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Ascent of Globalisation

Ascent of Globalisation

The Ascent of Globalisation gives an account of the struggles that have defined globalisation in the 21st Century.

Would the international rule of law override national self-interest?

Would the global market become our servant or our master?

Would democratic representatives or transnational corporations shape globalisation?

Would globalisation be a liberal or a neoliberal project?

Can globalisation be given a human face?

Why is the new global order so disorderly?

The Ascent of Globalisation shows how these conflicting forces and the compromises they have wrought have resulted in a global financial system that is inherently fragile, unbalanced and unstable. Free trade agreements have been corrupted, are unfair and have empowered transnational corporations to challenge national environmental, labor and health regulations. Transnational capital is largely unregulated, favoring the powerful over the weak. Transnational institutions such as the European Union and UN are dysfunctional.

Written by Adjunct Professor Harry Blutstein, The Ascent of Globalisation tells the story of post-war globalisation through key figures involved in its creation and is an excellent introduction to the subject for anyone interested in international affairs, modern history, macroeconomics or politics.

The Ascent of Globalisation (ISBN: 978-0-7190-9971-7) is available from: Manchester University Press, Amazon UK, www.amazon.co.uk and in the United States from Oxford University Press.

Chapter-by–chapter summary

The following summaries only include the major issues explored in each chapter.

Introduction

The new global architecture, built in the years following the Second World War, established an international rule of law, breaking with the past when international relations were shaped by the naked exercise of economic, military, and political power.

The architects, however, were divided on how to achieve this objective. Two different models emerged, and the contest between the two has shaped globalisation. In the “international liberal order,” governments are the principle rule-creating authorities, working in concert to solve global problems. In the “global neoliberal order,” markets are the main agents for creating peace and prosperity. In this model, international rules and institutions are used to stop governments from meddling in the free operation of markets.

The contribution of each of the architects to either of these alternative schemes is a theme that runs through the book.

Part I –  The Liberal Foundations

Sharing the common experiences of the First World War, the failure of the League of Nations, and the political and economic instability of the 1920s and 1930s, not to mention the Great Depression, a generation of remarkable politicians and bureaucrats conceived of a global order that would create conditions of political security and prosperity through cooperation, creating international institutions that reflected their liberal beliefs. This resulted in the creation of the UN and its agencies, the World Bank and IMF, the GATT and the European Union (as it would become known). These institutions became the foundations of postwar globalisation.

Influenced by the ideas of John Maynard Keynes and members of the Roosevelt Administration, the postwar institutions balanced the sovereignty of nation states with the needs to expand economic and political cooperation and forge an international order that would deliver stability and security.

Chapter 1: One World

Born into a Methodist family, Wendell Willkie was influenced by his father Herman “Hellfire” Willkie who taught him to be true to his beliefs. As a result, Wendell pursued an uncompromising approach to life, which he would carry into business and eventually into politics where his willingness to speak his mind, whether or not it would win him votes, set him apart from other politicians of the time (or since).

Wendell Willkie is best known for losing the presidential election to Franklin Roosevelt in 1940. His campaign was notable for championing internationalism even though he represented the Republicans, a party long wedded to isolationism.

In 1942, Willkie travelled around the world to assess the capabilities of America’s allies. On his return to the U.S., Willkie wrote One World. It sold over two million copies, and, more than anyone else, Willkie convinced Americans that their past isolationism was shortsighted and that they had to engage with the world in order to share their liberal values with others. The book also captured a wide audience outside the U.S. It was smuggled into Europe by the Resistance. In India, it inspired the future prime minister, Jawaharlal Nehru, who read it in prison.

The vision that Willkie projected for globalisation was one in which democracy would dominate, sovereignty would be pooled, markets would be freed, captive nations would be decolonized and the rule of law would govern the affairs of humanity. In addition, he argued that political internationalism could not exist without integration of world markets.

Willkie’s book helped generate public support for the postwar international architecture: the UN, the World Bank, the IMF, and the GATT. These are his legacies.

Chapter 2: Last Best Hope for Peace

After supporting the unsuccessful liberal revolution in Russia, Leo Pasvolsky’s parents fled to the U.S. in 1905.

In 1934, the State Department recruited Pasvolsky. Despite preferring to work quietly in the background, he caught the eye of Secretary of State, Cordell Hull, who relied heavily on Pasvolsky for advice on international affairs.

Soon after the war started, Pasvolsky began to work on plans to create a successor to the League of Nations, and historians have credited him with being the “architect” of the United Nations. The real story is more complex and is told in this chapter.

Although Roosevelt was keen on the idea of the United Nations, he did not have a clear idea of how it would operate. The State Department was given the job of coming up with a detailed plan. Pasvolsky found himself sandwiched between Hull and his deputy, Sumner Welles, a circumstance made impossible by the poisonous relationship that existed between the two men.

