breaking down as so-called non-financial firms depend on the fruits of speculation for their own bottom line. And the expansion of the financial "products" and the players that use them means that even the number and scope of financial firms is growing relative to the "real" economy. Short of a long analysis of specific manifestations of this power, it is important to sim­ ply note that the need of the system for people to make money with money rather than through the direct exploitation of human labor power lends it­ self to a certain logic of infrastructure development. Making money with money means that capital must be mobile. And that means that it is neces­ sary to begin to remove barriers to that mobility. Making money with money also means that inflation becomes a greater evil than unemployment. Mak­ ing money with money means that returns on capital cannot be threatened by social welfare considerations like living wages, health care, and social safety nets. When organizers or even political leaders propose measures that threaten these needs, there are ominous predictions that "the markets will be unhappy and retaliate."

Of course, the markets boil down to people with a lot of political-power. Some of that power is directed to domestic politics. The rise of so-called po­ litical action committees (PACs) in the United States is an example of this. It is interesting to note that as the Mere and the CBOT moved into financial futures, they began to actively work in the U.S. political arena. In 1973, a Mere membership letter threw down the gauntlet.

We will oppose efforts to hamper free markets with all the legitimate tools at our disposal.... Until now, we have operated on the theory that discretion is the

THE EV-OLUTION OF A NEW WORLD ORDER 6I

-better part of valor. We do have eyes and ears in Washington, and we do have friends whom we have used, in order to modify, remove and oppose restrictive

):p.easures.62

Three years later the Mere had assembled a fund of $r37,ooo for political con­ trlbtitions to dozens of Mere-friendly office seekers. In that same year the CBOT established their own Auction Markets Political Action Committee [AMPAC). While these actions were sigoificant enough, the political presence

-of the exchanges would not be ignored. As one analyst points out, in Chicago alOne, the exchanges rented in excess of one million square feet of space that paid over $2 million in taxes: And they handled over $5 oo million a day in margin funds that were deposited each rught m Chicago banks. Muluply thts by the multitude of financial players throughout the world and one can un­ derstand why political leaders do not want to "anger the markets."

The "markets," therefore, have had a lot to say about the shape of the new

world order infrastructure. Since this infrastructure mediates the impact of new world order operations on people at a local level, it is important to exam­ ine some of its features. I have already looked at some of tbis when I described the nature of SAPs and "free trade" agreements. But in order to truly under­ stand the nature of the local collisions that have resulted from the operation of the new world order, it is necessary to examine briefly a few additional features: militarism, economic interdependence, and public policy/ideology.

Militarism

The new world order requires order. Militarism serves that function. Yet the militarism serving the new world order is qualitatively different from that of previous eras. During the Fordist period, rapid growth and expansion in the developed capitalist world was based on mass production at home. Accumu­ lation of capital was the product of domestic workers increasing their produc­ tivity and the exploitation of the natural resources of the developing world. It also required expanding markets for the products of a mass production society. During this era there was fierce competition for markets and raw materials among capitalist nations and between those nations and those in the orbit of the Soviet Union. Rising militarism in the capitalist world developed in that context. By the end of World War II, the United States had economic and mil­ itary supremacy among developed capitalist nations. But that supremacy was threatened by the Soviet Union and later China. "Containing communism" was the basis of U.S. foreign policy and military policy; a similar stance was taken by the other capitalist powers. The North Atlantic Treaty Organization [NATO) was one result. Containing communism was not ouly ideological or even political. It was closely linked to capitalism's strategy for capital accu­ mulation, which was threatened by the rise of Soviet influence.

But right on the heels of the collapse of the Bretton Woods Agreement, wbich officially put an end to the Fordist era, came the weakening and even-

62 CHAPTER 3

tual collapse of the Soviet Union. The Berlin Wall fell in r989 during the term of Ronald Reagan. In 1991, the Soviet Union collapsed during the term of George H. Bush. Yet military spending continued to climb, fueled by a series of "little wars" that has until now been the hallmark of the new world or­ der. President Reagan had already increased military spending in the United States even after the Vietnam War. Between 1982 and I986, military spend­ ing increased by 32 percent. Subsequent administrations did not really alter the dominant position of military spending in the U.S. federal budget. While the size of military expenditures declined to some extent beginning in I990, human services spending also declined. And military spending still acconnts for roughly half of U.S. federal government discretionary spending. Budget proposals and projections beginning with fiscal year zooo would increase that percentage. The terrorist attack of September II, 200I, has set off a new round of military spending. As I write this it is too early to tell exactly where the U.S. response will lead militarily.

