What is to be done: The end of the Washington Consensus

This is an interesting analysis of the present situation. The article points out the irony in the fact that the United States--as well as other advanced industrial nations--refuses to do what the Washington Consensus demands in the case of loans and bailing out of underdeveloped nations. He also notes that there should be much less emphasis on finance and more public involvement in manufacturing. This is from counterpunch via the information clearing house.

What is to be Done?
The End of the Washington Consensus
By Michael Hudson and Jeffrey Sommers
December 13, 2008 "Counterpunch" -- -- Wall Street’s financial meltdown marks the end of an era. What has ended is the credibility of the Washington Consensus – open markets to foreign investors and tight money austerity programs (high interest rates and credit cutbacks) to “cure” balance-of-payments deficits, domestic budget deficits and price inflation. On the negative side, this model has failed to produce the prosperity it promises. Raising interest rates and dismantling protective tariffs and subsidies worsen rather than help the trade and payments balance, aggravate rather than reduce domestic budget deficits, and raise prices. The reason? Interest is a cost of doing business while foreign trade dependency and currency depreciation raise import prices.
But even more striking is the positive side of what can be done as an alternative to the Washington Consensus. The $700 billion U.S. Treasury bailout of Wall Street’s bad loans on October 3 shows that the United States has no intention of applying this model to its own economy. Austerity and “fiscal responsibility” are for other countries. America acts ruthlessly in its own economic interest at any given moment of time. It freely spends more than it earns, flooding the global economy with what has now risen to $4 trillion in U.S. government debt to foreign central banks.
This amount is unpayable, given the chronic U.S. trade deficit and overseas military spending. But it does pose an interesting problem: why can’t other countries do the same thing? Is today’s policy asymmetry a fact of nature, or is it merely voluntary and the result of ignorance (spurred by an intensive globalist ideological propaganda program, to be sure)? Does India, for instance, need to privatize its state-owned banks as earlier was planned, or is it right to pull back? More to the point, have the neoliberal programs imposed on the former Soviet Union succeeded in “Americanizing” their economies and raising production capacity and living standards as promised? Or, was it all a dream, indeed, a nightmare?
The three Baltic countries, for instance – Latvia, Estonia and Lithuania – have long been praised in the Western press as great success stories. The World Bank classifies them among the most “business friendly” countries, and their real estate prices have soared, fueled by foreign-currency mortgages from neighboring Scandinavian banks. Their industry has been dismantled, their agriculture is in ruins, their male population below the age of 35 is emigrating. But real estate prices added to the net worth on their national balance sheets for nearly a decade. Has a new “moment of truth” arrived? Just because the Soviet economic system culminated in bureaucratic kleptocracy, has the neoliberal model really been so much better? Most important of all, was there a better alternative all along?
We expect the post-Soviet economies to go the way of Iceland, having taken on foreign debt with no visible means of paying it off via exports (the same situation in which the United States finds itself), or even further asset sales. Emigrants’ remittances are becoming a mainstay of their balance of payments, reflecting their economic shrinkage at the hands of neoliberal “reformers” and the free-market international dependency that the Washington Consensus promotes. So, just as this crisis has led the U.S. government to shift gears, is it time for foreign countries to seek to become more in the character of “mixed economies”? This has been the route taken by every successful economy in history, after all. Total private-sector markets (in practice, markets run by the banks and money managers) have shown themselves to be just as destructive, wasteful and corrupt and, indeed, centrally planned as those of totally “statist” governments from Stalin’s Russia to Hitler’s Germany. Is the political pendulum about to swing back more toward a better public-private balance?
Washington’s idealized picture of how free markets operate (as if such a thing ever existed) promised that countries outside the United States would get rich faster, approaching U.S.-style living standards if they let global investors buy their key industries and basic infrastructure. For half a century, this neoliberal model has been a hypocritical exercise in poor policy at best, and deception at worst, to convince other economies to impose self-destructive financial and tax policies, enabling U.S. investors to swoop in and buy their key assets at distress prices. (And for the U.S. economy to pay for these investment outflows in the form of more and more U.S. Treasury IOUs, yielding a low or even negative return when denominated in hard currencies.)