Hull’s absences because of ill health allowed Welles to gain the upper hand, and he drafted substantial parts of the UN Charter. Hull, however, extracted his revenge when he exposed Sumner as a homosexual in September 1943, forcing his resignation, which allowed Pasvolsky take over.

While accepting most of the ideas taken from Welles, Pasvolsky’s major alteration was to vest executive power in a powerful Security Council, overturning Welles’s regional model, which Pasvolsky feared would result in old-fashioned spheres of influence for the major powers.

In the spring of 1945, Hull resigned due to ill health. The new Secretary of State, Edward Stettinius, relied heavily on Pasvolsky, who dominated proceedings at the San Francisco conference where negotiations on the UN charter were concluded.

Pasvolsky’s scheme for the UN was flawed, particularly as it granted the veto to permanent members of the Security Council. As a result, during the Cold War the UN achieved little, falling well short of the aspirations of its architects.

Chapter 3: Dawn over Bretton Woods

From an early age, John Maynard Keynes showed that he possessed a precocious intellect, excelling in economics at Cambridge. Soon after graduating, he became a founding member of the Bloomsbury Group of artists and intellectuals. He also started to make his mark as a powerful policymaker during the First World War, and after leaving the civil service, he worked on economic theories that revolutionized the discipline.

In private, Keynes was a promiscuous homosexual, who took lovers from among the Bloomsbury Group as well as indulging in rough trade in the backstreets of London. In 1925, he married Lydia Lopokova, a Russian ballerina, and to everyone’s surprise, they lived happily. Moreover, she supplied him with the emotional stability that would fortify him during the Second World War, when he worked on plans for the postwar economic order.

By an extraordinary coincidence, in 1942, a little-known bureaucrat in the U.S. Treasury, Harry Dexter White, had independently drafted plans for a new economic order.

While White shared Keynes’s vision of a liberal world order, there were important differences. During the next two years, Keynes and White engaged in sometimes acrimonious negotiations to reconcile their plans. This pitted the silver-tongued Keynes against White, a backstreet brawler. Nevertheless, they finally settled their differences.

In July 1944, under the joint leadership of Keynes and White, forty-one countries agreed to create the IMF and the World Bank at Bretton Woods.

The new economic order was also to include an International Trade Organization, but it failed, and afterwards the U.S. withdrew its support in 1948. In its place, the GATT was created as a temporary expedient.

This liberal model of internationalism was designed to “make finance the servant, not the master of human desires,” with national governments pooling their sovereignty to create monetary stability, discourage speculation and reduce trade barriers. This liberal order allowed governments to use postwar prosperity to fund social security and welfare, programs designed to shield ordinary people from the harsh winds of economic liberalization.

Chapter 4: The European Experiment

Jean Monnet grew up in Cognac, where his father produced and exported brandy. The atmosphere at home was cosmopolitan, for his father welcomed visitors in to dine with the family so he could collect intelligence on how he might expand his business overseas. In this environment young Jean learned to network, appreciate different perspectives and see that commerce brought people together.

During the First World War, Monnet observed that lack of cooperation between allies hindered transport of supplies to the front lines. Hatching a plan to overcome these problems, Monnet used contacts to arrange a meeting with the French Prime Minister. The young man proved so persuasive that he soon found himself coordinating delivery of supplies between the allies.

During this time, he conceived the idea of a union of European countries, and over the next thirty years he continued to refine plans for a confederation that would involve political, economic and military cooperation.

During the Second World War, Monnet was once again in charge of coordinating logistics between the allies. Now a senior bureaucrat, he used his position to try to kindle interest in a European union, but failed.

After the war, Monnet opportunistically used friction between Germany and other European countries to posit a solution that involved a formal economic union. In 1951, Germany, France and four other countries formed the European Coal and Steel Community, which eventually grew into the European Union.

The European experiment has exposed the strengths and weaknesses of supranational governance. Unfortunately, Monnet’s design resulted in the development of economic integration that ran well ahead of political unification. As a result, the European Union suffers a serious democratic deficit, which the Euro crisis has further inflamed.

Part II  –  Neoliberal Ascendency

The fortunes of the postwar international institutions were mixed in the quarter century following the end of the Second World War. The Bretton Woods institutions oversaw a period of unprecedented economic growth and prosperity. Trade expanded under the guidance of GATT, but the UN was caught up in the Cold War, and its achievements were exceedingly modest and its failures many.

The 1970s brought two oil shocks, which prompted President Nixon to dismantle the fixed monetary system established at Bretton Woods. Stagnating economic growth and soaring inflation rates soon followed. These factors eroded confidence in the liberal international order. Few politicians were interested in renewing globalisation, and it stagnated.

At about the same time, transnational corporations were spreading. Impatient with barriers to trade and government restrictions, they became the main driving force for economic liberalization.

