What’s the purpose of an economy? If it’s not for the well-being of the people who live in it, what then is it for?
For most of the last 50 years, the rich nations of the world have been able to fudge that question because they had enough money to keep almost everyone satisfied. Prosperity cuts a lot of slack.
But a new force called globalization is sweeping these fat and happy lands and forcing them to debate just what kind of society they want.
Does the ideal society promote business and the free market, as America does, assuming that everyone will benefit? Does it focus on high living standards, as Europe does, at the cost of efficiency? Does it stress the power of the nation, as Japan does, and demand sacrifices from its people to achieve this?
So far, much of the world would agree with the angst-filled assessment of French President Jacques Chirac.
“Globalization has come hand in hand with rising joblessness, job insecurity and poverty,” Chirac said earlier this year.
“There are two faces to the threat, depending on which side of the Atlantic you look at it,” Chirac said. “Here (in Europe), the status of work is protected, but the unemployment rate stands high. There (in America), unemployment is lower but the precariousness of work is growing.
“Are we condemned to choose between the two?”
Chirac, the leader of one of the world’s strongest nations, had no answer. Neither does any other national leader, which is one reason why, even in an election year, globalization is not much debated.
The fact is that the global economy, being global, has escaped the control of national governments. Money, trade, investment, words, ideas–all move too fast and freely for any national institutions to understand, let alone manage.
In capitals around the world, worried officials are beginning to talk about the need for truly global institutions, which would do on a worldwide basis what central banks, treasuries and tax collectors do on a national level.
The alternative is surrender to the global market, for better or for worse.
Globalization is a cyclonic mix of free-moving money, footloose industry, automation and the information society, all mixed with aging societies and falling birth rates.
Then throw in competition from billions of workers in the Third World and the former Communist countries, all willing to work for one-tenth the wages that American, European and Japanese workers enjoy.
The upshot is falling wages or increased unemployment, plus rising welfare costs and a new sense of insecurity that is sharpest in the U.S. but is affecting workers everywhere.
“What’s at stake?” a French government official asked. “It’s the prosperity of nations, which means the prosperity of the people. It’s right that a company should prosper, should create wealth. But the real question is, How and for whom is this company getting rich?”
Americans trust in the inevitability of market forces and assume that globalization, sooner or later, will benefit everyone–one reason, perhaps, why it has not become a big issue in the current presidential campaign.
But the Japanese see globalization as both a threat and an opportunity to be shaped and controlled, to enhance Japan’s national economic security. Europeans fear it will sweep away the highest living standards and most protective welfare state in their history.
`Shareholder value. Period.’
The American philosophy that business exists only to drive up stock prices and enrich shareholders has been stated in its bluntest terms by Albert Dunlap, the chief executive officer of Sunbeam Corp. who has become known as “Chainsaw Al” for the downsizing of corporations he has headed.
“The point of business is to make a profit,” Dunlap said at a recent forum. “The responsibility of the CEO is to deliver shareholder value. Period.”
Many American executives, proud of the jobs they helped create in the more easygoing days before globalization, detest the new era and the bottom-line obsession exemplified by Dunlap. But they must compete against it, despite all the turmoil and insecurity that goes with cost-slashing.
Outside the United States, this philosophy is known as the “American hire-and-fire system.” In Europe and Japan, executives say they can’t ignore shareholders or profits, but insist that there’s more to running a business than that.
What there is, they say, is the idea of “stakeholders”–employees, customers, community, country–that are as important as shareholders in the thinking in boardrooms around the globe.
“Japanese companies have a bigger burden,” said Yoshihiko Miyauchi, CEO and president of Orix Corp., an international Japanese leasing company. “We are part of the social system, with a responsibility not to create unemployment. So we have a wider role, involving workers and other stakeholders.”
“We have to be more flexible and mobile,” said Horst Teltschik, a member of the management board of BMW, the German automaker. “But we’re not going to take over the American hire-and-fire model. We have a different tradition and culture in Germany, and this culture is a precondition for social peace.
“This social market economy is a consensus that those who are skilled, able, successful have to be ready for solidarity with those who are handicapped, for whatever reason,” Teltschik said.
Bending bottom lines
This may sound like skillful public relations, but virtually everyone–other businessmen, union representatives, academics–agrees that companies in Japan and most of Europe are run on this philosophy.
There are several reasons for this. One is national tradition–in Japan a feeling of national solidarity and “Japanese-ness,” in Europe a sense of equality and social responsibility that owes as much to Catholicism as it does to socialism.
Another reason has more to do with the bottom line, but may be bending beneath the weight of globalization. In Germany and Japan especially, shareholders of big companies are likely to be other companies or banks that are more interested in long-term gains than any day-to-day share price. This cross-ownership and old-boy coziness gives companies the freedom to ignore shareholder value and concentrate instead on preserving jobs, training or investment.
That’s changing–in Europe more than in Japan.
In Japan, the huge pool of savings lets Japanese companies do most of their borrowing at home. In Europe, though, the worldwide flow of money is giving new power to foreign investors who couldn’t care less about the social market economy.
What this means, Teltschik said, is that, “because of global competition, we can’t afford any longer what our people are used to.”