The neoliberal global system never was open in practice. America never imposed on itself the kind of shock therapy that President Clinton’s Treasury Secretary (and now Obama’s advisor) Robert Rubin promoted in Russia and the rest of the former Soviet bloc, from the Baltic countries in the northwest to Central Asia in the southeast. Just the opposite! Despite the fact that America’s own balance of trade and payments is soaring, consumer prices are rising and financial and property markets are plunging, there are no calls among its power elite to let the system self-correct. The Treasury is subsidizing America’s financial markets so as to save its financial class (minus some sacrificial lambs) and support its asset prices. Interest rates are being lowered to re-inflate asset prices, not raised to stabilize the dollar or slow domestic price inflation.
The policy implications go far beyond the United States itself. If the United States can create so much credit so quickly and so freely – and if Europe can follow suit, as it has done in recent days – why can’t all countries do this? Why can’t they get rich by following that path that the United States actually has taken, rather than merely doing what its economic diplomats tell them to do with sweet self-serving rhetoric? U.S. experience itself provides the major reason why the free market, run by financial institutions allocating credit, is a myth, a false map of reality to substitute for actual gunboats in getting other countries to open their asset markets to U.S. investors and food markets to U.S. farmers.
By contrast, the financial and trade model that U.S. oligarchs and their allies are promoting is a double standard. Most notoriously, when the 1997 Asian financial crisis broke out, the IMF demanded that foreign governments sell out their banks and industry at fire-sale prices to foreigners. U.S. vulture capital firms were especially aggressive in grabbing Asian and other global assets. But the U.S. financial bailout stands in sharp contrast to what Washington Consensus institutions imposed on other countries. There is no intention of letting foreign investors buy into the commanding U.S. heights, except at exorbitant prices. And for industry, the United States has once more violated international trade rules by offering special bailout money and subsidies to its own Big Three U.S. automakers (General Motors, Ford and Chrysler) but not to foreign-owned automakers in the United States. In thus favoring its own national industry and taking punitive measures to injure foreign-owned investments, the United States is once again providing an object lesson in nationalistic economic policy.
Most important, the U.S. bailout provides a model that is far preferable to the Washington Consensus-for-export. It shows that countries do not need to borrow credit from foreign banks at all. The government could have created its own money and credit system rather than leaving foreign creditors to accrue interest charges that now represent a permanent and seemingly irreversible balance-of-payments drain. The United States has shown that any country can monetize its own credit, at least domestic credit. A large part of the problem for Third World and post-Soviet economies is that they never experienced the successful model of managerial capitalism that predated the neoliberal model, advocated since the 1980s by Washington.
The managerial model of capitalism, predominating during the post-World War II period until the 1980s (with antecedents in 18th-century British mercantilism and 19th-century American protectionism), delivered high growth. Postwar planners, such as John Maynard Keynes in England and Harry Dexter White in the United States, favored production over finance. As Winston Churchill quipped, “nations typically do the right thing [pause], after exhausting all other options.” But it took two world wars, interspersed by an economic depression triggered by debts in excess of the ability to pay, to give the final nudge required to promote manufacturing over finance and finally do “the right thing.”
Finance was made subordinate to industrial development and full employment. When this economic philosophy reached its peak in the early 1960s, the financial sector accounted for only 2 per cent of U.S. corporate profits. Today, it is 40 per cent! Carrying charges on America’s exponentially growing debt are diverting income away from purchasing goods and services to pay creditors, who use the money mainly to lend out afresh to borrowers to bid up real estate prices and stock prices. Tangible capital investment is financed almost entirely out of retained corporate earnings – and these too are being diverted to pay interest on soaring industrial debt. The result is debt deflation – a shrinkage of spending power as the economic surplus is “financialized,” a new word, only recently added to the world’s economic vocabulary.
