How can democracy be reconciled with globalization, asks former Irish Prime Minister John Bruton?

In his book, Supercapitalism: The Transformation of Business, Democracy and Everyday Life, Robert Reich argues that the technologies developed to fight the Cold War — computers, software, telecommunications and super-light alloys, along with containerization and cheap transport — opened up previously closed markets to global competition.

This has meant that the effective control of economics is no longer exercised by national governments that could be held accountable to national electorates. Rather, it is now exercised at a global level where competitive forces are much stronger than democratic impulses. The forms of democracy remain, but the substance has moved elsewhere.

As goods and services can be sourced anywhere in the world, competition between firms is now more intense than at any point in history. As Reich sees it, competition has drowned out other concerns. Human needs, such as job security, now take second place in many firms, which are more focused on achieving the lowest possible consumer price and the highest possible returns to investors.

In practice, the situation is not as stark as Reich says. Even in the United States, where the law gives firms great freedom to hire and fire, companies recognize that it is in their commercial interest to make their staff feel secure in their jobs, so as to maximize their productivity and commitment. As jobs become more specialized, firms want to avoid the cost of retraining new people to replace someone who has left because they felt insecure in their job. “Employee engagement” is a key metric of success for management.

Reich argues that all of us have three roles: as a citizen, consumer and investor.

Many people exercise their “investor” role indirectly, through pensions and insurance policies to which they contribute. Global competition has put our demands as consumers and investors, far ahead of our needs as citizens. As Reich sees it, firms compete for markets, and for shareholders, in a much more intense way than before due to better communications, freedom of capital movement and open markets. They can no longer afford high wages and the philanthropic approach that was possible before the arrival of globalization. Otherwise they would go out of business.

As consumers or investors, it is true that we are not always aware of the fact that the much lower prices we get in the shop or the higher return we used to get in our pension fund came to some degree at the expense of our own job security and our own environment.

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Reich argues that it is futile to expect corporations to behave differently. Under law, their obligation is to maximize the return to their shareholders. It was a waste of time asking corporations to be good citizens. Only people can be citizens, he argues. This is an overstatement. To retain valuable employees, companies have to show that they are doing socially valuable things, whether in their main business or as part of corporate social responsibility (CSR) programs.

Reich contrasts all of this with what he calls the “Not Quite Golden Age” — between 1945-70 — when competition was less intense and companies had resources to spare to act as good citizens and to pay good wages to those who were lucky enough to have a job.

That was then possible because the predominant industrial system was one of mass production, and the costs of setting up for mass production were so large that firms which were already established had a protected market in which they could overcharge consumers. That ability to overcharge allowed them to be philanthropic and/or to pay higher wages.

They did not have to pay much attention to shareholders either, as national exchange and capital controls meant investors had limited choices about where to put their money. This gave their trade unions much greater bargaining power, so wages and job security were better for those lucky to have a job.

But the downside of all this was a lower overall level of employment and economic activity. It is also worth saying that in the “Not Quite Golden Age,” while wages may have been relatively higher than they are today, the jobs were held mainly by men; women worked to a greater extent in unpaid work at home. The new era of globalization has coincided with a big increase in the paid workforce, and far more women are in paid employment. Consequently, the local competition for jobs may have contributed to downward pressure on wages. There has been a trade-off between more jobs and more pay, with more jobs emerging victorious.

Electing the G20?

Reich says this “Not Quite Golden Age” will never come back. The forces driving globalization are physical and technological, and they cannot be reversed by political action in one country, unless that country seals itself off from rest of the world like North Korea. Even East Germany had to take down its wall.

Unfortunately, Reich puts forward few remedies to the problems he analyses so well. He suggests a transfer tax on shares, a law to briefly postpone redundancies and greater trade union rights. But if one country tried to put these measures into force on its own — even a big nation like France — it would probably lose investors and market share, and then have to reverse these measures under pressure of market forces.

This is the weakness of much modern socialist and social democratic thinking. It offers solutions that would have worked in the “Not Quite Golden Age,” but they are impractical now because they fail to recognize the changes wrought in the global economy by globalization since 1970.

The only way to introduce a democratic balance into global capitalism is to attempt to make rules at a global level, or at least a supranational level. Just as climate change can only be tackled by democratically agreed international legislation, the excesses of global competition can only be managed at a global level too.

The G20, not national capitals, is where the action is. But the G20 is not democratically elected, whereas national governments are.

We need to imagine a new politics of globalization and create official fora in which voters have a sense that they can impact the work of bodies such as the G20, the Organisation for Economic Co-operation and Development (OECD) and the World Trade Organisation. The European Parliament, one of the world’s few directly elected supranational parliaments, is a model that may be followed more widely. The next step should be a directly elected parliament to oversee the work of the OECD.

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.

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