But putting September I aside, and with the cold war officially at an end, why the persistence of military spending? Mobile capital needs a mobile mil­

itary to make sure that local "instability" jor resistance) does not threaten the emerging markets of the new world order. Some of the "little wars" have been multilateral "peace keeping" actions while others have been unilateral invasions. Covert aid was given to the Taliban and other forces in Afghanistan during the Carter administration even before the Soviet invasion of I979· Pres­

ident Reagan began a program of covert aid to topple an unfriendly regime in

Nicaragua, a program that was continued by President Bush. Reagan also ini­

tiated invasions of Panama, Grenada, and Libya. President Bush sent troops intO Somalia, the Balkans, and Iraq. President Clinton led an attack on Iraq

once again and deployed troops in the Balkans, this time to Kosovo. He also sent "advisors" and military aid to Colombia. The so-called peace dividend for ending the cold war never materialized. And now as I write this there are military operations again in Afghanistan that will likely dominate U.S. bud­ get priorities for some time to come. The new world order needs a military to keep markets open throughout the world and to protect interests in natural resources.

Global Economic Integration

Another part of the infrastructure of the new world order is the growing inter· dependence of nations. That is one of the impacts of capital mobility. Firms can now source raw materials, parts, and labor from many different geographi­ callocations. The stronger interdependence becomes, the greater the changes in the notions of space, place, and time from the old system. What is signif­ icant about interdependence is that the old conceptions of space, place, and time had become the basis for strategies to contest the terms of the old order. Interdependence undermines these strategies. In the case of labor organizing,

THE EVOLUTION OF A NEW WORLD ORDER 63

£0r·eXample, firms can say that if you don't like the way thins

:Will simply close up your workplace d

'hard for better wages and working conditions, you will be shootmg yourself m

the foot because we have to be competitive with Japan, Germany, and Kore .

,If you can't even get a job or are forced to work at low wages, the problem 1s

- ot seen as having anything to do w1th class, race, or gender. The prob e:U, any

with workers elsewhere. . . One thing worth noting is that global economic interdependence 1s not Ulll­

f rm. Particular nations are more interdependent with some nations than oth­

e s.

with a lot of other nations, for example. Similarly, certam mdustns international than others. The automobile industry, for example, 1s more m­

ternational than processed food. A 11V.S." car may consist of arts different nations. It may actually be assembled in several. erent

And the ownership of corporations that make 11V.S.11 cars 1s mcreasmgly m­

temational. This is not as true of food processing. Most of the chickens you buy in a U.S. supermarket were born, fed, and killed in the United States. And perpetrators of this cycle were most likely U.S. corpor tlons

ers. For this reason, it can be misleading to overgeneralize on the subJeCt. Y?u

can't treat total global production as if everything looks like an automoblie or a chicken.63 But there are some measures that can give us an idea of the

direction things are going.

One measure of interdependence is the relative importance of the trade of

goods and services. There is no question that exporting g?odand services to other countries and importing them from other countnes 1s much more important than it was at the time of the collapse of the Bretton Woods Agree­ ment. As we have seen, part of the post-Bretton Woods strategy has been to make nations depend more on trade. Structural adjustment programs were geared to forcing nations to shift their economies to emphasize exports and in turn open themselves up to goods and services from othenati ns.

and the WTO also are partly about increasing trade. Natlons like MeXIco,

( 11 )Bangladesh, Vietnam, El Salvador, and Honduras have become dependent on the 11export platform" industry in which foreign firms use local labor to as­ semble all sorts of products and export them to other nations. Other poor nations depend on the export of a single product or a few products-often food or natural resources-for their survival. This means they are also depen­ dent on wealthier nations and a handful of transnational corporations that have the power to influence the price of their export crops. The ?ig em r ng market" nations like Korea, the Philippines, Mexico, and Brazil are bml g their economies on trade. And even highly developed nations like the Uruted States are increasingly stressing trade as the motor of their economic dev l­ opment strategies. The numbers on trade reflect this reality. In I973, trade m goods and services constituted about I2 percent of world output. By I996, the

percentage had increased to 24 percent.64 Another change is that services have bec me

t unsm

Vlces, and entert ent.

of all the exports m the world. By 1996, the proportion had grown to over 2o percent.65 This change has been particularly dramatic in the United States where during the same time frame, services as a percentage of exports gre from IS percent to nearly 30 percent.