Since the 1980s, the U.S. tax system has promoted rent seeking and speculation on credit to ride the wave of asset-price inflation. This strategy increased balance sheets as long as asset prices rose faster than debts (that is, until last year). But it did not add to industrial capacity. And meanwhile, tax cuts caused the national debt to soar, prompting U.S. Vice President Dick Cheney to comment, “Reagan proved deficits don’t matter.”
On the international front, the larger the U.S. trade and payments deficit, the more dollars were pumped into foreign hands. Their central banks recycled them back to the U.S. economy in the form of purchases of Treasury bonds and, when the interest rates fell almost to zero, securitized mortgage packages. Current Treasury Secretary Henry Paulson assured Chinese and other foreign investors that the government would stand behind Fannie Mae and Freddie Mac as privatized mortgage-packaging agencies, guaranteeing a $5.2 trillion supply of mortgages. This matched in size the U.S. public debt in private hands.
Meanwhile, the Treasury cut special deals with the Saudis to recycle their oil revenues into investments in Citibank and other U.S. financial institutions – investments, on which they have lost many tens of billions of dollars. To cap matters, pricing world oil in dollars kept the U.S. currency stronger than underlying economic fundamentals justified. The U.S. economy paid for its imports with government debt never intended to be repaid, even if it could be (which it can’t at today’s $4 trillion level, cited earlier). The American economy, thus, has seen its trade deficit and asset prices rise in accordance with economic laws that no other nation can emulate, topped by the ability to run freely into international debt without limit.
Managerial capitalism mobilized rising corporate net worth and equity value to build up in the real economy. But since the 1980s, a new breed of financial managers has pledged assets as collateral for new loans to buy back corporate stock and even to pay out as dividends. This has pushed up corporate stock prices and, with them, the value of stock options that corporate managers give themselves. But it has not spurred tangible capital formation.
A real estate bubble in all countries has been fueled by rising mortgage debt. To buy a new home, buyers must take on a lifetime of debt. This has made many employees afraid to go on strike or even to press for better working conditions, because they are “one check away from homelessness,” or mortgage foreclosure. Meanwhile, companies have been outsourcing and downsizing their labor force, eliminating benefits, imposing longer hours, and bringing more women and children into the workforce.
Today’s “new economy” is based not on new technology and capital investment, as former Fed chairman Alan Greenspan trumpeted in the late 1990s, but on price inflation generating capital gains (mainly in land prices, as land is still the largest asset in the U.S. and other industrial economies). The economic surplus is absorbed by debt service payments (and higher priced health care), not investment in production or in sharing productivity gains with labor and professionals. Wages and living standards are stagnant for most people, as the economy tries to get rich by “the miracle of compound interest,” while capital gains emanating from the financial sector provide a foundation for new credit to bid up asset prices, all the more in a seemingly perpetual motion credit-and-debt machine. But the effect has been for the richest 1 per cent of the population to increase its share of interest extraction, dividends and capital gains from 37 per cent ten years ago to 57 per cent five years ago, and nearly 70 per cent today. Savings remain high, but only the wealthiest 10 per cent are saving – and this money is being lent out to the bottom 90 per cent, so no net saving is occurring.
Internationally, too, the global economy has polarized rather than converged. Just as independence arrived for many Third World countries only after their former European colonial powers had put in place inequitable land tenure patterns (latifundia, owned by domestic oligarchies) and export-oriented production, so independence for the post-Soviet countries from Russia arrived after managerial capitalism had given way to a neoliberal model that viewed “wealth creation” simply as rising prices for real estate, stocks and bonds. Western advisors and former emigrants descended to convince these countries to play the same game that other countries were playing – except that real estate debt for many of these countries was denominated in foreign currency, as no domestic banking tradition had been developed. This became increasingly dangerous for economies that did not put in place sufficient export capacity to cover the price of imports and the mounting volume of foreign-currency debt attached to their real estate. And nearly all the post-Soviet countries ran structural trade deficit, as production patterns were disrupted with the breakup of the U.S.S.R.