These “new globalists” were influenced by the ideas of neoliberal economists such as Friedrich Hayek, who had been waging a war of ideas against Keyneism. Rather than managing globalisation through cooperation between governments, they believed that free markets would create “spontaneous order.” This required global rules that would free trade, protect foreign investment and allow free movement of capital. The World Bank, IMF and GATT were early recruits among international agencies to neoliberalism, and enthusiastically and pursued its economic objectives.

By the 1990s, neoliberalism dominated globalisation, although vestiges of the liberal internationalism remained, creating an uncomfortable mix.

Chapter 5: The War of Ideas

Friedrich Hayek grew up in cosmopolitan Vienna, and when he came of age, he was drafted, fighting on the Italian front during the First World War.

After the war, he settled into academia, where he saw firsthand the hyperinflation that plagued central Europe during the 1920s and 1930s. This experience led him to distrust government planners and to put his faith in the wisdom of free markets. He believed that governments should mainly be concerned with establishing the rule of law to allow the unhindered operation of markets. These ideas became the core of what became known as “neoliberalism.”

During the Second World War and the years that followed, Keyneism began its ascent. Keen to challenge this orthodoxy, Hayek urged neoliberals to engage in the “war of ideas.”

Firing the first shot, in 1944 Hayek published The Road to Serfdom, which became a surprising bestseller. Soon after, he founded the Mont Pèlerin Society, providing a safe haven for academic neoliberals to discuss their ideas. However, these efforts were ineffectual.

It was not until 1955, when Antony Fisher entered the picture, that the war of ideas started in earnest. Fisher was a British businessman, and on Hayek’s advice he created a think tank, the Institute for Economic Affairs (IEA). It proved highly effective in convincing the Conservative Party, and Mrs. Thatcher in particular, to deregulate markets.

Impressed by Fisher’s success, other neoliberals groups around the world imitated the IEA, often calling in Fisher to help them. One of these was the Heritage Foundation, which supplied President Reagan with neoliberal policies during the 1980s.

In 1980, Fisher created the Atlas Economic Research Foundation. Its mission is “to litter the world with free-market think-tanks.” Over the next thirty years, it helped create a global network of more than 400 free-market organizations in over 80 countries.

These think tanks have not only influenced governments, but also international agencies like the IMF, World Bank and GATT. Their ideas have also been seized upon by the business sector.

Chapter 6: The New Globalists

By the late-1960s, political enthusiasm for globalisation had waned among political leaders, and it looked like the project would stall.

A number of businesspeople, who called themselves the “new globalists,” stepped into the breach. They were determined to revive globalisation, and making a break with the past they sought to impose neoliberal prescriptions.

In 1967, investment banker George Ball gave a keynote speech to the International Chamber of Commerce in which he attacked nation states as “archaic” and opined that they had inhibited the growth of truly globalized markets. His call to arms helped cultivate a sense of mission within the private sector, which came to see itself as the custodian of globalisation.

Recognizing that the new globalists were unorganized, in 1972, banker David Rockefeller created the Trilateral Commission. It brought together business and political elites, and its policy papers on economic, political, environmental and social issues advocated greater global cooperation.

In 1971, German academic Klaus Schwab organized the first of what would become annual meetings of businesspeople in Davos. Initially limited to discussing the latest management ideas, by the mid-1970s Schwab expanded the scope of these meetings so that they embraced a broad range of global issues. Changing its name to the “World Economic Forum” in 1987, it has since expanded to the point that Time magazine observed that “Davos–the conference, not the town–is probably the closest thing globalisation has to world headquarters.”

The Trilateral Commission and the World Economic Forum are examples of transnational elite clubs, which have allowed the private sector to take its place in the informal governance of globalisation in partnership with the political elite. Like think tanks, they have spread neoliberal policies.

Chapter 7: Anatomy of an Insurrection

Born into an academic family, Walter Wriston embraced his father’s ideas about free markets and liberty at an early age. He also admired the ideas of Friedrich Hayek.

Fearing he would forever live in the shadow for his formidable father if he entered academia, Wriston’s first job, after his discharge from the army, was with Citibank. Acknowledging that banking was a “dull” career choice, Wriston would show, in time, that it could be an exciting place to work.

Banking in the 1940s was highly regulated, a legacy of the reaction to the excesses of bankers who had caused the Great Depression. Wriston railed against the ability of regulators to tell the bank what it could and could not do. And so, as he rose within the ranks of Citibank, he led an insurgency against government controls and constraints.

When he became chief executive in 1967, Wriston recruited a group of swashbuckling lawyers whose brief was to find ways around regulations and, if necessary, “break the rules.”

His crowning achievement was to undermine the Glass-Steagall Act, which separated investment from commercial banks. He also opened the way for supersizing banks, making them “too large to fail,” and challenged Bretton Woods’ rules against capital speculation.