A second indicator of economic integration is the flow of money from one place to another. Between 1977 and 1982, net capital flows from the United States to developing nations averaged $30.5 billion. The figure for the period between 1990 and 1995 was $129 billion." It is a little harder to quantify total global cap1tal flows because there are different kinds of flows that are measured and valued in different ways. And their application and impact is also uneven in different parts of the world. So the problem of generalizing is vegreat. ut

Agam, mobile capital.is the keystone of the new world order strategy. SAPs

and NAFTA have detailed rules that open up nations to capital flows. Between

1 9and 1996, there were close to 6oo changes in national rules globallyper­ tan:mg to foreign direct investment, and 9 5 percent of these changes made nati.ons more open to this type of capital flowY It has been estimated that foreign direct investment alone has been growing at about four times the rate f 6S Because these flows mv?lvmoney .moving from one part of the world to another, these data are

an mdicator of mcreasing global economic integration.

One final. indicator of global economic integration is the role being played by transnat10nal corporations. Data in this area are not very good and so we are forced to rely on anecdotal evidence. The question is to what extent the orld's

tlv ly

This ue tion these 1s srmply e

7,ooo no.n-financ1al firms that were considered by the United Nations to be transnatiOnal. Today there are 6o,ooo such corporations with Soo,ooo affili­ ates all over the world.69 The top 200 of these firms had sales that amounted to over a quarter of the value of world output. Transnational corporations man­ ae 7o Financial corpora­ tions also operate globally. The top roo global banks have combined assets of over $2r trillion,.whichis equal to the value of about 75 percent of total world out?ut. All of this suggests that corporations that operate outside their own natw al

growmg.

Another way to assess the role played by transnational corporations in glo­

bal econom1c mtegranon 1s to look at evidence of global assembly lines, where

corporations take pieces of their products from different parts of the world and bring them together for assembly in specific locations. There is a lot of anec­ dotal evidence that this is happening in some industries. I already mentioned the automobile industry. There really are "world cars." But it is unclear how many firms or even industries really operate this way. There is evidence that many transnational corporations cooperate with each other through a vari­ ety of licensing and joint venture agreements.71 There is also evidence of the common use of different countries as 11export platforms." This is where for­ eign firms make use of cheap labor to assemble final products. Sometimes the factories are foodoose sweatshops. This is particularly prevalent in the apparel and electronics industries. But in other instances, firms like Ford, and Boeing establish state-of-the-art factories so that productivity is high and wages are low. There is no real measure of such "global assembly line" activity. And even it there were, a single measure would mask differences among industries. One final angle on the role of the corporation in global economic integration

is the extent to which trade among nations is actually trade within corpora­

tions. When corporations source parts and materials for their products from production facilities in different nations, that is a form of global economic integration. To the extent that corporations are engaged in this type of global production, it shows up as part of trade-the imports and exports of differ­ ent nations. Some estimates have placed the intrafirm portion of global trade from one-quarter and one-third of all trade. Data on U.S. trade from the U.S. Department of Commerce traces this over time. 72 In 19S2, the percentage of U.S. exports shipped to the foreign alfiliates of U.S. firms was a little over 30 percent. By I994, that portion had grown to over 40 percent. The same trend is evident for imports. The percentage of U.S. imports that were sourced from U.S. foreign affiliates in 1982 was about 35 percent, and by I994 it had grown to nearly so percent.

Some people contend that global economic integration is a measure of"glo

balization." Much bickering in the literature has focused on whether these

claims have been exaggerated.73 My own view is that integration is part of the infrastructure of the strategic perspective of the global capitalist system on how to accumulate capital in this era. What is important is to see is that such an infrastructure is being built, which is what the data above demonstrate. Its significance is as much political as economic. The growth of global economic integration and interdependence does not mean that opposition to the new world order is futile, as some of the debate on globalization has contended. It does mean that the space-time context of social movements is changing and that these changes imply new tasks for these movements. Moreover, seeing economic interdependence as one part of the infrastructure needed to imple­ ment a broad strategy of capital accumulation also implies that it is futile to isolate integration in an effort to contest the broader strategy. I return to this discussion in the final chapter of this book.

