It was in anticipation of more free time in my hands that i earlier hinted
that i would be later protesting against the protesters of Genoa. Time i
regret to announce i don't have as it is. Since my position on free trade
liberalism [i prefer using 'free trade liberalism' instead of the misleading
and rhetorical 'globalisation' - now given a demonic anti- corporate bent by
the Left] is well known, i shan't waste time on the virtues of free trade
liberalism. Rather, what is essential here is to re-state why the "pampered
westerners" engaging in violent and hedonist rampage in the streets of Genoa
are doing more damage to the world's poor than good. This is not to say that
those who shadow international financial gatherings do not raise genuine
issues. They raise very genuine issues that should be of major concern to any
right thinking individual with a social conscience. The problem of these
protesters is best summed by Samuel Brittan: their inability to combine the
compassion - that has compelled many of them to go out in the streets to
protest against poverty and deprivation - with the wisdom that is needed to
ultimately help the world's poor. Without such wisdom, all their efforts
would amount to nothing more than the reckless street upheavals the world
witnessed in some European capitals - specifically Rome and Paris - in the
late 60s. We know how those movements, because of their fanatical opposition
to moderation and without aclear agenda, later fizzled out into obscurity
without any practical achievements to their name. The current cadre of street
protesters run the risk of sharing a similar fate if they don't inject some
wisdom into the infantile populism that serves as their raison d'etre. It is
not enough to complain about the conditions of world's poor and go in the
streets in violent and hedonist rampage. What policies and programmes are
going to help the world's poorest?

 This is what has always been the fundamental defect of the protesters: they
know what are opposed to but are clueless about how to change things. If they
even get close to saying what it is they would want to see replace free trade
liberalism, it is invariably simple-minded or crack-pot. At best, all they
ever come up with is a pathetic and fiery rehearsal of repudiated
alternatives like Marxism. A pity the energy that is being expended in the
streets is not being spent brainstorming on credible alternatives to free
trade liberalism. The truth is there is no credible alternative to free trade
liberalism.

Since the Seattle upheaval gave global audience to the protesters, two books
have appeared which have acted as the new "Das Kapital" of the protesters.
They are "No Logo" by Noami Klein, a Canadian writer and "The Silent
Takeover" by Dr Noreena Hertz, an academic at Cambridge University's Judge
Istitute of Management. Becuase of time constraints, i'm letting Martin
Wolf's review of Dr Noreena Hertz's book in the July issue of Prospect
Magazine [not the American one; but the British monthly magazine] do the
talking for me. The piece is a bit long; subscribers interested in the debate
might want to shelve it and add it to their weekend reading list.

All the best,

Hamjatta Kanteh

****************
A new critique of the corporate state has been the focus of extensive media
attention. It is intellectually vacuous, says Martin Wolf

