[R-G] [BillTottenWeblog] The Party of Davos

[Bill Totten]

by Jeff Faux

This article appeared in the February 13 2006 edition of The Nation.

www.thenation.com (January 26 2006)


The world's movers and shakers are convening once again in January at
the annual World Economic Forum in Davos, the posh ski resort nestled in
the Swiss Alps. Attendance is invitation-only, enforced by police
barricades, razor wire and the latest high-tech military hardware to
guard against terrorists, protesters and curious local citizens.

Some 2,000 people will show up to discuss the world's problems as
defined by those who own and manage the great global concentrations of
wealth (Microsoft, Citigroup, Siemens, Nestlé, Nomura Holdings, Saudi
Basic Industries, et cetera.). Their guests include prominent political
leaders, international bureaucrats, academics, consultants and media
pundits - with a few NGO and labor union officials sprinkled along the
edges to demonstrate diversity.

Davos is not the place for secret conspiracies. More than 200 hovering
journalists will dispatch to the world's citizens breathless accounts of
the chatter and charm of the masters of the economic universe. Davos is
rather the most visible symbol of the virtual political network that
governs the global market in the absence of a world government. It is
more like a political convention, where elites get to sniff one another
out, identify which ideas and people are "sound" and come away with
increased chances that their phone calls will be returned by those one
notch above them in the global pecking order.

Americans are of course prominent members of this "Party of Davos",
which relies on the financial and military might of the US superpower to
support its agenda. In exchange, the American members of the Party of
Davos get a privileged place for their projects - and themselves.
Whether it's at Davos, at NATO headquarters or in the boardroom of the
International Monetary Fund, heads turn and people listen more carefully
when the American speaks.

"Davos Man", a term coined by nationalist scholar Samuel Huntington, is
bipartisan. To be sure, Democrats tend to be more comfortable with the
forum's informal seminar-style and big-think topics like global poverty,
cultural diversity and executive stress. Bill Clinton goes often, and Al
Gore, John Kerry, Robert Rubin, Madeleine Albright, Joe Biden and other
prominent Democrats are familiar faces. Republicans generally prefer
more private venues. George W Bush, of course, doesn't do anything
unscripted. But people like Dick Cheney, Newt Gingrich, John McCain and
Condoleezza Rice have all worked the Davos circuit.

That the global economy is developing a global ruling class should come
as no shock. All markets generate economic class differences. In stable,
self-contained national economies, where capital and labor need each
other, political bargaining produces a social contract that allows
enough wealth to trickle down from the top to keep the majority loyal.
"What's good for General Motors is good for America", Dwight
Eisenhower's Defense Secretary famously said in the 1950s. The United
Auto Workers agreed, which at the time seemed to toss the notion of
class warfare into the dustbin of history.

But as domestic markets become global, investors increasingly find
workers, customers and business partners almost anywhere. Not
surprisingly, they have come to share more economic interests with their
peers in other countries than with people who simply have the same
nationality. They also share a common interest in escaping the
restrictions of their domestic social contracts.

The class politics of this new world economic order is obscured by the
confused language that filters the globalization debate from talk radio
to Congressional hearings to university seminars. On the one hand, we
are told that the flow of money and goods across borders is making
nation-states obsolete. On the other, global economic competition is
almost always defined as conflict among national interests. Thus, for
example, the US press warns us of a dire economic threat from China. Yet
much of the "Chinese" menace is a business partnership between China's
commissars, who supply the cheap labor, and America's (and Japan's and
Europe's) capitalists, who supply the technology and capital. "World
poverty" is likewise framed as an issue of the distribution of wealth
between rich and poor countries, ignoring the existence of rich people
in poor countries and poor people in rich countries.

The conventional wisdom makes globalization synonymous with "free trade"
among autonomous nations. Yet as Renato Ruggiero, the first
director-general of the World Trade Organization, noted in a rare moment
of candor, "We are no longer writing the rules of interaction among
separate national economies. We are writing the constitution of a single
global economy." (Emphasis added.)