More than anyone else, Wriston helped deregulate international banking, which Professor Susan Strange observed “resembled nothing as much as a vast casino.” The roulette wheels in the global casino stopped spinning in 2007, and Wriston’s legacy can lay claim to making a major contribution to the global financial crisis.

Chapter 8: Accelerated Development

Robert McNamara was whip-smart at school, and when Ford recruited him in 1946, he became known as a “whiz kid,” a term that has since entered the lexicon.

In 1960, the Kennedy Administration appointed McNamara Secretary of Defense. Despite reforming the bloated industrial-military complex, McNamara’s reputation took a hit when he became the front man for America’s war in Vietnam. By 1968, LBJ believed that McNamara had gone “dovish” on him, and so he was moved into the presidency of the World Bank to get him out of the way.

Since its creation at Bretton Woods, the World Bank had not fulfilled the aspirations of its architects, and its budget proved woefully inadequate to reduce global poverty. Moreover, the U.S. politicized the Bank, using loans to reward its Cold War allies. This conduct undermined the credibility of the World Bank, particularly among unaligned Third World countries.

Raising funds independent of the U.S. allowed McNamara to both expand the bank’s anti-poverty programs and to reduce American influence over its lending decisions.

Despite additional funding, McNamara realized that the World Bank’s programs were making little headway through poor governance and corruption in developing countries.

In 1979, McNamara started to attach conditions on loans, which required recipients to implement structural adjustment programs. These required them to reform and privatize large parts of their economies. The IMF followed this lead. After McNamara left, both Bretton Woods institutions expanded the number of conditional loans. Unfortunately, they often failed in their objectives, doing more harm than good.

Called the “Washington Consensus,” these policies forced neoliberal economic prescriptions onto developing countries.

Chapter 9: Free Trade Follies

Coming from a family obsessed by rugby, Peter Sutherland adapted the robust tactics he had used on the field to pursue a career in the law, then politics, and finally as Competition Commissioner for the European Union. As commissioner, Sutherland showed that he had the skill, brute strength and intestinal fortitude to take on vested interests and challenge member governments’ intent to protect their local industries.

In July 1993, Sutherland became Director General of GATT, charged with breaking the deadlock that had plagued negotiations to create the World Trade Organization (WTO). His vigorous (some say brutal) negotiating tactics were successful, and in December 1994, he concluded negotiations.

Reflecting on this achievement, Peter Sutherland’s successor, Renato Ruggiero concluded that the authors of the WTO “are writing the constitution of a single global economy.”

Contained within the WTO package were side agreements that flew under the radar. These created international laws on intellectual property and freed up trade in services. Using industry sources, this chapter recounts the untold story of the lobbying that led to these side agreements, concluding that they serve private rather than public interests.

Chapter 10: Global Fifth Amendment

Richard Epstein turned his back on his liberal upbringing —both his parents were staunch Democrats—to become a libertarian. During his law studies, he embraced the idea that government planning was unnecessary in most instances and that many regulations infringed the rights of individuals.

After obtaining an academic position with the University of Chicago, Epstein refined a legal doctrine based on the Fifth Amendment of the U.S. Constitution, arguing that governments should be forced to compensate landowners when its regulations reduce the value of their land. Called “regulatory takings,” this doctrine could also be used by transnational corporations to sue a government when its environmental law has diminished their ability to generate profits.

Neoliberals, particularly in the Reagan Administration, embraced Epstein’s doctrine and embarked on the “Takings Project,” aiming to implement it through legislation and the courts.

The Takings Project made little progress in the U.S., but took on a life of its own when it was incorporated into the North American Free Trade Agreement (NAFTA). Bilateral investment agreements have attached similar provisions.

In a test case, Mexico had to pay damages of $16 million to compensate an American-based waste disposal operator when the government declared an adjacent area an ecological park, closing down the company’s landfill.

In 1994, the OECD tried to create an agreement that would apply regulatory takings to the rest of the world. Called the Multilateral Agreement on Investment, it was withdrawn when it faced protests around the world.

Despite this setback, the finalization of over 2,500 bilateral investment agreements has achieved the same global coverage.

This doctrine of regulatory takings substantially erodes the sovereignty of nation states, giving corporations legal standing to sue them for exercising their democratic responsibilities.

The Global Fifth Amendment completes the neoliberal trinity: free trade, free movement of capital and international protection of foreign investment.

Part III: Taming Globalisation

Opposition to the growing neoliberal hegemony over globalisation started to spread during the second half of the 1990s. This was manifested by the campaign against the Multilateral Agreement on Investment, followed by a series of anti-globalisation street protests in Melbourne, Prague, Gothenburg, Davos and Genoa. The most significant occurred in Seattle when 40,000 demonstrators forced the abandonment of the WTO Ministerial Conference.

Increasingly, these protests conflated corporate power and neoliberal policies with globalisation, and this opposition presented a clear and present threat to further economic liberalization.