>here, on the cover of The Silent Takeover, sits a young woman. She sprawls in
an armchair, with a booted leg draped nonchalantly over one arm. The chair is
placed, incongruously, on muddy ground by a small river. Our prophetess looks
at the reader, mouth slightly parted. Thus do we meet the pundit as poseuse.
Infantile leftism takes on a new and attractive form. What is Noreena
Hertz--an academic at the Judge Institute, Cambridge University--trying to
tell us? The "silent takeover" began, she writes, with Margaret Thatcher in
1979. Global corporations were apparently, invisible and uninfluential before
then. But capitalism has now taken over the world. In the process it has
destroyed democratic politics. "Governments' hands are tied and we are
increasingly dependent on corporations." The result is an eroding tax base
and crumbling public services, as "our elected representatives kowtow to
business." Hertz says she is not anti-capitalist, since "capitalism is
clearly the best system for generating wealth." She is "unashamedly
pro-people, pro-democracy and pro-justice." This, naturally, differentiates
her from opponents who are unashamedly anti-people, anti-democracy and
anti-justice. Her core worry is this: "as business has extended its role, it
has come to define the public realm... Governments, by not even acknowledging
the takeover, risk shattering the implicit contract between state and citizen
that lies at the heart of a democratic society, making the rejection of the
ballot box and support for non-traditional forms of political expression
increasingly attractive."  The new capitalist economy has, she claims,
undermined the prosperity of the unskilled in advanced countries and
increased job insecurity. It has failed to benefit the poor, as inequality
has risen. By threatening to move abroad, companies have driven down taxes
and regulatory standards. "The levying of taxes... the most fundamental right
of the nation state and a potential means of redressing inequality, is
squeezed by corporate pressure... The mindset is one of 'beggar thy
neighbour.'" Corporate interests dictate to government, which makes it
impossible to pursue an ethical foreign policy. The WTO puts our health at
risk. Our politics are sold to the highest bidder. Our media are monopolised.
"Many people have simply lost their faith in politics." Then, quite suddenly,
we are told that the all-powerful corporation is not all-powerful, after all.
Monsanto's campaign for GM food is crushed by media-fed hysteria. Shell
abandons its plans to sink the Brent Spar platform in the Atlantic. Campaigns
by shoppers force companies to change their ways. Evangelical entrepreneurs,
such as George Soros, and the movement for corporate social responsibility
emerge. Yet corporate social responsibility is not enough, since "business
will never place customer service, ethical trading and social investment
above moneymaking whenever the two come into conflict." And protest, for all
its attractions, "does not provide a long-term solution to the silent
takeover," since the "majority risks being disempowered by the vocal
minority." Protest must be seen, instead, as a catalyst for change. The
proper aim is to "re-establish government as a democratic forum within which
differing social needs are weighed, and all is not reducible to the
corporation or the individual." Hertz concludes that "to avoid permanent
marginalisation in the decisions that shape our lives, now is time for
action." To do what? "As citizens we must make it clear to government that
unless politics focuses on people as well as business... we will continue to
scorn representative democracy, and choose to shop and protest rather than
vote. Until the state reclaims us, we will not reclaim the state." This, such
as it is, is the argument. The question is not what is wrong with it, but
what is right. Since space is limited, I will address just four aspects: the
argument that corporations dominate the world; the thesis that taxes and
regulations are in a race to the bottom; the notion that inward investment
impoverishes the people of recipient countries; and, last, the idea that all
we need is a revitalisation of democracy. This leaves out other issues:
Hertz's superficial treatment of the impact of globalisation on inequality,
her confusion between liberalism and mercantilism, and her misunderstanding
of how the WTO works to name a few. Do corporations dominate the world? To
support this claim, Hertz cites an analysis which concludes that "51 of the
100 biggest economies of the world are now corporations. The sales of GM and
Ford are greater than the GDP of the whole of sub-Saharan Africa." This is
gross abuse of statistics. The study measures the size of companies by sales.
But national economies are measured by GDP. Since GDP is a measure of value
added, one must compare it with the value added of companies, which is the
difference between the value of their sales and the cost of the inputs they
purchase from suppliers. Last year the sales of GM were $185bn, the same as
Denmark's GDP. But the value added of GM was only a fifth of its sales. So,
this company's "economy" is not the world's 23rd largest but 55th, after
Ukraine. But the comparison between corporate and national economies is
intrinsically absurd. They are as different as apples and artichokes. A
corporation has to attract the labour and capital it employs from competitive
markets. Its ability to survive depends on the returns it offers to those
free to go elsewhere. Countries are governed by a coercive territorial power.
States tax and regulate, companies buy and sell. Moreover, the corporate
sector has never been an omnipotent force for economic liberalism. It is
divided, weak and intellectually lazy. Those desiring environmental or labour
regulations have often overcome business resistance. Hertz gives several
examples. Have taxes been collapsing? No. Between 1980 and 1999, the average
ratio of tax revenue to GDP in OECD countries rose by five percentage points.