On the board of many transnational companies, Ruggiero has been both
trade and foreign minister in the Italian government of right-wing
businessman Silvio Berlusconi. He is now the chair of Citigroup's Swiss
subsidiary. His fellow authors of the Davosian constitution have similar
résumés, tracking careers that flow easily across borders and between
public and private sectors. After just stepping down as German
chancellor, Gerhard Schröder has become board chair of a Russian company
building a gas pipeline that Schröder himself had negotiated while in
office. And so it goes.

In the absence of global democracy, the forces that act as
counterweights to the power of the investor class in national economies
- labor, civil society and progressive political parties - are too weak
and unorganized to create a global social contract. What might be called
the "Party of Porto Alegre" - the NGO activists of the World Social
Forum, who also meet annually (usually in Brazil, this year in
Venezuela, Mali and Pakistan) in January - is hardly a match for Davos.
It is therefore no surprise that the constitution of the world economy
protects just one class of global citizen - the corporate investor.

Given the influence of American elites, the model for this constitution
is the North American Free Trade Agreement, conceived under Ronald
Reagan, nurtured by George H W Bush and delivered by Bill Clinton. Among
other things, NAFTA's 1,000-plus pages give international investors
extraordinary rights to override government protections of workers and
the environment. It sets up secret panels, rife with conflicts of
interest, to judge disputes from which there is no appeal. It makes
virtually all nonmilitary government services subject to privatization
and systematically undercuts the public sector's ability to regulate
business. Jorge Castañeda, later Mexico's foreign secretary, observed
that NAFTA was "an agreement for the rich and powerful in the United
States, Mexico and Canada, an agreement effectively excluding ordinary
people in all three societies".

In the fall of 1993 a corporate lobbyist, exasperated by my opposition
to NAFTA, stopped me in the corridor of the Capitol. "Don't you
understand?" she demanded. "We have to help [then-Mexican President
Carlos] Salinas. He's been to Harvard. He's one of us."

Her reference to "us" seemed odd. Neither she nor I was a Harvard
graduate. So it took me a while to get her point: "We" internationally
mobile professionals had a shared interest in liberating similarly
mobile global investors from regulations imposed by national governments
on behalf of people who were, well, not like "us". Despite the
considerable social distance between Salinas and both of us, she was
appealing to class solidarity.

It's impossible to understand why Democratic Party leaders collaborated
with Republicans to establish NAFTA unless reference is made to
cross-border class interests. There was no compelling economic or
political reason for Bill Clinton to make NAFTA a priority in his first
year as President. In economic terms, nothing was broken that needed
fixing. Politically, NAFTA and the WTO that followed traded away the
interests of the Democratic Party's blue-collar electoral base while
creating a bonanza for Republican constituencies on Wall Street and in
red-state agribusiness.

But Clinton was more Davos than Democrat. Tutored by financier Robert
Rubin, a prodigious fundraiser who became his Treasury Secretary,
Clinton embraced a reactionary, pre-New Deal vision of a global future
in which corporate investors were unregulated and the social contract
was history. Indeed, in all three countries it was the leaders of the
political parties that had historically claimed to represent ordinary
people - the Democrats' Clinton, the Liberal Party's Jean Chrétien and
the Institutional Revolutionary Party's Salinas - who delivered NAFTA to
their global corporate clients, undercutting their own constituencies.
"NAFTA happened", said the then-chairman of American Express, "because
of the drive Bill Clinton gave it. He stood up against his two prime
constituents, labor and environment, to drive it home over their dead
bodies."

A year later, in November 1994, enough angry Democratic voters stayed
away from the polls to give the Republicans control of the House. Since
then, many working-class Americans, feeling abandoned by the Democrats,
have responded to the Republican definition of class struggle as a fight
over gun control, school prayer and abortion. The Democrats have still
not recovered.

