Untrammelled corporate power threatens global breakdown, says UN agency
11 October 2018
It’s a rare thing for UN economic reports to mention Mary Shelley’s Frankenstein and quote Antonio Gramsci in their introduction. Neither do most such reports normally contain stark warnings about the damage that untrammelled corporate power is causing to political fabric of countries across the world.
But UNCTAD (the UN Conference on Trade and Development) has a reputation for telling it like it is, and its 2018 report, Power, Platforms and the Free Trade Delusion is no exception. The agency was founded in 1964 to give a developing country perspective on trade and development issues. A regular thorn in the side of rich countries, UNCTAD has been sidelined and marginalised by the rise of the World Trade Organisation. But its analysis is thorough and its message so pertinent that it should be required reading for all politicians.
In essence, its message is this: the causes of the financial crisis have not been dealt with in the ten years since the collapse of investment bank Lehman Brothers. In fact, inequality, financialisation and the level of corporate power which gave rise to that crisis, have only got worse. This has caused an outpouring of anger and resentment, and a turn to economic nationalism epitomised by Donald Trump’s more populist policies. Radical reform of international institutions is desperately needed and a refounding of the basis for international cooperation. Yet the “relentless banging of the free trade drum” continues to erode the “trust, fairness and justice on which such cooperation depends”.
In the last four decades “a mixture of financial chicanery, unrestrained corporate power and economic austerity has shredded the social contract that emerged after the Second World War”. Capital has escaped regulatory oversight and now resembles the ‘robber barons’ of the pre-First World War United States who monopolised new technologies to build obscene levels of private wealth and corruption alongside widespread social deprivation.
The response to the 2008 crash did nothing to redress this situation. It consisted almost entirely of very loose monetary policy – low interest rates and creating vast sums of money. But without further reform, the big winners of this were the very banks that caused the crash. So it’s no wonder that since the global financial crash, banks have become even bigger. Shadow (unregulated) banking is now worth $160 trillion, or twice the size of the global economy, while there is over $500 trillion in unregulated derivatives.
Global debt now stands at $250 trillion – up more than $100 trillion from a decade ago – both because wages have continued to stagnate (and income inequality has grown), and because very low interest rates saw bailed out financial organisations lend more and more to developing country commodity markets. Now we’re in a real bind: raising interest rates risks bursting the bubble, but failing to do so risks making the problem even bigger tomorrow.
The free trade delusion
In this situation it is folly for politicians to talk up “free trade against a backdrop of austerity and widespread political mistrust.” Such ‘business as usual’ thinking “will not hold the centre as things fall apart.” In fact, given the current set up, expanded trade will not benefit the vast majority. Few countries have been able to properly develop on the basis of increased trade, because trade has been monopolised by big business. When politicians talk about ‘export led growth’ they ignore the fact that 57% of exports are accounted for by the top 1% of export firms. The top 5 largest exporting corporations alone account for 30% of a country’s exports. Big business is the big winner – developing country economies, workers, smaller businesses are all weaker by comparison.
The failure of trade to undo global inequality has led big business into a dead end. Faced with poorer consumers, corporations have maintained their profit levels not by investing but by simply extracting non-productive ‘rent’ through tougher intellectual property rules, tax avoidance, and increasing debt and financial activity. In turn, they get even further away from the lives and incomes of ordinary people. Corporate power is inseparable from inequality, and we’re in a unsustainable downward spiral.
The only country that’s seriously done well from trade is China, because the government there has adopted strong planning and intervention policies, to force that investment to work for China. It has used domestic finance, strong industrial policies and acquired foreign assets and intellectual property. These policies are “part of the standard economic playbook” once used by all developed countries, but have been “greeted with a sense of anxiety, if not hostility” when carried out by China. Sadly most other countries have not been able to follow suit.
UNCTAD is especially interested in the digital revolution, which carries with it the potential to liberate all of humanity from poverty, but which can also entrench the monopoly power of big corporations unless everyone shares equally in this revolution. In other words, the digital economy has the power to redress the problems of a deeply unjust world, or to accelerate them, depending on the rules that govern that new economy.
The so-called ‘e-commerce’ agenda, much beloved by British Trade Secretary Liam Fox, will undoubtedly make things worse, by allowing the biggest corporations in the world to maintain their hold over technologies which will increasingly define the whole global economy. Fighting this agenda must be an urgent priority. Countries must instead regulate or break up the big tech companies, find ways of transferring technology from the richest countries and build their own local platforms. In fact, so important is the digital economy for development, that UNCTAD urges political leaders to consider treating the digital economy as a sort of commons akin to water and energy.
Neither free trade nor Trumpism
So the answer is clearly not simply ‘more trade’. Many western politicians don’t get that and assume that we can fight Trumpism with more free trade deals. But “Trade wars are a symptom of an unbalanced hyperglobalised world” says UNCTAD. If we want an open economy, we can’t keep pursuing the very hyperglobalisation which has, perhaps ironically, endangered that openness.
Having said all of this, UNCTAD strongly believes a trade war and increased tariffs won’t help either. After all the problem is based more in the financialised nature of the economy than trade per se. While Trump raises tariffs, he also slashes financial regulation and enhances monopoly power of big business. He will, without question, exacerbate our problems.
The real answer is to constrain the power of corporations through regulation and taxation, more planning and economic intervention (in as accountable and democratic a way as possible) especially around infrastructure, and more regional trade and integration. But we must also urgently rethink the international order, looking back to the Havana Charter of 1948 which was intended to give birth to the International Trade Organisation, a more equitable international trade body which would have made the avoidance of unemployment, better wages and working conditions, and greater global equality primary goals of world trade. Rather than a one-size-fits-all straight jacket, the Havana Charter stressed the importance of experimentation and ‘policy space’ for countries to pursue their own forms of development. Sadly, hyperglobalisation has eroded the trust of populations and political leaders to look for that refoundation of the international economy. But unless we can rediscover the will, we face dark times indeed.
UNCTAD’s report could certainly be deepened. It relies too heavily on a model of growth, and doesn’t focus on the crisis of climate change. But as a palliative to the economic thinking still enshrined in international institutions, it is well worth a read. At the UK level, it will also give comfort to the Labour leadership, whose economic strategy shares much with UNCTAD’s recommendations.
Indeed the report should be a wake-up call to the leaders of all rich countries. But they will probably ignore it, just as they always have. It’s too challenging to the special interests who continue to have a hold on international policy-making. We have to hope that it’s taken more seriously by the leaders of developing countries and by us, campaigners and activists around the world. This alliance has played a vital role in halting even more extreme aspects of hyperglobalisation and holding international institutions to account. Can we use the global volatility, and the void in the ideology of our leaders, to go further and call a new international order into being?
Photo: Mukhisa Kituyi, Secretary-General of the UNCTAD. Credit: UN Photo / Jean-Marc Ferré