Prominent members of the global elites, particularly those associated with the UN, responded by developing programs designed to give globalisation a human face. To soften the adverse effects that some transnational businesses were having on areas like the environment, human rights and health, the UN and corporations have produced a body of informal and formal rules and norms designed to improve the behavior of transnational corporations.

Chapter 11: Assault on the Summit

Maurice Strong was born in rural Manitoba, and while his family was poor, he found richness in the natural environment, which he explored in his spare time.

Displaying a natural aptitude for business, Strong was a multimillionaire by his early thirties. His wealth allowed him to pursue his passion for protecting the environment, and during the 1960s, he became active in the environment movement.

In 1972, the UN Secretary General asked Strong to organize the first Earth Summit in Stockholm. During that event, he used personal diplomacy to convince developing countries that poverty alleviation was part of the environmental agenda. This concept evolved into the principle of sustainable development, which was pursued during subsequent Earth summits.

In 1992, he organized the second Earth Summit in Rio de Janeiro. Seeing that governments were unwilling to commit to wide-ranging environmental programs, Strong forged partnerships with the private sector, going so far as to personally intervene in order to help create the World Business Council for Sustainable Development. This association promoted industry self-regulation and free trade, key elements of the neoliberal agenda.

Subsequent Earth Summits in Johannesburg in 2002 and in Rio once more in 2012 saw corporations take center stage, as they launched practical sustainability projects, while governments ramped up the rhetoric in support of the environment but offered little by way of action. This has been most noticeable in the area of climate change.

Strong’s contribution to globalisation was to convince transnational corporations to tackle environmental improvement. He also opened the way for business to play a part in shaping global environmental policy. An unintended consequence of these developments is that governments have stepped back, preferring to leave global action on the environment to the private sector.

Chapter 12: Moral High Ground

As Leon Sullivan grew up in West Virginia in the 1930s, he was able to accept his poverty, but he railed against the racism that was an ingrained part of Jim Crow’s America. Brought up by his religious grandmother, Carrie, Sullivan felt he had a special mission from God to help black people. On graduating in divinity, he moved to Philadelphia, where he took up a ministry with Zion Baptist Church.

In 1971, General Motors appointed Sullivan to its board, a first for an African American. He used this position to demand that corporations with investments in South Africa desegregate their workplaces and promote blacks into positions of responsibility.

In 1976, Sullivan created a set of principles that addressed inequality in the workplace, which he wanted corporations to adopt. By embracing what became known as the “Sullivan Principles,” corporations were able to take the moral high ground while continuing to operate in South Africa.

By 1981, little progress had been made, and Sullivan hardened his position, urging companies to disinvest. The resultant flight of capital out of South Africa contributed to the eventual downfall of the apartheid regime.

The Sullivan Principles have provided a model for industry sectors that wish to restore their reputation after a PR disaster. Voluntary codes of practices are now commonplace and private laws are now part of the global legal system. The problem with such laws is that, in most instances, they are vague and lack monitoring and enforcement.

In 1999, Kofi Annan asked Leon Sullivan to create a global set of Sullivan Principles for the UN. This further consolidated the principle that transnational corporations should be left to regulate themselves through codes of moral principles.

Chapter 13: Civilizing Globalisation

Born into an aristocratic family of the Fante tribe, Kofi Annan left Ghana in 1959 to study in the U.S. While overseas, he was captivated by Kennedy’s Camelot and soaked up the liberal aspirations that dominated the American polity in the early 1960s.

After graduating, Annan worked for the UN and its agencies, slowly fulfilling a number of progressively senior roles as he moved up the career ladder, until he became its first black Secretary General in January 1997.

His major priority was to make the UN a key institution in the evolving global architecture. To this end, he pursued two signature programs.

Within the UN family of agencies, little coordination existed, which hampered efforts to tackle global problems. To encourage agencies to work together, Kofi Annan created the Millennium Development Goals, which allowed them to develop programs in partnership with each another and major corporate donors. This permitted the UN to assert its leadership over global issues, like social justice, human rights and health.

His other signature program was the Global Compact, launched in 1999. It encouraged transnational corporations to commit to a set of ten principles that addressed global problems such as poverty, underdevelopment and human rights abuses. In this way, Annan hoped to “civilize globalisation” by softening its sharper edges.  This initiative was based on ideas of “embedded liberalism,” expounded by John Ruggie, who helped design the Global Compact.

The Global Compact acts as a code of practice, following the lead of the Sullivan Principles, and companies report annually on their progress.

In return for the support of the business sector, Annan positioned the UN as a champion of economic liberalization, arguing that people were “poor not because they have too much globalisation, but too little.”

Chapter 14: Partners in Sickness and in Health

Gro Brundtland grew up in a family that was part of the political aristocracy in Norway. She went to school with the son of the prime minister, major political figures were among the circle of her parent’s friends and, in 1955, her father was invited to become a minister in the Labor government.