Consistent with a deal among the rich and powerful, NAFTA made the
distribution of income, wealth and political power more unequal
throughout the continent. In all three countries, wages in manufacturing
fell behind productivity increases, shifting income from labor to
capital. Ordinary Mexicans especially went through the economic wringer
- to which the willingness of hundreds of thousands of them to risk
their lives each year crossing the border continues to be tragic testimony.

On the other hand, opportunities blossomed for the rich and powerful in
all three nations. American and Canadian investors got access to cheaper
labor and privatized Mexican companies, while Mexican oligarchs got to
broker the deals. One example was the way NAFTA was used to open up
Mexico's banking system to foreign ownership, profiting elites on both
sides of the border.

The governments of Carlos Salinas and his successor, Ernesto Zedillo -
hailed in Washington as great free-market reformers - privatized
government-owned banks, turning them over to business cronies, and,
through NAFTA, revoked the legal ban on foreign ownership. When the
banks started to fail, they were given huge government subsidies to make
them attractive to transnational buyers. At the same time, the "reform"
government was slashing subsidies to the poor for food and medicine.

Banamex, the country's second-largest bank, was bought by a Mexican
syndicate, owned by Salinas pal Roberto Hernandez Rodriguez, for $3.2
billion and when, thanks to NAFTA, foreigners were allowed to own
Mexican banks, it was resold to Citigroup for $12.5 billion. Robert
Rubin negotiated the deal for Citigroup, where he had gone after leaving
the Treasury Department. The Mexican government's welfare program for
Citigroup and other foreign investors continues: In 2003 government
subsidies to private banks (more than 85 percent of them now owned by
foreigners) were almost three times those spent on roads, schools and
other infrastructure.

NAFTA was only the beginning. The Clinton/Republican alliance then
pushed through the WTO agreement and the subsequent deal with China that
traded off more US industrial jobs in exchange for protections for US
investors in that huge Asian market. Not only has this produced a
massive trade deficit with China and further downward pressure on US
wages, it has also sent some 250,000 jobs from Mexico to China. The
ubiquitous Citigroup, with banking operations in 100 countries, is now
busy building its Chinese banking empire - with Chinese partners.

That well-connected people who move in and out of government and
business act in ways that benefit their class and take advantage of
their contacts to further their own interests is neither illegal nor
new. That's the way class privilege works. Thus, it is unlikely that
Dick Cheney ever ordered anyone at the Pentagon to give a huge
sole-source contract to Halliburton. He did not have to. Procurement
officers already knew the relationship between the company and the Vice
President. And Cheney's promotion of more funds for the military and for
the war in Iraq in particular was bound to benefit the world to which he
belonged - his circle of rich and powerful people who would always be
there for him and his projects.

There are of course important differences between the ways the elites of
the different parties promote the Davos agenda. The preferred
instruments of Rubin Democrats are the economic levers of the US
Treasury, the IMF, the World Bank and other international financial
institutions. Rumsfeld/Cheney Republicans prefer the Defense and Energy
departments. The Rubin mode is certainly less lethal and probably more
effective. Still, Davos relies on the Pentagon to protect its class
privileges with a worldwide web of military bases, training schools and
the always-present threat to send in the Marines. It's worth remembering
that virtually the only section of Saddam Hussein's law still untouched
by the US occupation is its oppressive labor code.

But the twin pillars of the US superpower - the Pentagon and Wall Street
- are slipping into their own crises and soon may not be able to provide
the military and economic muscle for the Davos agenda.

The crisis on the military side involves blowback from the overreach in
Iraq. Bush, Cheney and Rumsfeld - despite their thick transnational
corporate connections - have created a disaster for Davos. The war has
unleashed an army of enemies of Western modernization that is making
global corporations nervous. Two years ago the wiser heads at Davos were
appalled at Cheney's delusional report on the Bush Administration's
progress in turning the Middle East into a shopping mall - however much
they might have sympathized with the objective. Today the mess in Iraq
has revealed to Davos both the incompetence of the American governing
class and the unwillingness of the American electorate to make the
sacrifices necessary to act as security police for the world's rich and
powerful.