Daimler-Benz, Germany’s biggest company, has also become the first German company to be listed on the New York Stock Exchange. Already its chairman, Juergen Schrempp, is talking about “shareholder value” and has awarded stock options to himself and 170 other executives. Not coincidentally, Daimler has downsized by 70,000 jobs over the last five years.
But the tapestry of Japanese and European societies is made up of thousands of strands of law and custom that enforce social cohesions. No one knows how many of these strands can be pulled out before the whole tapestry unravels.
Search for middle ground
Because of this, many people, especially in Europe, are looking for a middle ground that will preserve as much of the present society as possible.
Oskar Lafontaine, leader of Germany’s opposition Social Democratic Party, has called for a socially based trade policy, with every country promising to uphold similar laws on labor, minimum wages, environment and the like.
Achieving these standards is not impossible; the European Union already has them among the 15 member nations. But extending them to Third World countries–especially to China, India and other giants that are only now becoming world trade powers–is unlikely. In effect, a Lafontaine policy would limit European trade to countries that already have similar living standards, such as other European countries, the U.S., Canada, Japan.
German officials call Lafontaine’s idea “ludicrous,” and BMW’s Teltschik said, “That’s crazy. We already compete with these countries.”
But similar ideas find more fertile soil in France and other countries trying to be competitive and efficient while protecting living standards.
An official in the conservative French government talks about the need for trade that is “harmonized but not necessarily free,” based first on a strong Europe.
“We can’t build globalization on the basis of a regional economic collapse,” the official said.
He cited the case of Fiat, the once-ailing Italian automaker, which was bailed out and protected by the Italian government until it recovered. Had the Italian market been open to Japanese imports at the time, he said, Fiat may have died.
“But through restructuring, it survived,” he said. “Would it have been to Italy’s advantage to have it destroyed? This is a legitimate national interest. I don’t see that the interest of an Italian car manufacturer is of less legitimacy than that of a Japanese carmaker.”
Calls for protectionism
Jacques Attali, onetime aide to the late French President Francois Mitterrand and former president of the European Bank for Reconstruction and Development, calls for an openly protectionist trade policy.
“Yes, why not?” he said. Attali’s idea is a fortress Europe with a “protective customs barrier in the industrial, social and cultural spheres.”
The alternative, he said, is an openness to globalization that, by killing jobs and lowering living standards, “will haunt us in the 21st Century. And it is democracy itself which will come to an end.”
Attali is a typical French intellectual, happily playing with ideas that may or may not have any chance of becoming policy. But more sober voices echo, albeit less flamboyantly, his concerns.
Stephen Roach, an American and chief economist of Morgan Stanley securities firm in New York, has renounced his former championing of “America’s productivity-led recovery.” He now warns of “some form of worker backlash (as) an inevitable byproduct of an era that has squeezed labor and yet rewarded shareholders beyond their wildest dreams.”
Paul Kennedy, the British historian and Yale professor, has asked, “How do we achieve the merging of the economic activities of 186 different nation states when their own socio-economic conditions are so varied, when they are not on a level playing field?”
The U.S. and Europe have some 250 million workers earning high salaries and enjoying the social stability “specifically designed to avoid the class tensions and political extremism of the 1930s,” Kennedy said.
But now come 1.2 billion Third World workers, most of them earning about $3 a day.
“How on Earth,” Kennedy asked, “does one reconcile their interests–their quite legitimate interests–with those of the 250 million North American and European workers who earn 30 times as much?”
Many economists believe that, with unfettered free trade, wages in wealthy nations will fall and those in poor nations will rise, until they meet in the middle. This is happening already for lowest-skilled workers whose jobs have gone oversees.
A moral failing
David Marquand, professor of politics at Britain’s Sheffield University, sees a moral failing in the way that American and British executives have “grabbed an unfair share of the productivity gains created by modern technology because they are under no obligation to respect the claims of others with stakes in the organizations they control.
“The elites of the stakeholder economies of Japan and continental Europe behave more responsibly, not because they are composed of morally superior people . . . but because convention or explicit rules oblige them to share power with other interests,” Marquand said.
Sooner or later, he said, the American and British executives, through their selfishness, “risk destroying the moral mainspring of their society and bringing it down around their ears. That is what happened to the Soviet nomenklatura.”
Even Europeans who welcome the sweep of globalization feel it must be kept under control.
“In contrast to the United States, there’s a higher attachment here to equalized wealth,” said Hans-Olaf Henkel, president of the Federation of German Industry. “We are always going to have higher taxes and, with these taxes, we will continue to fund the things that are important–public education and the basic care of those who get into trouble.”
Norbert Walter, chief economist for Deutsche Bank in Frankfurt and a self-proclaimed enthusiast for globalization, says the process “does exact a price, but you need not accept every result.
“The extreme adaptability of the United States won’t come about here any time soon,” Walter said. “Here business believes that there are specific human skills that are valuable to a firm, and so believes in the need to keep them.
“We won’t stay at the point where we are now, because markets will force us to move,” he said. “But we don’t invite this and won’t fully join it.
“I believe the optimum is in between.”
