Shifting the Global Economy
by Ross Jackson. This is an excerpt from the Economic Dimension of Gaia Education’s Design for Sustainability curriculum.
The 2007–2009 world economic crisis has been characterized by some mainstream observers as the final death throws of the neo-liberal economic model introduced by Ronald Reagan and Margaret Thatcher in the 1980s. Many are the calls now, primarily from the ordinary people who are suffering from the collapse, for a “third alternative,” a “new economic order” or a ”new Bretton Woods” agreement.
In the following, I will outline some of the major components that would be desirable in shifting the global economy towards a new economic world order that is not only efficient but protective of the environment and social structures.
One of the foundation stones of the current system, which contributes to its instability, is the free flow of capital across borders. The reason why this is so important to the neo-liberals is that they want to be able to get their money out of a country fast when necessary so it can be invested elsewhere at a higher short term return. The problem is that the amounts involved are huge, while the markets where they operate are relatively small. These small, illiquid equity and currency markets cannot withstand the selling pressure in a liquidity crisis, and simply collapse.
Free Trade and Protectionism
“Free trade” is euphemistic shorthand for a particular economic strategy that allows the strong to exploit the weak, as opposed to protectionism, which protects the weak from the strong. A more descriptive term than “free trade” would be “forced trade” as no country can keep out unwanted foreign products under a free trade regime, as they could prior to the formation of the World Trade Organisation (WTO) in 1995. No country ever became industrialized following a free trade policy.
A great myth promoted by the neo-liberals is that protectionism impedes growth. The key to any reform is to understand that there are different kinds of protectionism. Some are negative (e.g. protection of inefficient exploitative local monopolies), but most are actually positive (e.g. protection of the environment and other self-defined national security interests, such as food security). The problem with the WTO rules is that they forbid all kinds of protectionism. The entirely predictable result is the raping of the environment as corporations devour the planet’s natural capital and call it “growth”. Under the WTO rules, no member country dares protect its environment by requiring that its industry use more environmentally friendly production methods, because their industries would become uncompetitive, while they would not be allowed to put tariffs on foreign products that have lower environmental standards.
Protection of the Environment
To tackle the problem of environmental protection we must introduce mechanisms that will give the incentive to private corporations to protect the environment rather than to destroy it. But how can this be achieved? The USA and EU are certainly not willing to take the lead. Not even the major developing countries are ready for it.
There is, however, another possibility — a group of visionary, smaller nations who are willing to take on a leadership role at this time. They should get together and formulate a new and just template for international trade and global governance that would work for the entire global community, a model that would allow a wide degree of corporate freedom to innovate, but within a framework that is protective of the environment and recognizes the right of individual nations to take back control of their economies and define their own political priorities.
The 25-year experiment with free trade, unrestricted capital flows and deregulation has benefited only the already wealthy and created an unacceptable level of financial instability that will continue until reforms are implemented which reverse the foundation stones of free market ideology. We need greater regulation of the corporate sector. We need capital controls on investment flows. Sovereign states need to take back control of their economies from foreign corporations, and a new global regime of trade and global governance that is protective of the environment and human social needs must be established.
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