Law or power? Which will rule world trade?

June 24, 1996|By William Pfaff

VILLA D'ESTE, Lake Como -- Given that globalization of the economy is produced by technology, its direction and pace are nonetheless controllable. There are important decisions to make, which if they are not made now may prove beyond the power of the democracies to decide in the future.

The warning is that of Renato Ruggiero, new head of the World Trade Organization, speaking to a meeting of the Council for the United States and Italy. He asked two questions about the future. Do we want a system of regional economic groupings? Or a vast global free-trade area? Do we want the global economy to be governed by rules, firmly enforced? Or that it be ruled by power?

The answers will bring with them answers to subsidiary and practical questions. Who should be admitted to the WTO? There are now 29 countries (China included) on the list of applicants. Should they all be admitted?

Open markets, really?

Are the major countries really willing to open their markets fully to developing world exports, as a policy of open membership requires? Is business in the democracies really prepared to accept the structural changes this will bring?

Are democratic governments and voters ready for termination or radical reduction of their current health, welfare and retirement systems, as unrestricted global competition on wages and labor standards implies? This is the most sensitive of all the questions. Its answer will determine the nature and quality of society in the 21st century.

There is a crucial fatalism in too much current discussion. Too many assume that economic globalization is inevitable, and that nothing can be done to shape or dominate its social consequences.

Pollyanna readings

Worse are the Pollyannas whose misreading of the 19th-century theoretician of free trade, David Ricardo, leads them to believe that the free play of the global market will automatically create the best of all possible worlds for everyone; hence there is nothing to be concerned about. (They ignore Ricardo's ''iron law of wages,'' which said that under market conditions wages would necessarily stabilize at just above subsistence level. If he was wrong about that, why is he right about the global marketplace, of which he knew nothing?)

Too often, as well, are social considerations simply ruled out as somehow illegitimate. In a debate published in May by Harper's magazine, the American business executive Albert Dunlap, noted for ruthless corporate restructurings, insists that ''the responsibility of the CEO is to deliver shareholder value. Period. It's the shareholders who own the corporation. They take all the risk.''

This is business dogma in the U.S. and Britain today (it wasn't yesterday), and it is increasingly influential elsewhere. The risk -- the risk of their lives -- taken by employees who commit themselves to a given corporation, or the risk assumed by a community in supporting a company or giving it favorable treatment, is deemed irrelevant, or as meriting no consideration.

At the Council for the United States and Italy meeting, one European executive of a multinational corporation alluded to the ''blackmail'' exercised against politicians by elections. If it weren't for elections they would be able to make the ''right'' decisions about globalization, and dismiss the social questions.

Not everyone thinks this way in the corporate world. The more intelligent and politically sophisticated business leaders understand that a war against workers and society, conducted in the name of corporate profit, can't be won.

The urgent immediate need is for serious reflection on what we want of 21st-century society. The key decision, still to be made, is whether regional trade groupings of countries at roughly the same level of development, able to compete constructively without destructive social consequences, may not be better than a global system of unrestrained competition.

The latter is a radical choice which could have revolutionary consequences. It must not be made by default, merely because governments and society have failed to examine implications and alternatives.

The other crucial issue is Mr. Ruggiero's interrogation about force versus law.

Everyone pays lip service to law, Washington most of all. However, it is one thing to talk the rule of law and another thing to play by the rules. Washington today frequently practices the rule of force when the rule of law is inconvenient. The current example is the U.S. attempt to impose penalties on certain foreign companies with Cuban interests.

Lack of principle

This mainly follows from congressional pressures on the administration (on any administration; but the Clinton administration has demonstrated a peculiar lack of principle in this matter). These congressional pressures are generated by sectoral or specific corporate and political interests.

The result is an American declaratory policy in support of rules in world trade, accompanied by a real policy of ignoring or challenging the rules when they inconvenience American trade and political interests. There is no secret about this, and by and large the United States has its way because it possesses preponderant power. But its power advantage is eroding, and those who have lost out keep a list.

If power dominates trade, as we near the 21st century, everyone will eventually give up the rules. They cannot afford to do otherwise. In the short term that may suit the more powerful. In the longer term it will not.

William Pfaff is a syndicated columnist.

Pub Date: 6/24/96

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