STOP the World, I Want to Get Off

William Greider demystifies global capitalism.

One World, Ready or Not: The Manic Logic of Global Capitalism
By William Greider
Simon & Schuster; 528 pages; $27.50

I’ll bet that very few people who begin William Greider’s new 528-page book will read every word of it. Like his 799-page tome on the Federal Reserve, Secrets of the Temple (1987), it would have been vastly improved by being cut, perhaps in half. Entire arguments and quotations are repeated from chapter to chapter. Most of the chapters include a tedious travelogue. Here, for example, is Greider’s description of Mexico City: “Its European grace notes, the broad boulevards and castles inherited from colonial eras, were splashed with wild, magical colors that could only be described as ‘Mexican.’ “

But I would also bet that anyone who gets through this book (except, perhaps, for a few economists and Treasury officials) will feel a pang of regret for not taking Pat Buchanan or Ross Perot more seriously last year. Not that the author is a Buchananite or a Perotista; a former Washington Post editor and currently a political writer for Rolling Stone, Greider is liberal and cosmopolitan. But in One World, Ready or Not, Greider explains why Americans should feel anxious about their place in the new world economy–an anxiety that Buchanan and Perot addressed, however imperfectly, and that Dole, Clinton, and many of America’s opinion makers ignored. I may be prejudiced because I share Greider’s political point of view, but I think this is the best book to date on the perils of the new world economic order. It does for the post-Bretton Woods world of currency swaps, runaway shops, and technology transfers what his earlier book did for the Fed. It makes a daunting subject somewhat comprehensible–and harrowing.

The book contains a core argument about industry and labor, which I believe to be true. Greider contends that in many key industries–including autos, textiles, steel, ships, aircraft, chemicals, computers, and drugs–the world’s companies are capable of producing far more than the world’s consumers can buy. Such overcapacity in autos, for instance, runs as high as 25 percent, and will probably rise as each country tries to develop its own automaking industry. And the overcapacity problem is getting worse, for a couple of reasons. Advances in technology allow industries to produce more goods with fewer people (in effect, creating more supply but less demand). Meanwhile, Japan, China, and other Asian nations have adopted mercantilist trade strategies: that is, they have sought, through barriers or government subsidies, to guarantee surpluses. By definition, such a strategy expands the supply of goods without proportionately boosting demand.

Overcapacity reduces the incentive for businesses to invest and leads to slower world growth, as supply continually threatens to outrun demand. Put this together with the new mobility of capital–the ability of companies to move their manufacturing facilities wherever the costs are lowest–and you have the ingredients for an international race to the bottom in wages and social benefits, as companies seek to cut costs in the face of this overcapacity and heightened competition for markets.

In the United States, the quest to lower costs encourages corporate managers to destroy unions. It’s the class war all over again, Greider notes, only worse. “In historical terms,” he writes, “revolutionary capitalism has circled back to its original fight with socialism a century ago and reopened the ideological argument, but from a much stronger political position. Labor and the left are in retreat almost everywhere; commerce and finance predominate in politics and have adapted centralized government to their own uses.”

Greider also undertakes an ambitious analysis of global finance. In this area, I am less confident of my own knowledge–and therefore, of his conclusions. But his arguments are provocative and address seeming anomalies that conventional theorists have failed to address, let alone explain. For instance, Greider argues that the unexpected rise in interest rates in 1994–after the Clinton administration had reduced the deficit–was the result of an entirely separate drama played out among private bondholders, who wildly overinvested the previous year. In explaining why economic growth has lagged over the last two decades, Greider singles out the deregulation of finance by both national and international bodies. The ensuing volatility of currency-exchange rates, he argues, has made businesses’ projections of profits from trade increasingly unreliable, thereby discouraging productive investments and growth.

Greider also argues that deregulation helped make the value of advanced nations’ financial assets grow faster than their actual economies. From 1980 to 1992, Greider notes, financial assets from advanced nations have expanded at 6 percent a year, about twice as fast as the economies themselves were growing. That has led to a worldwide situation comparable to Japan’s bubble economy, where, with assets systematically overvalued, a crash became inevitable. But while Japan’s Ministry of Finance has ably managed that country’s crisis, there is no comparable global body to police the world system.