( 64 CHAPTER 3 ) ( THE EVOLUTION OF A NEW WORLD ORDER 65 )

( 66 CHAPTER 3 ) ( THE EVOLUTION OF A NEW WORLD ORDER 67 )

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Ideology and Public Policy

The developing infrastructure for the new world order requires public policies. These provide the building blocks and institutions that can cheapen produc. tion through capital mobility. Public policies are also needed to fuel the new mode of accumulation through ever-expanding credit that is built on the sand of speculation, while diminishing social claims on surplus value. Internation­ ally these policies include SAPs and the 11free trade11 agreements. In many of the wealthier nations, immigration policies are increasingly more limiting. Cheapening production costs through capital mobility does not work well if

labor is also mobile.

( 11 )Chapters 4-7 develop the point that the new world order has caused a shift in urban policy in the United States. That has meant the elimination of social safety nets and affirmative action and replacing these with programs that im prove national and individual''competitiveness." "Individual responsibility" has replaced the concept of social welfare. Housing for the poor is being re­ placed with housing for the rich as the public housing program is privatized. Public employment policy has eliminated a prior emphasis on using macro economic programs and affirmative action to expand job opportunities. In­ stead, the focus is on the behavior and personality characteristics as well as skills of individual workers-enhancing their competitiveness through job training that often emphasizes so-called job readiness skills. These policies represent a dramatic shift from the previous regime. In the U.S. context it is a shift from the social policy that was constructed from the ''new deal" to the great society," to policies that are now geared to individual responsibility. A crucial component of these policies is to remove the social dimension from everyday life. We have become a society where "every man for himself" is the preferred approach to life. It is a world without classes, races, or genders, where the maxim of "dog eat dog" becomes the ultimate politically correct

form of behavior.

Race and class relations take a definite form inthis context. The global drive to cheapen labor power leaves many worse off. That is deliberate. Policies and actions to cheapen the cost of labor power have their most devastating impact on those with the least political power. The new world order has created social P?l r ation-rich

div1s1ons between and among nations as well as among groups of individuals

within nations. Some people in the developing world are literally starving to death or living in unthinkable poverty.In the wealthy nations like the United States, many people, if not most, are either living in a house of credit cards or

:U eeing

ommg

!obs ansupplementing their poverty wages with dumpster diving. All of this

1s done m the name of"austerity," but also with the promise that better times

are on the horizon if some of us will just ''tighten our belts." While starvation

and poverty have pointed to the limits of previous eras, they rear their ugly he3.ds again, suggesting the pitfalls of the present age.

As more and more of the world's population gets impatient for the new

world order to include their lives, the system itself is threatened. If the basis of hope for something better is social, then people will organize themselves on the basis of class, race, gender, or other group identities. That is what hap­ pened at the turn of the twentieth centuiy and again in the 1930s. World War

n created the conditions through which workers could substitute national

identity for class identity and the disaffected and disillusioned were provided

an outlet through world war. Workers were given license to kill one another.

In the 1940s, the class dimension and the racial dimension of inequality sur­ faced again. Once again, national identity was able to submerge class iden­ tity, particularly in the United States. Fordism represented an accommodation through which a portion of the world's working class was offered a share of the growing capital accumulation in return for capitulation to the isolation and repression of those who were subjected to higher levels of exploitation. The appeal to all"civilized people" to unite to fight "terrorism," made in the aftermath of the September r I attacks and the subsequent war appears to be a revisiting of the substitution of national and ethnic identity for class. But the new world order heightens contradictions in such substitution. In a regime based on high capital mobility, you can't easily move people's livelihood out of the country and then appeal to nationalism when they take exception. So a different kind of appeal had to be made.

That appeal is to individualism. At the root of the public policies that form

part of the infrastructure for the new world order is the idea that success can come only through individual effort. That idea has been sold, in part, by blam­ ing the need to tighten the belt on the excesses of social action. That includes the notion that labor unions became too strong under the old regime, which resulted in their members being overpaid. Overpaid workers, the argument goes, are not competitive workers when there are others in the world who can do an equally good job for less money. The attack on the social dimension of life extends to the welfare state. Those who partake of its largess, whether through affirmative action (if you are a person of color or a woman) or through various social safety net programs, lose the incentive to be competitive and become part of an underclass and a drag on society as a whole.

