Page 2 of
4 OBAMA, CHANGE
AND CHINA, Part 1 The song stays the
same By Henry C K Liu
emerged that to arrest the deterioration
of US global influence, multilateralism needed to
be restored and the transformational diplomacy
agenda needed to be adjusted and replaced with a
policy of peaceful cooperative coexistence between
countries with different
socio-economic-cultural-political systems.
The view of an inevitable clash of
civilizations mindlessly embraced by US
neoconservatives as a basis for US foreign policy
formulation has had its validity disproved by
events. At the same time, blind faith in
unregulated markets was being recognized as the
fundamental cause of the financial/economic
crisis.
Yet multilateralism cannot be
restored unilaterally and peaceful
coexistence cannot be
achieved by a militant transformational diplomatic
agenda. The current global financial crisis has
its genesis in the globalized US finance sector.
The solution requires the application of
transformationalism not to foreign
economic/political systems disapproved by the US,
but to predatory global neoliberal market
capitalism engineered by US financiers that have
inflicted more damage to the US than any foreign
enemy or terrorist group.
Greenspan
fell into trap set by Bin Laden While the
Federal Reserve, the US central bank, under Alan
Greenspan began its emergency monetary rescue of
the equity market in response to the 1987 crash as
a one-off emergency measure, it was the 9/11
terrorist attacks on the World Trade Center in
2001 that pushed Greenspan to adopt a permanent
accommodative monetary stance to show that the US
economy could survive terrorist threats. A
continuous accommodative monetary policy became
the underlining factor enabling the monetary
excesses that led to the credit crisis that
finally broke out in July 2007.
If the
ultimate objective of the 9/11 terrorists on the
symbolic World Trade Center in New York in 2001
was to topple the US financial system, it seemed
to have succeeded spectacularly within six years.
The US, in its aftermath frenzy of collective
rage, appeared to have fallen right into the
self-destructive trap set by al-Qaeda. Any good
policy chief knows that it is more effective to
focus on capturing a specific perpetrator who has
killed a cop than to declare war on all criminals
out of vengeance. A general war on crime will
unite all criminals to make it easier for the
specific perpetrator to escape policy capture. A
global war on terrorism will likewise unite
terrorists of al persuasion. This is the reason
why Osama bin Laden has so far escaped capture.
Since mid-2007, unregulated global
non-bank financial markets, having been fueled to
the point of implosion by the Fed's easy-money
regime, have experienced abrupt meltdowns that
have flowed back into the largely deregulated
banking system. Led by US financial "innovations",
the global banking system, having been pushed by
neoliberals to privatize even in many socialist
countries over the last decade, is being
nationalized in every country active in world
trade through government bailouts.
In the
US, the freewheeling investment banking regime has
gone out of existence since the autumn of 2008,
being folded back into bank-holding companies in
order to qualify for central bank funding.
Unregulated market fundamentalism is now dependent
entirely on government life support. The global
financial system is under intensive care in every
interconnected market economy around the world.
Since the effectiveness of US foreign policy is
predicated on US economic prowess, setbacks in the
US financial and economic system directly impact
US influence in the world.
Economic
nationalism Since government bailout
funding is sourced essentially from taxpayer
money, government intervention is inseparably
attached to economic nationalism. Even though most
mainstream economists and policymakers continue to
oppose anything that hints of "protectionism" as
against "US national interests", the massive US
stimulus bill put forward by the Obama
administration predictably contains a "buy
American" clause. Free-trade supporters such as
the Consumer Electronics Association warn that
"buy American" provisions in the economic stimulus
bill could make the US vulnerable to a global
trade war.
Obama has said that "we can't
send a protectionist message" in the stimulus
bill, or convey to trading partners "that somehow
we're just looking after ourselves and not
concerned with world trade." The Senate softened
the "buy-American" provision in the stimulus bill
it passed by stipulating that any government
procurement policies comply with World Trade
Organization rules. Yet US transnational business
interests argued that the language favoring
American producers should have been removed
altogether.
Yet it is clear that the world
economies cannot rely on trade to get out of the
current crisis because over-reliance on trade was
the cause of the crisis. The export economy
over-exported to earn dollars that could not be
spent at home, and the import economy, namely the
US, over-imported by going into massive debt
denominated in fiat dollars that the central bank
supplied freely. Deregulation and asset-price
inflation were the only US exports for the past
decade. Now, in a panic of government
intervention, the stimulus package of every
government is aiming to maximize national
multiplier effects of its fiscal spending. Every
government is registering its opposition to
regressive protectionism while they adopt policies
of economic nationalism.
The need for a
global income policy The anti-trade game of
beggar thy neighbor in a race to bottom for wages
is changed to a race to the top for maximizing
national multiplier effects of stimulus spending.
Yet no Western government has yet considered the
dire need for an income policy to cure the
demand-deficiency problem behind the current
crisis. All stimulus programs are focusing
disproportionately on bailing out private
businesses to help them survive by laying off
workers or reducing wages and benefits. This type
of stimulus is a key component of a downward
spiral of economic stagnation that will last for
at least a decade.