In Secrets of the Temple, Greider warned that central banks had taken over U.S. economic policies. He now acknowledges that power has shifted to the global market and its private players, who, like George Soros, possess the power to overturn government currency decisions. According to Greider, in 1983 the five major central banks of the world held $139 billion in foreign exchange reserves, compared with $39 billion a day that was traded, on average, in foreign-exchange markets. In 1992, the central banks had $278 billion in reserves, but the private market was trading $623 billion a day. As the power of traders and private bankers has grown, government economic policy has become hostage to the financiers’ and speculators’ fears that economic growth will spur inflation, which will reduce the value of their holdings. So governments follow the financiers’ prescriptions for curbing inflation–slower growth through a balanced budget and higher interest rates. They end up doing all they can to eliminate the one instrument–rapid economic growth–by which they might close the gap between finance and industry. “This commitment to slow growth,” writes Greider, “does protect the value of money and financial assets, but it is like a noose thrown around the advanced economies, sure to deepen their imbalances in production and employment.”

The upshot of all this, Greider worries, might be a repeat of the 1920s. During that decade, industry and finance were also strangely out of step with each other, and nations also faced a conflict between popular welfare and the imperatives of the market. For Greider, the rise of Buchanan in the United States and right-wing nationalism in Europe is a foretaste of a 21st-century fascism. As an alternative, he suggests a “moderate” middle ground between the rentier capitalism’s status quo of balanced budgets and wage and benefit cuts on the one hand and a “hard, reactionary politics that can shut down the system” on the other. The latter would probably call for shutting off immigration, erecting permanent, high-tariff walls, and “solving” the problem of unemployment by stigmatizing the least employable. Between these extremes lie Greider’s own solutions, which he summarizes thus:

Restore national controls over global capital. Tax wealth more, labor less. Stimulate global growth by boosting consumer demand from the bottom up. Compel trading nations to accept more balanced trade relations and absorb more surplus production. Forgive the debtors, especially the hopeless cases among the very poorest nations. Reorganize monetary policy to confront the realities of a globalized money supply, both to achieve greater stability and open the way to greater growth. Defend labor rights in all markets–prohibit the ancient abuses renewed in the “dark Satanic mills.”

Some of his more specific suggestions strike me as less than helpful. Greider wants to “change the tax incentives and subsidies for private enterprise by rewarding firms that fostered greater employment and penalizing those that did the opposite.” That would, in effect, penalize companies for efficiency and productivity. But other suggestions make sense. He wants the United States to join with other financial centers in adopting a “transactions tax” on currency exchanges to stanch speculation and inhibit wide swings in currency values. (Deputy Treasury Secretary Lawrence Summers once endorsed this idea.) He wants the United States to adopt an “emergency tariff” of between 10 percent and 15 percent on imports to force other countries to abandon their mercantile trading strategies. And he wants the World Trade Organization to adopt binding standards for international labor rights to slow the race to the bottom.

Unfortunately, even these suggestions are unlikely to be adopted. The same trends in the world economy that cry out for reform are themselves weakening the hand of the reformers. For instance, as the mobility of capital reduces the power of unions, the chance for including labor rights in the world trade treaty known as GATT–the General Agreement on Trade and Tariffs–grows remote. As American multinationals ship their production overseas, the likelihood of getting business to support an import tariff (which would now tax theirown imports) becomes equally small.

But does that mean that we face a repeat of the dark years of soup kitchens and brownshirts leading up to world war? Greider suggests we could “replay the terrible conflicts of the twentieth century.” I find that a little extreme–or, at least, difficult to foresee. Yet Greider’s less bold (but still frightful) assertion that “the global system … will probably experience a series of terrible events–wrenching calamities that are economic or social or environmental in nature” seems well within the realm of plausibility.