The attack on the social dimension of life is reinforced as the system forces workers to compete with one another rather than contest the terms of the sale of their labor power as a class. Under the guise of individual rights, different groups of workers band together to press their advantage over other workers. As the competition among workers moves to a world scale, the tendency to place group over class interests becomes ever more complex, and class in­ terests themselves become hard to sort out. Divisions among workers take particular forms in different geographical, political, and cultural contexts. In many of the wealthier nations there is an increase in xenophobia that is aimed

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at immigrant workers. Racially based anti-immigrant rhetoric has given mo­ mentum to nationalist political parties in countries like France and Austria. Racist ideology directed at immigrants is strong in the United States as well. Immigration laws have been tightened; a wall and a militarized border with Mexico face those who dare to try to come into the country without papers. And in some states the rights of immigrants are seriously restricted both for­ mally and informally. In addition, U.S. academics and political leaders have attempted to disguise the nation's historical racism directed at African Amer­ icans and Latinos as a manifestation of individual characteristics that make people in these groups unfit to compete in today's labor markets. The signifi­ cance of race is said to be declining.74

In reality, though, race discrimination is becoming heightened in this pe­ riod. The vehicle for discrimination against people of color in the United States is not solely overt forms of racism (although there is still plenty of that). Discrimination is facilitated and intensified by the day-to-day functioning of economic and governmental institutions that operate to encourage competi­ tion among workers toward the end of cheapening labor power. The reason for increased discrimination in this period is that the expanded basis for compe­ tition among workers leaves groups with a legacy of economic vulnerability more vulnerable. The fact that masses of African Americans in the United States are without living wage work and are living in poverty is a measure of their vulnerability. So is the fact that African Americans and Latinos are much more likely to end up in prison than white people in the United States. Prison growth rates in the United States are currently between 4 and 5 per­ cent a year, while the growth of population stands at r percent and crime rates are declining.75 Vulnerability based on class, race, and gender is built into the economic and political system itself. Oppressed groups face the limitations of capitalism in this and previous eras when they find again and again that human rights are nothing more than individual rights-the right to compete with other workers.

Forcing the most vulnerable groups to assume the burden of the new world order's need to cheapen production costs has taken the form of segmented and unequal societies both within and among nations.In the United States, public policies built on individual competitiveness have deepened segmentation and inequality. Some are in prison, where they are engaged in forced labor with­ out compensation. Some are forced to work in jobs that pay less than a living wage as temporary or part-time workers. Some are relegated to "permanent" jobs that also lack the wages and benefits required for basic human develop­ ment. Public policies in such areas as economic development, housing, and employment that reinforce individual competitiveness and undermine the so­ cial dimension of life contribute to this. They are the domestic counterpart to the SAPs and trade agreements like NAFTA. These policies and their local impact will be the subject of Chapters 4 to y. But first I want to draw some conclusions about the evolving new world order.

Global Decisions and Local Collisions

he global decisions that are behind the evolution .of a ne':world order have evitably

billion a year in debt service alone. The Uruted Natwns Internatw?al Chil­

dren's Fund (UNICEF) has estimated that $9 billion would save the hves of 21

:million children in Sub-Saharan Africa who are presently dymg frohunger,

disease, or malnutrition. Over the past seventeen years, the dev lopmg

as a whole has paid its creditors $r.s trillion more in debt service than It re­ ceived in loans and investments. The United Nations Development Program (UNDP) has estimated that $40 billion per year for ten years would be enough

( u:­ )to achieve universal access to educatwn, health care, nutntton, clean at r, and sanitation for everyone. For another $40 billion a year we could rarse comes for the 1.3 billion people who subsist on less than $I per day to a basic standard of living.76

But the new world order mode of accumulation is built on cheap labor and

mobile capital and is fueled by expanding credit that is generated by specula­ tion. So comparing debt burden to potentially decent living standards makes little sense. The efficiency criterion of the new world order simply does not consider starvation and poverty as costs of the system. They are only seen as possible threats to world security or at best as a few more bumps in the road to the expansion of the system. The apologists and advocates for the new world order argue that excesses of global capitalism can be contained and that the system has produced economic growth and rising incomes eve ere markets have been allowed to operate. 77 What they fail to mentwn IS that m the process, most people in the world are left out. A recent World Bank study of global income distribution makes this clear. Between 1988 and 1993, world income distribution has changed in favor of the rich and these changes are present in virtually all regions of the world. 78 In numerical terms, the average

income of the world's richest s percent divided by that of the world's poorest

5 percent has increased from 78 to one to II4 to one. That means that today

someone with an income of about $US2s,ooo a year is richer than 98 percent

of the world's population.79

The continued justification for this state of affairs in terms of efficiency

and economic growth demonstrates how bankrupt these concepts are in the context of the new world order. The notion of efficiency measured in terms of cost per unit of output is confined to very narrow boundaries that do not include the inefficiency of people living in poverty or soiled environments, let alone starving children. The cost side of the efficiency equation only includes the costs of those who own the businesses. It excludes the costs of people who lose their jobs or suffer from a debilitating work injury or who don't have enough to eat. And it excludes social costs to entire nations that are forced to live in debt bondage and the social costs of environmental degradation. On the output side, money price is the sole measure of value. Broader notions of