Despite being steeped in social democratic traditions, she married an archconservative, Arne Brundtland. Notwithstanding their political differences, he supported her when she became minister for the environment and later prime minister.

After four terms in the top job and with a popularity rating hovering around 90 percent, she resigned in 1996.

Her retirement did not last long, and soon she was campaigning to be elected head of the World Health Organization (WHO).

At the start of her term in 1998, she found WHO under-funded and weak. To address these problems, she successfully raised funds from the private sector. This policy attracted criticism, particularly WHO partnerships with the pharmaceutical industry. These were attacked for compromising WHO’s independence and distorting its priorities.

Brundtland’s other major contribution was to force through international rules that limited the promotion of tobacco products. Despite opposition from the industry, she succeeded. This legally enforceable code set a precedent by demonstrating that the UN has the ability to create hard laws to address global problems. Up to this point, enforceable rules had only been incorporated in trade and investment treaties. The question left hanging was: Would the UN pursue other noneconomic codes in its determination to civilize globalisation?

Epilogue

The epilogue draws a number of conclusions regarding the evolution of globalisation, identifying flaws in its design and what issues will need to be addressed by the next generation of architects should the project address is globalisation is to survive and thrive.

Guest lectures

In 2017, Harry Blutstein, author of The Ascent of Globalisation (Manchester University Press, 2016), will be available (via Skype) to give guest lectures on the following themes. If you would like to book Dr Blutstein for a Skype lecture, please contact him on rlwy000 [at] gmail.com.

Foundations of liberal globalisation

During the eighteenth and nineteenth century, the ideas of internationalism (as globalisation was then called) became popular among liberals in the inteligencia, such as Immanuel Kant, Richard Cobden, Giuseppe Mazzini and Ralph Waldo Emerson.

Between 1870 and 1914, the world had a taste of genuine economic integration. Tariffs were low, capital and people moved relatively freely around the world, and there was the emergence of an international currency through the Latin Monetary Union. But it ended in 1914 with the outbreak of war.

After the war, Woodrow Wilson helped create the League of Nations, which was welcome by internationalists. While it was ineffective, it provided lessons to the next generation of liberal internationalists, who emerged during the Second World War.

Men like John Maynard Keynes, Franklin Delano Roosevelt and lesser known bureaucrats like Harry Dexter White, Leo Pasvolsky, and James Meade helped create the foundations of the liberal international order during the 1940s. This included the United Nations, IMF and World Bank. The International Trade Organisation was sadly stillborn.

An integral part of the new international order was the ideal of embedded liberalism, in which welfare-based domestic policies softened the disruptive impacts of free trade.

The rise of neoliberal economic policies has seen the reduction of the welfare safety net in many countries, which may explain the current reaction against economic globalisation.

European Union: designed to fail

The architect of European integration, Jean Monnet created a structure that was deliberated designed to fail. This was an important part of the Méthode Monnet.

When he first launched the Coal and Steel Community, he hoped it would not succeed because to solve the coming crisis further integration would be needed, which was his overarching objective. And so the Europe project has grown, with each crisis leading to further integration.

We can see the same pattern with the Euro crisis, in which monetary union failed, and economists now suggest that the only solution is financial integration.

While Europe was succeeding, the people of Europe accepted the gradual dilution of sovereignty, as policy was driven by political, bureaucratic and economic elites. But the question is: will the Méthode Monnet push integration too far and will the public continue to accept a system imposed upon them by elites in which they are no longer masters of their own destiny?

Corporate influence on globalisation: the good, the bad and the ugly

In the late 1960s, a number of forward-looking CEOs saw the potential of globalisation, and were worried that there was no political will to expand trade and further integrate national economies.

Calling themselves the ‘New Globalists’ they created informal policy institutions – the Trilateral Commission, the Bilderberg Group and the World Economic Forum – that were determined to encourage members of the political elite to work with business leaders to expand the boundaries of globalisation. But this newfound influence had its problems.

This relationship turned ugly when corporate lobbyists, using negotiations on NAFTA and WTO, used their influence to carve out special deals that suited vested interests, and in some cases reduced free markets.

Rise of neoliberal globalisation: victor in the war of ideas

Neoliberal economic ideas go back to early twentieth century, but had little traction until Friedrich Hayek called on neoliberals to engage in the ‘war of ideas.’

Hayek started the ‘war of ideas’ by publishing The Road to Serfdom and creating the Mont Pèlerin Society. But Hayek was more comfortable in the quiet halls of academia rather than the noisy battlefield, and his efforts to take on Keynesian, the welfare state and liberal economics floundered.

