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Democracy and challenges of global capitalism

LiveMint logoLiveMint 26-09-2017 D. Ravi Kanth

Winning a fourth term as German chancellor is a no mean achievement. But Angela Merkel will be returning to a different Reichstag this week, having witnessed the dramatic rise of the far right in the German election on Sunday. The emergence of the Afd, or Alternative für Deutschland (Alternative for Germany), as the third-largest force in Germany is a telling comment on the breakdown of trust in the political establishment.

Despite the repeated depiction of Merkel as the “mother figure” of Europe’s powerhouse economy, many in Germany are feeling increasingly anxious about the economic health of their communities and the prospects of their children and grandchildren. This runs counter to the endlessly repeated claims of the arch-globalizers that they (people) have never had it so good and that anyway, there is nothing policymakers can do to change course as it’s all down to markets and technology which are beyond their control.

Such claims are fuelling a wider sense of distrust and anxiety across the advanced countries about the compatibility of democracy and global capitalism. Martin Wolf, the economics guru of Financial Times, finds it puzzling because he reckons that historically globalization and democracy have moved in close correlation. But Wolf’s history is premised on a weak footing because he turns a blind eye to the intrinsic links between colonial globalization and political repression in the developing world, in the 19th century. Wolf’s characterization of the 1920s as one of “deglobalisation” has also been challenged by economic historians.

Yet, he seems right to insist that today’s global capitalism is not working for all. Clearly the winners, by using their economic power to shape favourable political outcomes, are undermining the trust and solidarity needed for democracy to flourish.

The latest Trade and Development Report 2017 (TDR) of the United Nations Conference on Trade and Development (UNCTAD) has addressed this problem of growing anxiety in the world. It seeks to avoid pointing the finger at the usual suspects of trade or technology. Rather, it argues that rampant financialization, unprecedented levels of private debt, and a barely disguised corporate takeover of the public domain, are the core elements of what it calls “hyperglobalization”. In turn, the hyperglobalization has propagated a super-elite at the expense of too many people in too many places being subject to stomach-wrenching economic and living conditions.

It defines rents as “derived solely from the ownership and control of assets or from a dominant market position”, rather than from innovative entrepreneurial investment or long-term productive investments. The pervasive financial rent-seeking processes which are continuing despite the 2008 financial crisis are also the major stay for non-financial corporate sector including the emergence of predatory global IT companies. The report estimates that some 40% of the profits of the top 100 firms can be traced to rent-seeking behaviour, a 250% increase over the last 20 years that can be traced to the growing monopoly power of big firms, particularly in advanced economies.

The TDR argues that market concentration and rent seeking have fed off each other to create a “winner takes most” economy. It suggests that the situation is aggravated by the capture of political processes by those with economic power. This suggests that the election of Donald Trump, the rise of the far right in Western Europe and the Brexit shock, are more symptoms than causes of the anxieties noted by Wolf.

Moreover, while the report suggests that bad economic policies associated with austerity have exaggerated the inequities associated with hyperglobalization in the North, it also points to stalled industrialization (or premature deindustrialization) as hampering good job creation in many parts of the South and heightening inequalities.

These are no small matters for the international policy community, not least as efforts persist in the World Trade Organization (WTO) to push for negotiations on e-commerce, government procurement and trade in services, all areas where the report notes that the influence of corporate power has risen markedly in recent years.

Moreover, one of the features of big companies, particularly in the IT sector, is their diversification in to a range of services, including finance and logistics, with a concomitant interest in shaping a broad swathe of global trade rules. Attempts are on to craft plurilateral trade rules for investment facilitation, disciplines for small and medium enterprises, and e-commerce at the upcoming Buenos Aires ministerial meeting of WTO from 10 December despite large scale opposition from the developing and poorest countries.

But there is more to this challenge of growing corporate power than the bending of trade rules; tax evasion, restrictive business practices, and the build-up of sovereign debt all require multilateral action which is not unduly influenced by corporate lobbying. It rightly calls for a reinstatement of the regulatory architecture dismantled under hyperglobalization; that would probably need institutional reforms, including a global competition observatory to monitor trends in international markets. It has called for a “new global deal.”

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