Real estate and capital gains from asset-price inflation (not industrial capital formation) were promoted as the way to future prosperity in countries whose profits from manufacturing were low and wages were stagnant. The problem is this alchemy is not sustainable. An illusion of success could be maintained as long as Washington was flooding the globe with cheap money. This led Swedes and other Europeans to find capital gains by extending loans to feed neighboring countries from Iceland to Latvia, above all via their real estate markets. For some exporters (especially Russia), rising oil and metal export prices became the basis for capital outflows into Third World and post-Soviet financial markets. Some of the backwash, for example, flowed into the world’s burgeoning offshore banking and real estate sectors – only to stop abruptly when the real estate bubble burst. In these circumstances, what is to be done? First, countries outside the United States need to recognize how dysfunctional the neoliberalized world economy has been made, and to decide which assumptions underlying the neoliberal model must be discarded. Its preferred tax and financial policies favor finance over industry and, hence, financial maneuvering and asset-price inflation over tangible capital formation. Its anti-labor austerity policies and un-taxing of real estate, stocks and bonds divert resources away from growth and rising living standards.
Likewise destructive are compound interest and capital gains over the long term. The real economy can grow only a few per cent a year at best. Therefore, it is mathematically impossible for compound interest to continue unabated and for capital gains to grow well in excess of the underlying rate of economic growth. Historically, economic crises wipe out these gains when they outpace real economic growth by too far a margin. The moral is that compound interest and hopes for capital gains cannot guarantee income for its retirees or continue attracting foreign capital. Over a period of a lifetime, financial investments may not deliver significant gains. For the United States, it took markets about twenty-five years, from 1929 to the mid-1950s, to recover their previous value.
Today’s desperate U.S. attempt to re-inflate post-crash prices cannot cure the bad-debt problem. Foreign attempts to do this will merely aid foreign bankers and financial investors, not the domestic economy. Countries need to invest in their real economy, to raise productivity and wages. Governments must punish speculation and capital gains that merely reflect asset-price inflation, not real value. Otherwise, the real economy’s productive powers and living standards will be impaired and, in the neoliberal model, loaded down with debt. Policies should encourage enterprise, not speculation. Investment seeks growing markets, which tend to be thwarted by macroeconomic targets such as low inflation and balanced budgets. We are not arguing that inflation and deficits can be ignored, but rather that inflation and deficits are not all created equally. Some variants hurt the economy, while others reflect healthy investment in real production. Distinguishing between the two effects is vital, if economies are to move forward to achieve self-dependency.
In sum, a much better economy can be created by rejecting Washington’s financial model of austerity programs, privatization selloffs and trade dependency, financed by foreign-currency credit. Prosperity cannot be achieved by creating a favorable climate for extractive foreign capital, or by tightening credit and balancing budgets, decade after decade. The United States itself has always rejected these policies, and foreign countries also must do this if they wish to follow the policies, by which America actually grew rich, not by what U.S. neoliberal advisors tell other countries to do to please U.S. banks and foreign investors.
Also to be rejected is the anti-labor neoliberal tax policy (heavy taxes on employees and employers, low or zero taxes on real estate, finance and capital gains) and anti-labor workplace policies, ranging from safety protection and health care to working conditions. The U.S. economy rose to dominance as a result of Progressive Era regulatory reforms prior to World War I, reinforced by popular New Deal reforms put in place in the Great Depression. Neoliberal economics was promoted as a means of undoing these reforms. By undoing them, the Washington Consensus would deny to foreign countries the development strategy that has best succeeded in creating thriving domestic markets, rising productivity, capital formation and living standards. The effect has been to decouple saving from tangible capital formation. They need to be re-coupled, and this can be achieved only by restoring the kind of mixed economy by which North America and Europe achieved their economic growth.Michael Hudson is professor of Economics at the University of Missouri (Kansas City) and chief economic advisor to Rep. Dennis Kucinich. He has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). He is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002). He can be reached via his website, mh@michael-hudson.com.
Jeffrey Sommers is a professor at Raritan Valley College, NJ, visiting professor at the Stockholm School of Economics in Riga, former Fulbrighter to Latvia, and fellow at Boris Kagarlitsky’s Institute for Global Studies in Moscow. He can be reached at jsommers@sseriga.edu.lv.