The war of ideas was revived by a recently demobbed young air force pilot, Antony Fisher. In 1955, Fisher created the think-tank, the Institute of Economic Affairs, whose policy prescriptions had, by the end of the 1970s, influenced up-and-coming politicians: Ronald Reagan and Margaret Thatcher.

The Institute became the model for other neoliberal think-tanks around the world. To accelerate the process in 1980, Fisher created the Atlas Economic Research Foundation, whose mission was to seed the world with neoliberal think tanks. And so by the early years of the twenty-first century, neoliberals were in the ascent.

Governance of globalisation

Robert Hormats, vice chairman of Goldman Sachs International, argued that ‘The great beauty of globalization is that it is not controlled by any individual, any government, any institution.’ In his book The Lexus and the Olive Tree, Thomas Friedman agreed, when he wrote that ‘the most basic truth about globalization is this: No one is in charge.’

While it is true that there are few hard international rules on global markets, corporate behaviour or criminal activities by states, a system of governance has evolved in which values have been created to encourage responsible behaviour in the global domain.

Transnational organisations have generated these values. For example, global policies are generated by the World Economic Forum; the United Nations used its Millennium Development Goals to drive social and environmental progress, and nongovernmental organisations like Transparency International have tackled corruption by naming and shaming offenders.

Unable to create a strong governmental system of hard rules, globalisation has seen the growth of systems of governance.

Future of globalisation

Up to now, globalisation had been widely supported by the elites. The rise of xenophobic nationalism in the US and across European, however, has jeopardised this consensus. Globalisation has always been a creature of the elites and has never had widespread support among the public. While it was working, opposition to globalisation was not widespread. However, the 2008 financial crisis illustrated the weakness of global governance and resulted in popular disquiet, which was manifested in the Occupy movement and the Tea Party. Separatist movements in Europe are another sign that supranational governance is under threat.

There are other forces at work that show that globalisation is fragmenting, and these are examined.

Other topics

Using the approach pioneered by Robert Heilbroner in Worldly Philosophers, a series of character-driven lectures are also available. They illustrate the construction of various parts of the institutional superstructure that support globalisation.

  • Profile of John Maynard Keynes and Harry Dexter White and the formation of the World Bank and IMF.
  • Profile of Leo Pavkovsky and Sumner Welles and how they fought for competing models for the United Nations.
  • Profile of Jean Monnet describes how he created the European Project and how he continues to influence its evolution beyond the grave.
  • Profile of Walter Wriston, who as CEO of CitiBank broke down regulatory controls to the free movement of capital and the growth of super banks. Bloomberg Businessweek magazine described Wriston as ‘the pivotal figure in the transformation of the banking industry from a somnolent business straitjacketed by regulation into the global free-for-all it is today.’
  • Profile of Robert McNamara and his transformation of the World Bank from a backwater, lending little and under the thumb of the US State Department, to a global player. Under his leadership, the World Bank went a long way to free itself from US domination and aggressively invested in projects to reduce ‘absolute poverty.’His reign at the World Bank also saw the introduction of structural loans, which pushed developing countries to adopt neoliberal economic policies.
  • Profile of Peter Sutherland, who drove 123 nations to adopt the Marrakesh Agreement, which saw the creation of the World Trade Organisation. Behind-the-scenes, corporate lobbyists helped shape special deals that undermined the principle of free trade and gifted vested interested with special conditions.
  • Profile of Richard Epstein, who pioneered the legal concept of regulatory takings, which was incorporated into NAFTA and had since become a feature of most free trade agreements.Regulatory takings allows corporations to sue national governments for regulations that reduce the value of their assets or ability to earn profits. Investor-state dispute settlements have reduced the ability of governments to protect against health, safety and environmental risks imposed by corporate activities.
  • Profile of Reverend Leon Sullivan, who popularised the use of private voluntary codes to address the misbehaviour of transnational corporations. While he applied his Sullivan Principles to corporations investing in South Africa, this concept set the scene for the growth of corporate social responsibility codes, a new way to govern the behaviour of businesses.
  • Profile of Maurice Strong, who organised two Earth Summits that saw the creation of environmental rules and the United Nations Environmental Programme.Strong also sponsored experts to create a framework that married environmental protection and economic growth. Called ‘sustainable development,’ most countries use this framework to guide their environmental policies.
  • Profile of Kofi Annan, who took the UN into new territory by developing moral standards or norms, which have been used to civilise globalisation by spreading its benefits more broadly. One such norm is the Millennium Development Goals, which foster partnerships between governments, NGOs and corporations to address global problems. He also sponsored the Global Compact, which encourages transnational corporations to reduce their harmful impacts on communities, human health and the environment and partner on worthwhile projects that improve human wellbeing.
  • Profile of Gro Brundtland, who sponsored the controls on tobacco use, showing that the World Health Organisation was capable of marshalling global support for regulation on health issues.Through public-private partnerships, Brundtland substantially increased funds that could be spent on health programs in developing countries.

