In his book, “Supercapitalism; the Transformation of Business, Democracy and Everyday Life”, Robert Reich argued that the technologies were developed to fight the cold war – computers, software, telecommunications and super-light alloys, along with containerization and cheap transport, opened up previously closed markets to global competition.
This has meant that the effective control of economics is no longer exercised by national governments, that could be accountable to national electorates, but is now exercised at global level where competitive forces are much stronger than democratic impulses. The forms of democracy remain, but the substance has moved elsewhere.
Because goods and services can be sourced anywhere in the world, competition between firms is now more intense than at any time in history. As Reich sees it, competition has drowned out other concerns. Human needs, such as the need for a measure of job security, now take second place in many firms to achieving the lowest possible consumer price, and the highest possible returns to investors.
In practice, the situation is not a stark as Reich says. Even in the US, where the law gives firms great freedom to hire and fire, firms recognize it is in their commercial interest to make their staff feel secure in their jobs, so as to maximise their productivity and commitment to the firm. As jobs become more specialized, firms want to avoid the cost of retraining new people to replace someone who has left because they felt insecure in their job. “Employee engagement” is a key metric of success for management.
Reich argued that, all of us have three roles, as a citizen, as a consumer, and as an investor.
Many people exercise their “investor” role indirectly, through pensions and insurance policies to which they contribute. Global Competition has put our demands as consumers and investors, far ahead of our needs as citizens. As Reich sees it, firms compete for markets, and for shareholders, in a much more intense way than before, because better communications, freedom of capital movement, and open markets. They can no longer afford the high wages and the philantrophic approach, that was possible before the arrival of globalization. Otherwise they would go out of business.
As consumers or investors, it is true that we are not always aware to the fact that the much lower prices we are getting in the shop, or the higher return we used to get in our pension fund, came to some degree at the expense of our own job security and our own environment.
Reich argued that it is futile to expect corporations to behave differently. Under law, their obligation is maximize the return to their shareholders. It was a waste of time asking corporations to be good citizens. Only people can be citizens, he argues. This is an overstatement. To retain valuable employees, firms have to show that they are doing socially valuable things, whether in their main business or as part of corporate social responsibility programmes.
Reich contrasted all of this with what he called the “Not Quite Golden Age” – between 1945 and 1970 – when competition was less intense, and companies had resources to spare to act as good citizens, and to pay good wages to those who were lucky enough to have a job.
That was then possible because the predominant industrial system was one of mass production, and the costs of setting up for mass production were so large, that firms who were already established , had a protected market in which they could overcharge consumers. That ability to overcharge allowed them to be philantrophic and/ or to pay higher wages.
They did not have to pay much attention to shareholders either, because national exchange and capital controls meant that investors had limited choices about where to put their money. This gave their trade unions much greater bargaining power, so wages and job security were better, for those lucky enough to have a job. But the downside of all this was a lower overall level of employment and economic activity. It is also worth saying that in the “Not Quite Golden Age”, while wages may have been relatively higher than they are today, the jobs were held mainly by men, women worked to a greater extent in unpaid work in the home. The new era of globalization has coincided with a big increase in the paid workforce, and far more women in paid employment, and the resultant local competition for jobs may have contributed to downward pressure on wages. There has been a trade off between more jobs, and more pay, and more jobs has won.
Reich said this “Not Quite Golden Age” will never come back. The forces driving globalization are physical and technological, and they cannot be reversed by political action in one country, unless that country seals itself off from rest of the world, like North Korea. Even East Germany had to take down its wall.
Unfortunately Reich put forward few remedies to the problems he analysed so well.
He suggests a transfer tax on shares, a law to briefly postpone redundancies, and greater trade union rights. But, if one country tried to put these measures into force on its own, even a big country like France, it would probably lose investors and market share, and then have to reverse these measures under pressure of market forces.
This is the weakness of much modern Socialist and Social Democratic thinking. It offers solutions that would have worked in the “Not Quite Golden Age”, but that are impractical now, because they fail to recognize the changes wrought in the global economy by globalization since 1970.
The only way to introduce a democratic balance into global capitalism is to attempt to make rules at global level, or at least at supranational level.
Just as climate change can only be tackled by democratically agreed global agreements, the excesses of global competition can only be managed at global level too.
The G20, not national capitals, is where the action is. But the G20 is not democratically elected, whereas national governments are. We need to imagine a new politics of globalization, and create official fora in which voters have a sense that they can impact the work of bodies, like the G20, the OECD, and the World Trade Organisation. The European Parliament, one of the world’s few directly elected supranational parliaments, is model that may be followed more widely. Why not have the next step be a directly elected parliament to oversee the work of the OECD?