( THE EVOLUTION OF A NEW WORLD ORDER 69 ) ( 68 CHAPTER 3 )

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70 CHAPTER 3

the contribution of 11output" to human self-development are likewise missing from the equation. Value is seen strictly in terms of money prices.

The consequences of this narrow and individualized view of efficiency and value are the local collisions that have historically intensified as a new regime gathers steam. The new world order is not creating value in terms of con­

tributing to human development. Credit and speculation are no substitute for this. Think about this. The top 200 transnational corporations presently produce 26 percent of the world's output. But they employ only o.74 percent of the world's labor force.80 In a capitalist system, if production is not the vehicle for.the populace to sustain itself, what is? It isn't simply that we are

11overproducing.11 The people who are not part of the production system or who languish in jobs that are paying poverty wages still need the fruits of production. They need food, homes, clothing, and health care and they need education and cultural fulfillment to develop as human beings. A system that merely cheapens the costs of those who own the means of production is not creating value. The money lenders and the speculators that feed this system and enrich themselves in the process are also not creating value. The income and wealth polarization that has intensified under the new world order are one result. Poverty and starvation are others. The system is unsustainable. And at this point in history, people are once again joining to contest the terms of the system's mode of accumulation.

The appearance of a contradiction and the social struggle that ensues is always place-specific. The militancy of a social movement comes from the association of people with a particular place-a work place or a neighborhood. I pointed out in Chapter 2 that the evolution of a new mode of accumula­ tion alters the place, space, and time dimensions of social movements, giving rise to the need to change the nature of the movement itself. In this era that means that place-based movements must link resistance to their local col­ lisions together somehow. Yet, the movements to contest the terms of any mode of accumulation must begin and end in the place where people live and work. What is needed, therefore, is to try to understand local conditions very concretely in the context of the broader social and economic forces that shape them. Today that requires concretizing the new world order in specific places. I have chosen Chicago because that is where I have spent much of the past three decades. I have witnessed the collapse of Fordism while working in Chicago factories. I have worked doing research and popular education with community organizations and labor unions there that are trying to find ways to stop the loss of jobs, incomes, homes, and neighborhoods that have been generated by the new world order. Based on these experiences and research, I now turn to the task of concretizing the new world order as it comes to the United States, and particularly Chicago.

CHAPTER 4

Manufacturing Collapses in Chicago

When I go to bed I got the pressme. When I get up I got the pressure-the same thing. I don't know if it's really through or what. But I feel so little when other people work. I feel like they are saying: "You are nothing! You're a nobody!" And that's the way I feel myself. So I ;ust keep to myself.

--Laid off Chicago steelworker, 1984

We're lean and mean. Today we have a future.

--Donald D. Lennox, Chair Navistar Corporation {which had a hand in laying off the above steelworker), 1986

There can be no doubt that part of the income and wealth polarization of the present period is rooted in the collapse of unionized manufacturing jobs in the United States during the r98os. In Chapter 3, I attributed that collapse to the systemic strategy, which former President Bush called a new world order. But others have offered conflicting explanations. The mainstream view concern­ ing deindustrialization is that it represents a natural and positive adjustment to a post-industrial or information age economy and new competitive con­ ditions. Manufacturing job loss is potentially positive, in this view, because it can result in greater efficiency. Economic development strategies based on this outlook are geared to 11capacity building" or being more 11competitive.11 1

One influential proponent of these ideas is Harvard economist Michael Porter. 2 Porter does acknowledge that global capitalism is in a new period. But he sees this new period as one of opportunity for those nations, commu­ nities, and individuals who become competitive. His analysis of global com­ petition posits a world of nations competing with one another through 11their" respective corporations on the basis of new technologies and increasingly efficient operations. He argues that nations and inner-city communities can