The Economic Policy
Institute (EPI), a pro-labor Washington think
tank, issued a "Statement on Economic Recovery
Package" on February 12, 2009, with a warning to
"make no mistake - the economy is in such a
dramatic free fall that this legislation by itself
will not prevent additional job loss or rising
unemployment. Nevertheless, reducing the loss of
jobs can prevent a catastrophic loss of income and
economic opportunity that could affect every
segment of our society and be especially painful
for the low-income and minority communities that
are most vulnerable. This package will save or
create at least three million jobs over the next
three years, and that will be a major
achievement."
EPI economist Jared
Bernstein, a vocal critic of anti-labor aspects of
free trade, has been appointed to a new post in
the vice president's office as chief economist and
economic policy adviser to Vice President Joseph
Biden, providing a strong advocate for labor in
the Obama White House. Yet Bernstein's appointment
contrasts with the more centrist free-trade views
of many of Obama's top economic advisers, who were
mostly alumni from the Clinton era whose policies
were largely responsible for the mess today.
EPI senior international economist Robert
E Scott asserts in an article on the EPI website
that the "buy-American" rule in the stimulus bill
is smart policy that would not run afoul of any of
US trade treaties, arguing that "when domestic
industries have been injured by unfair trade
practices, protecting them is good policy". Scott
points out that "some of the loudest protests
about buy-American provisions have come from
self-interested American companies like
Caterpillar and General Electric that manufacture
overseas. Foreign ministers from China and Russia,
which haven't signed the procurement codes, have
also complained, but these countries simply want
something for nothing. Giving them access to
stimulus spending will dilute the impact of the
recovery bill and eliminate all incentives for
them to sign the codes."
Ohio Democratic
Senator Sherrod Brown said:
The American people have been
willing to reach deep into their pockets and
spend tens of billions of dollars to build
roads, repair bridges and construct water and
sewer systems. And all that they want is that
the work be done by Americans and that the
materials they use are made in America. Who
could be against that? Well, some Ivy League
economists don't like it - something about
Smoot-Hawley and the Great Depression. And
newspaper publishers pontificate about
free-trade theory, as they see their advertisers
flee and their papers shrink. And the corporate
executives of some of America's largest
corporations tell us it will cause a trade war,
as they collect million-dollar bonuses while
laying off American workers and outsourcing jobs
to China and India. These are not people who are
about to lose their jobs to bad trade policy.
Other than this small, shall we say elite group,
you could search far and wide and find almost no
one who thinks "Made in America" is a bad idea.
Since tax money comes largely from
workers whose jobs are on the line, the senator's
view is incontestable.
Yet barely a decade
into the 21st century, with a globalized
neo-liberal trade regime firmly in place in a
world where the market economy has become the norm
due to dubious US ideology backed by US financial
power, protectionism appears to be fast
re-emerging and possibly igniting a new global
trade war of complex dimensions, as market
fundamentalism has brought on what may well be the
greatest economic crisis in recent history.
The irony is that this new trade war is
being launched not by the poor economies that have
been receiving the short end of the trade stick,
but by the US, which on all counts has been
winning more than it has been losing from global
neo-liberal trade, with the European Union
following suit in lockstep. Japan, of course, has
never let up on protectionism and has never taken
competition policy seriously.
Workers in
every country have all, in their separate ways,
been victimized by deregulated global market
fundamentalism. The current financial/economic
crisis cannot be solved without introducing a new
world economic order that sets the raising of
working wages as the priority goal of reform and
restructuring to raise demand to redress
overcapacity. In short, a global income policy is
urgently needed.
Chinese economic
policy at a crossroad Alas, led by the US,
most government bailouts and stimulus programs
around the world thus far are formulated on a
model of giving taxpayer money to corporate
employers so they can further cut employment and
further push down wages to further weaken consumer
demand. China appears to be the only exception of
this trend since the reins of leadership were
passed to Hu Jintao and Wen Jiabao in 2002, albeit
there are still vocal forces in Chinese policy
debates insisting on continuing to follow faulty
US models of growth through deregulated markets,
and to depend on exports to achieve prosperity.
Hopefully, facts will now silence these
wrongheaded vocal voices and allow China to
finally move on a path of balanced domestic
development.
The rich nations need to
recognize that their efforts to squeeze every last
drop of advantage out of an already unfair trade
regime will only plunge the world into deep
depression. History has shown that while the poor
suffer more in economic depressions, the rich,
even as they are financially cushioned by their
wealth, are hurt by political repercussions in the
form of either war or revolution, or both.
Already, reports of social protests are appearing
around the world. (See The
coming trade war and global depression, Asia
Times Online, June 16, 2005)
The current
economic crisis is a manifestation of the
dysfunctionality of the unregulated global
financial system promoted by US neoliberalism. US
transformationalism under George W Bush was aimed
at transforming the entire world by "enlarging"
US-style democracy through opening up national
markets everywhere for US transnational
corporations. US policy on China aimed at
accelerating the push on the Chinese economy
towards unregulated market fundamentalism through
"peaceful evolution", a strategy entertained by
all US administrations, regardless of the
structural adverse impact such evolution would
have on the socio-political stability in China.
This strategy is futile because the Chinese
socialist revolution cannot be manipulated to
self-destruct merely to enhance US global national
interests.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