The Post-Washington Dissensus

This is a quite interesting article. As Bello details some of the alternatives they sound little better than the original Wasington Consensus if not worse.


Foreign Policy in Focus
September 24

THE POST-WASHINGTON DISSENSUS
Walden Bello*

When two studies last year detailed how the World Bank's research
unit had been systematically manipulating data to show that neo-
liberal market reforms were promoting growth and reducing poverty in
developing countries, development circles were not shocked. They
merely saw the devastating findings of a study by American University
Professor Robin Broad and a report by Princeton University Professor
Angus Deaton and former International Monetary Fund chief economist
Ken Rogoff as but the latest episode in the collapse of the so-called
Washington Consensus.

Taking off from Margaret Thatcher's famous remark, partisans of this
development model during its heyday the 1980s and early 1990s claimed
that the alternative to the Washington Consensus was TINA -- that is,
"There is no alternative." The Washington Consensus broke with
economic strategies involving heavy participation by government and
positioned the unfettered market as the driver of development.

Imposed on developing countries in the form of "structural
adjustment" adjustment programs funded by the International Monetary
Fund (IMF) and the World Bank, the Consensus reigned until the late
1990s, when the evidence became clear that on all key criteria of
development -- sustained growth, poverty reduction, and reduce
inequality -- it simply was not delivering. By the first half of
this decade, the Consensus had undergone a process of unraveling,
although neo-liberalism remained the default mode for many economists
and technocrats that had lost confidence in it, simply out of inertia.

The former adherents of the Consensus have gone off in divergent
directions. Despite frequent references to it, there is, in fact, no
"Post-Washington Consensus."

WASHINGTON CONSENSUS PLUS
Mindful of the failures of the Washington Consensus, the IMF and the
World Bank are now promoting what Nobel laureate Joseph Stiglitz has
disdainfully described as the "Washington Consensus Plus" approach,
that is, that market reforms, while crucial, are not enough.
Financial reforms, for instance, must be "sequenced," if we are to
avoid such debacles as the Asian financial crises, which even the
Fund now admits was due to massive capital inflows into countries
that liberalized without strengthening their "financial
infrastructure." Mindful of the Russian descent into the hell of
mafia capitalism in the 1990s, the two institutions also now talk
about the importance of accompanying market reform with institutional
and legal reforms that can enforce private property and contracts.
Other accompaniments of market reforms are "good governance" and
policies to "develop human capital" such as female education.
This mix of market and institutional reforms were consolidated in the
first years of this decade in the so-called Poverty Reduction
Strategy Papers (PRSP's). In contrast to what one analyst has
described as the "bare knuckle neo-liberalism" of structural
adjustment programs, PRSPs were not only more liberal in content but
in process: they were supposed to be formulated in consultation with
"stakeholders," including civil society organizations.
Despite its icing of institutional reforms, the core of the PRSP cake
remains the same macroeconomic fundamentals of trade liberalization,
deregulation, privatization, and commercialization of land and
resources at the heart of structural adjustment programs. And
community consultation has been limited to well-resourced, liberal
non-governmental organizations rather than broad-based social
movements. PRSPs indeed are simply second generation structural
adjustment programs that seek to soften the negative impact of
reforms. As IMF Managing Director Rodrigo Rato has admitted, the
purpose of institutional reforms is "to make sure that the fruits of
growth are widely shared and the poorest people are protected from
the costs of adjustment" in order to prevent people from being
"tempted to give up on orthodox economic policies and structural
reforms."

NEOCONSERVATIVE NEOLIBERALISM
A second successor to the Washington Consensus is what one might call
the "neoconservative neo-liberalism." This approach is essentially
the development policy of the Bush administration. The inspiration
for this strategy was provided by the famous 2000 report of a
congressional commission on multilateral institutions headed by
conservative academic Alan Meltzer, which proposed a radical slimming
down of the World Bank. It supports-at least rhetorically--debt
relief for the poorest countries on the ground that they won't be
able to pay the debt and seeks a shift from loans to grants.
However, debt relief and grant aid are conditioned on how governments
perform in terms of liberalizing their markets and privatizing their
industries, land, and natural resources. Indeed, the main reason for
preferring grants is that, in contrast to loans channeled through the
World Bank, grants, as Undersecretary of State John Taylor put it,
"can be tied more effectively to performance in a way that longer-
term loans simply cannot." Moreover, grants would allow pro-market
reforms and aid policy generally to be more directly coordinated with
Washington's security objectives and with the agenda of US
corporations. Compared to the original Washington Consensus,
neoconservative neoliberalism is less doctrinaire, but in an
illiberal direction, ready, as it is, to let the market play second
fiddle to power.