The looming economic crisis comes from the unsustainable US external
debt. For more than a quarter-century, we Americans have been buying
more from the rest of the world than we have been selling it, and
borrowing from abroad to make up the difference. The resulting trade
deficit has been a major engine of global growth under Davos's
management. But common sense and simple arithmetic tell us that even the
United States cannot go on much longer spending more than it is earning.

When the day of reckoning comes, high interest rates and a falling
dollar will force us Americans to rebalance our trade by cutting the
price of what we sell and raising the price of what we buy, lowering
real incomes. The crisis in the nation's trade sector will be
transmitted to the rest of the economy, made vulnerable by overindebted
consumers, overleveraged pension funds and overpriced houses. Thanks to
George W Bush's reckless fiscal deficits, the government will have less
ability to overcome an economic crisis through borrow-and-spend, as it
did in the last economic downturn. With the appetite for America's IOUs
diminishing, US politicians will have their hands full dealing with
rising energy costs and the tottering finances of healthcare, education
and pensions.

The basics of a harder-times scenario are not much in dispute. The
debate is between those who foresee a hard landing and those who believe
that the world's central bankers will somehow figure out a way to avoid
a global financial meltdown. But hard landing or soft, even the
staunchest supporters of globalization admit that lower living standards
are already in the cards. N Gregory Mankiw, who as Bush's chief
economist famously praised the offshoring of American jobs, recently
acknowledged that US reliance on foreign savings to support its
consumption means a "less prosperous future".

Financier Warren Buffett reaches the obvious conclusion: We are headed
for "significant political unrest". Democratic Senator Max Baucus, a
staunch free-trader, recently told Chinese business executives that
unless they cut their country's trade deficit with America "US politics
will become unmanageable". New York Times columnist and Davos champion
Thomas Friedman, who also sees the writing on the wall, suggests
dividing political parties by economic class, with Republican Wall
Street joining with Democratic Hollywood against disgruntled
working-class "populists" in both red and blue states.

But working-class disgruntlement is likely to go beyond Freidman's
stereotype of uneducated losers. The outsourcing and downsizing of
opportunities is already adding to the insecurity of people much further
up the skill ladder. There are signs that the anxiety is spreading to
the business class as well; within organizations such as the National
Association of Manufacturers, the owners of smaller and medium-sized
businesses, who still depend on an American workforce, are beginning to
dissent from the once united front in favor of globalization.

Resistance to Davos is also growing in our own hemispheric neighborhood.
Latin American oligarchs who prospered by selling their countries'
assets and people to transnational investors have been ousted in Brazil,
Argentina, Venezuela, Uruguay and Bolivia. In Mexico, which is having a
presidential election this July, a leftist critic of NAFTA leads in the
polls. The Party of Davos may not be over, but the rest of the world
seems less willing to foot the bill.

Here in America, the coming unrest could turn right as well as left. The
Republican Party is hopelessly tied to the multinational priorities of
the US business elite, but its managers are skilled at stoking
nationalist resentment among the working-class victims.

In the two-party system the burden therefore rests on the Democrats'
ability to produce leaders who are not co-opted by the Party of Davos.
Given the current crop, our chances may not seem great. But leaders are
often produced by the times. As globalization's squeeze on ordinary
Americans continues, the political price will rise for those who
continue to give priority to bringing Burger King to Baghdad over
healthcare to Baltimore. It's worth remembering that Franklin Roosevelt,
who was as elite and privileged as one could get, responded to the
economic crisis of his time by becoming - as they muttered in the best
clubs - "a traitor to his class".

_____

Jeff Faux was the founder of, and is now distinguished fellow at, the
Economic Policy Institute. His latest book is The Global Class War (2006).

http://www.thenation.com/doc/20060213/faux


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