Can Democracy Survive Global Capitalism? by Robert Kuttner

Author:Robert Kuttner
Language: eng
Format: epub
Publisher: W. W. Norton & Company

8

TRADING AWAY A DECENT ECONOMY

The structuring of the world trading system in the era after World War II is at the heart of our story of how the rules of globalization were used, first to promote a democratically controlled form of decent capitalism in the 1940s and then, beginning in the 1970s, to destroy it. In trade policy as in the global monetary system, the resurgent power of finance is central to this reversal.

The United States was the prime architect of the trading system, both in the immediate postwar era and in the later reversal of its original terms. At first, there was little contradiction between America’s diplomatic goals for the system and its pursuit of self-interest as a nation. US presidents could promote an open trading system, secure in the knowledge that American companies were the world’s most productive, and would thrive. As Europe and Japan recovered and increased their capacity to export, access to the immense US consumer market would reward Cold War allies and cement the alliance. The US could look the other way as loyal allies honored the principles and rhetoric of free trade but not the practice. Japan, for example, was the model Cold War client state—and also the prime protectionist.

President Eisenhower, brushing off criticisms of the plain double standard in US-Japan economic relations, declared in 1955, after enactment of a US-Japan deal that tolerated multiple forms of Japanese protectionism, “All problems of local [US] industry pale into insignificance in relation to the world crisis. Japan cannot live, and Japan cannot remain in the free world, unless something is done to allow her to make a living.”

Japan soon demonstrated how a system of cartels with close ties to banks and government planning objectives could be nominally open while frustrating the ability of US firms either to export or to defend against imports whose production was subsidized and sheltered. Japan, which grew prodigiously, became the model for South Korea, Taiwan, and later China. This set of policies came to be known as neomercantilism—and it worked.* American manufacturing and wages suffered. The American trade deficit widened, to half a trillion dollars by 2016. A trade deficit of that scale adds up to massive losses of jobs and industries. Yet the US government’s strategy of giving priority to system-maintaining goals, even at the sacrifice of both American industry and the mixed economy, persisted as a diplomatic habit, to the point of magical thinking.

To some extent, it made sense at the height of the Cold War in the 1950s and 1960s for the US to bend the rules to accommodate Japan, South Korea, and Taiwan, which were still relatively poor, as well as close geopolitical allies. Yet the same habits of denial and acquiescence persisted long after they became rich nations—and were even extended to China, which was far from an ally.

All this seems a mystery, until one grasps that the accommodation of China’s mercantilism served US-based corporations that no longer produced much domestically but enjoyed extensive offshore manufacturing partnerships with China.

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