NEOSTRUCTURALISM
A third distinctive successor to the Washington Consensus,
neostructuralism, moves, in contrast, in a more liberal direction.
This is an approach associated with the Economic Commission for Latin
America (CEPAL) that produced the structuralist theory of
underdevelopment in the 1950s under the leadership of the venerable
Argentine economist Raul Prebisch. According to neostructuralism,
neoliberal policies have simply been too costly and
counterproductive. In fact, there is no trade-off between growth and
equity, as the neoliberals claim, but a "synergy." Less inequality
in fact would enhance, not obstruct, economic growth by increasing
political and macroeconomic stability, boosting the saving capacity
of the poor, raising educational levels, and expanding aggregate
demand. The neostructuralists thus propose progressive transfer
payment policies that redistribute income in ways that increase the
human capital or productivity of the poor, including higher spending
for health, education, and housing programs. These are the kinds of
programs associated with what the Mexican polemicist Jorge Castaneda
has called the "Good Left" in Latin America, meaning the governments
of Lula in Brazil and the Concertacion alliance in Chile.
Being focused on managing transfer payments to protect and upgrade
the capacity of the poor, the neostructuralist approach does not
interfere with market forces in production, unlike the policies of
the "Bad Left" (meaning Hugo Chavez and friends) that intervene in
production, markets, and wage policies. The neostructuralists also
embrace globalization, and they say that a key objective of their
reforms is to make the country more globally competitive. Because
they simultaneously allegedly alleviate income disparities, upgrade
the capacity of the poor, and make the work force more globally
competitive, neostructuralist reforms are said to hold out the
prospect of making globalization more palatable, if not popular.
Neostructuralists proudly proclaim that their approach is the "high
road" to globalization, in contrast to the "low road" of the
neoliberals.
The problem is that neostructuralist reforms have led to what one
of its most thoughtful critics, Chilean economist Fernando Leiva,
calls the "heterodox paradox," that is, in the quest for systemic or
comprehensive competitiveness, the carefully crafted neostructuralist
policies have actually led to "the politico-economic consolidation
and regulation of neoliberal ideas and policies." In the end,
neostructuralism, like the Washington Consensus Plus approach, does
not fundamentally reverse but simply mitigate the poverty and
inequality-creating core neoliberal policies. The Lula government's
targeted anti-poverty program may have reduced the ranks of the
poorest of the poor but institutionalized neoliberal policies
continue to reproduce massive poverty, inequality, and stagnation in
Latin America's biggest economy.

GLOBAL SOCIAL DEMOCRACY
The more than residual attachment to neoliberalism of
neostructuralism is less evident in the case of what we might call
global social democracy, an approach that has become identified with
people such as economist Jeffrey Sachs, sociologist David Held, Nobel
laureate Joseph Stiglitz, and the British charity Oxfam. Unlike the
three previous approaches, this perspective acknowledges the fact
that growth and equity may be in conflict, and it ostentatiously
places equity above growth. It also fundamentally questions the
central thesis of neoliberalism: that for all its problems, trade
liberalization is beneficial in the long run. Indeed, Stiglitz says
that in the long run, trade liberalization may in fact lead to a
situation where "the majority of citizens may be worse off."
Moreover, the global social democrats demand fundamental changes in
the institutions and rules of global governance such as the IMF, WTO,
and the Trade Related Intellectual Property Rights Agreement
(TRIPs). David Held, for instance, calls for the "reform, if not
outright abolition, of the TRIPs Agreement," while Stiglitz, says
that "rich countries should simply open up their markets to poorer
ones, without reciprocity and without economic or political
conditionality." Also, "middle-income countries should open up their
markets to the least developed countries, and should be allowed to
extend preferences to one another without extending them to the rich
countries, so that they need not fear that imports might kill their
nascent industries."
The global social democrats even see the anti-globalization
movement as an ally, with Sachs thanking it "for exposing the
hypocrisies and glaring shortcomings of global governance and for
ending years of self-congratulation by the rich and powerful." But
globalization is where the global social democrats draw the line.
For, like classical neoliberalism, the Washington Consensus Plus
school, and neostructuralism, global social democracy sees
globalization as necessary and fundamentally sound and, if managed
well, as bringing benefits to most.
Indeed, the global social democrats see themselves as saving
globalization from the neoliberals. This is all the more important
because, contrary to an assumption that was gospel truth just a few
years ago -- the globalization was irreversible -- the global social
democrats worry that contemporary globalization is, in fact, in
danger of being reversed, and they hold up as a cautionary tale about
the consequences of such a development the turbulent reversal of the
first wave of globalization after 1914.
To Sachs, Held, and Stiglitz, the benefits of globalization
outstrip the costs, and what the world needs is a social democratic
or "enlightened globalization" where global market integration
proceeds but is one that is managed fairly and is accompanied by a
progressive "global social integration." The aim, as Held puts it, is
to "provide the basis for a free, fair, and just world economy,"
where the "values of efficient and effective global economic
processes...function in a manner commensurate with self-
determination, democracy, human rights, and environmental
sustainability."