New take on globalisation

There have been a number of periods in which there has been trade in goods and ideas across and between continents. The current era of globalisation, which started in the dying days of World War II, is quite different. It represents a new approach to globalisation.

The last period of globalisation started around 1870 and ended with the First World War in 1914 and was a major influence in shaping the current era of globalisation. In many respects, the level of interdependence during this period, measured by the movement of capital, technology, ideas and people, was greater than it is today. However, it was fragile, and when put under stress is quickly collapsed. This is because it had shallow roots, based on laissez-faire policies and driven by little more than advances in technology and communications, rather than relying on strong political support.

Despite the collapse of the ideal of greater international cooperation and interdependence in 1914, its supporters did not abandon globalisation. It was briefly revived after the end of the First World War, through the League of Nations, but this body lacked the authority it needed, and it disintegrated in the 1930s. The failure of the League, however, was analysed by a new generation of internationalists who emerged in the 1940s, and they were determined not to repeat the mistakes of the past.

If globalisation was to survive and thrive, they decided, it could not be based on laissez-faire policies but needed to be deliberately constructed around robust institutions, rules and norms. Embedded in these structure was the subversive notion of the rule of law, applying not to individuals but to sovereign states. And not just to the weak states, but also the most powerful. This required a radical redefinition of national sovereignty, which was required to genuflect before international law and institutions.

The result is a global architecture that protects the international rule of law and norms and states are no longer able to pursue their own interests unhindered. While sovereignty has been limited, it is still powerful and the international rule of law is still in its infancy.

While the logic behind this ideal is sound, it often has been frustrated by powerful nations determined to protect their sovereign privileges.

The Ascent of Globalisation gives an account of how the architecture was constructed. It describes the compromises that were made and shows how flaws built into the superstructure have led to many of the problems that we see today.

The book is divided into three sections, which roughly follow three major phases of globalisation.

It starts with liberal internationalism in which governments cooperate in creating and enforcing international laws and norms. This is principally done through international agencies such as the United Nations, IMF, World Bank and European Union, which have partially circumscribed the sovereign powers of nation-states. The rise of the formation of each of these institutions is described, the idealism behind them explored and their flaws exposed. Liberal internationalism was largely driven by politicians and bureaucrats.

Freeing international markets was important, but on the understanding that the markets serve mankind, not act as its masters.

The next phase of globalisation started in about 1970, accelerated by the Nixon Shock in which many of the Bretton Woods institutions were undermined.

Whereas liberal internationalism was driven largely by bureaucrats and politicians, this new phase of globalisation was driven by business people, academic economists and think tanks. It was nurtured by neoliberal ideas.

Like liberal internationalism, neoliberal globalisation was also built on the rule of law. But rather than fostering cooperation between sovereign states it looked to laws to protect the free market, the unrestricted movement of capital, corporate investments and intellectual property. Markets became the masters not the servants of mankind.

By the 1990s, neoliberalism had become a major influence on global policy. It did not replace liberal internationalism, and the two have coexisted, at times uncomfortably. The result is a disjointed global architecture which satisfies neither liberal internationalists nor the neoliberal globalists.

In a reaction to the rising power of transnational corporations and international capital, there has been a move since the late-1990s to civilise globalisation by softening the harder edges of neoliberal or market globalisation. The result was greater cooperation on non-economic problems, such as health and the environment, and attempting to tame the unrestrained activities of transnational corporations through voluntary codes and norms.

By the start of the twenty-first century, globalisation is an uncomfortable mix of these three strands, which explains why the so-called global world order is so a disorderly.

In describing the ascent of globalisation, the book tells the story through individual architects. This approach makes the history much more accessible. It also provides new insights into the idealism that drove these men and women, and the compromises that were imposed on them. It goes on to examine how those compromises corrupted the integrity of the global architecture. The result is a global financial system that is inherently fragile, unbalanced and unstable. Free trade agreements have been corrupted, are unfair and have empowered transnational corporations to challenge national environmental, labor and health regulations. Transnational capital is largely unregulated, favoring the powerful over the weak. Transnational institutions such as the European Union and UN are dysfunctional.

Trying to tackle globalisation in one book is an impossible task, and The Ascent of Globalisation is only one slice of this multifaceted phenomena. It differs from earlier accounts, which explain the growth of globalisation as the inevitable consequence of improvements in communication and transport technologies and the advent of the Internet. These accounts fail to appreciate the role individuals had in shaping globalisation.

Only a relatively small number of institutions, laws and norms are considered in the book. Nevertheless, they have been carefully chosen because they have had a major and lasting influence on globalisation.

If you have read Robert Heilbroner’s Worldly Philosophers, you will know how biographical sketches can bring alive complex histories. What Robert Heilbroner did for economics, Harry Blutstein has done for globalisation.

Insider’s Guide to Australia

 

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