Between 1965 (the heyday of the Keynesianism Hertz admires) and 1999, that
ratio rose from 26 to 37 per cent. The notion that the state is withering
away is ludicrous.  Hertz refers to the difficulty Germany has had in
sustaining its corporate taxes. What she does not state is that Germany has
long had an exceptionally inefficient corporation tax. As a percentage of
total taxation, corporate taxes in OECD countries rose, from 7.6 per cent in
1980 to 8.9 per cent in 1999. But Germany's fell from 5.5 per cent to 4.4 per
cent. Contrast this with Britain, which is far more open to foreign direct
investment, and so more vulnerable to the pressure Hertz decries. In 1980,
corporate taxes made up 8.4 per cent of British tax revenue rising to 11 per
cent in 1998. There is also huge variation in overall tax ratios. In 1999 it
varied from less than 30 per cent of GDP in Australia, Japan and the US to 52
per cent in Sweden. Similarly, the share of corporate taxes in total revenue
in 1998 varied from Germany's 4.4 per cent to Australia's 15 per cent. There
is therefore no economic force preventing most internationally integrated
market economies from raising taxes. The constraint is political. It is not
beastly capitalism that prevents countries from raising the higher taxes
Hertz wants, but the democracy she adores. After a big expansion in state
spending in the past 50 years, voters have called a halt. Much the same
applies to regulation. Over the past two decades governments around the world
have privatised many public enterprises. This was not done because of
pressure from business, but because previous policies had been grossly
inefficient. Yet environmental and safety regulations have generally
increased. The story on labour regulation is more varied but Britain has just
shown that a government wanting to increase labour market regulation finds it
easy to do so. There is no convincing evidence that capitalism is leading to
a regulatory race to the bottom. Hertz states baldly that "'pollution havens'
are created as environmentally unfriendly policies are allowed... and human
rights are abused... all to attract foreign investment." But this statement
is contradicted by the evidence cited in her own footnotes. In 1999,
three-quarters of all foreign direct investment went to high-income
countries, not the countries with cheap labour and poor environmental
standards. What then of the impact of inward investment on poor countries?
Foreign investors in developing countries virtually always offer higher wages
and better conditions than those offered by local employers. Compared to
conditions for many casual workers, employment in a foreign company is close
to paradise. A recent study of Indonesia by the National Bureau of Economic
Research in the US showed that inward direct investment raised wages not just
in the foreign-owned plants, but in locally-owned ones as well. Pampered
westerners shocked by the conditions experienced by workers in poor countries
fail to compare these with domestic alternatives, rather than with what they
themselves expect. But if people in poor countries are to enjoy the
opportunities of those who live in rich ones, they must either be allowed to
immigrate freely--precluded by the populist democracy Hertz desires--or be
given the capital and know-how to raise their own output to western levels.
Given the unwillingness of western voters--democracy again--to support higher
transfers of aid to poor countries, the alternatives are private capital and
know-how. This, in turn, must mean large-scale inward direct investment, as
the majority of developing countries now recognise. Finally, Hertz seems
unaware of the vast literature on why unbridled democracy is dangerous. She
talks of "we" the people as if that naive collectivist notion was
unproblematic. But we know that those who are willing to give their time and
money to politics do not always have the aggregate interest at heart. Many
voters are rationally ignorant about the issues confronting them, because the
return on acquiring the knowledge is so small. The interesting question is
not why do people fail to vote, but why do they vote, given the tiny
probability that they will affect the outcome. And more important, we have no
reason to suppose that those who run the state will necessarily be selfless
servants of the public weal. A book whose chief theme is the importance of
subordinating the market to politics and corporations to politicians should
have shown at least some awareness of these difficulties. It might then have
offered a coherent view of the balance to be struck between the market and
politics. Hertz provides, instead, the classic delusion of populism--the
proposition that the interests of "the people" are self-evident and bound to
be served by the state they are supposed to control. Today's world is no
utopia. The regulation of an integrating global economy, particularly of the
financial sector, is a great challenge. Another is assisting unsuccessful
developing countries to improve their performance. Yet another is how to
secure protection of the global commons. But resolving such difficulties
requires more effective international institutions, which will inevitably
raise questions about political legitimacy. This book adds about as much to
these complex debates as do the idiots who throw stones at WTO meetings. It
offers instead a simple-minded story of corporations that dominate politics,
destroy the state's capacity to act and impoverish the poor. Against this it
sets an equally naive answer: to renew democracy. It is, alas, this very
vacuity that will account for its appeal. It will permit the intellectually
lazy and emotionally self-indulgent to believe they have the answers. That
someone attached to one of the world's great universities should offer such
shoddy work is depressing beyond words. Martin Wolf is chief economics
commentator of the Financial Times

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