CAN GLOBALIZATION BE HUMANIZED?
There are several problems with global social democracy's attachment
to globalization.
First of all, it is questionable that the rapid integration of
markets and production that is the essence of the globalization can
really take place outside a neoliberal framework whose central
prescription is the tearing down of tariffs walls and the elimination
of investment restrictions. Slowing down and mitigating this
inherently destabilizing process, not reversing it, is the global
social democratic agenda. That global social democrats have come to
terms with the fundamental tendency of global market forces to spawn
poverty and inequality is admitted as much by Sachs who sees social
democratic globalization as "harnessing [of] the remarkable power of
trade and investment while acknowledging and addressing limitations
through compensatory collective action."
Secondly, it is likewise questionable that, even if one could
conceive of a globalization that takes place in a socially equitable
framework, this would, in fact, be desirable. Do people really want
to be part of a functionally integrated global economy where the
barriers between the national and the international have
disappeared? Would they not in fact prefer to be part of economies
that are susceptible to local control and are buffered from the
vagaries of the international economy? Indeed, the backlash against
globalization stems not only from the inequalities and poverty it has
created but also the sense of people that they have lost all
semblance of control over the economy to impersonal international
forces. One of the more resonant themes in the anti-globalization
movement is its demand for an end to export-oriented growth and the
creation of inwardly-oriented development strategies that are guided
by the logic of subsidiarity, where the production of commodities
takes place at the local and national level whenever that is
possible, thus making the process susceptible to democratic regulation.

THE LARGER PROBLEM
The fundamental problem with all four successors to the Washington
Consensus is their failure to root their analysis in the dynamics of
capitalism as a mode of production. Thus they fail to see that
neoliberal globalization is not a new stage of capitalism but a
desperate and unsuccessful effort to overcome the crises of
overaccumulation, overproduction, and stagnation that have overtaken
the central capitalist economies since the mid-seventies. By
breaking the social democratic capital-labor compromise of the post-
World War II period and eliminating national barriers to trade and
investment, neoliberal economic policies sought to reverse the long-
term squeeze on growth and profitability. This "escape to the
global" has taken place against the backdrop of a broader conflict-
ridden process marked by renewed inter-imperialist competition among
the central capitalist powers, the rise of new capitalist centers,
environmental destabilization, heightened exploitation of the South
-- what David Harvey has called "accumulation by dispossession" --
and rising resistance all around.
Globalization has failed to provide capital an escape route from its
accumulating crises. With its failure, we are now seeing capitalist
elites giving up on it and resorting to nationalist strategies of
protection and state-backed competition for global markets and global
resources, with the US capitalist class leading the way. This is the
context that Jeffrey Sachs and other social democrats fail to
appreciate when they advance their utopia: the creation of an
"enlightened global capitalism" that would both promote and
"humanize" globalization.

Late capitalism has an irreversible destructive logic. Instead of
engaging in the impossible task of humanizing a failed globalist
project, the urgent task facing us is managing the retreat from
globalization so that it does not provoke the proliferation of
runaway conflicts and destabilizing developments such as those that
marked the end of the first wave of globalization in 1914.

*Walden Bello is professor of sociology at the University of the
Philippines and senior analyst at the Bangkok-based research and
advocacy institute Focus on the Global South.

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