The Future of Democracy Newsletter: April 2019

On April 1, 2019, our topic was “The Effects of Globalization on Individuals and Democracies.” Our discussion was based mainly on quotes from the book: Can Democracy Survive Global Capitalism? by Robert Kuttner.

Kuttner’s main idea is that the growth of globalization in trade and finance has contributed to increasing inequality in nearly all Western countries, accompanied by a deterioration of human dignity. This has led to a surge to the right among frustrated voters and discontent among growing numbers of individuals in democracies that threatens to undermine democracy itself. “The fact that far-right backlash is occurring in nearly all Western nations at the same time is no coincidence….It is a common reaction against the impact of globalization on the livelihoods of ordinary people.” (Page xvii)
 
Of course globalization is not new. There was long-distance trade on all continents even before there were countries, and this continued as nations were formed in early civilizations such as Egypt and Greece. Trade is based on the desire of people in most societies for items that they cannot themselves produce. They create products and/or services that will be of value to their trading partners to exchange for the items they want. An example is the voyages of Marco Polo to the Orient to obtain spices and silk which were traded for linen and woolen cloth. Money — often in the form of beads or precious metals — was used to represent value and facilitate trade only after trade already became a way of life.

There were many economic downturns in Europe and the Western Hemisphere from the time of the founding of colonies in the New World.  Downturns often were contagious because economies were connected by trade which made them interdependent. The aftermath of World War I led to blame and reparations imposed by the victors, which then fed the resentment of those defeated and contributed to another war thirty years later. After World War II, the economies of these same countries were stable because of international agreements to work toward greater prosperity and the guarantee of human rights and dignity. The lessons of the Great Depression also were contained in legislation and programs designed to prevent the dangerous speculation that led to that great downturn.
But the lessons of the Depression and World Wars were ignored by leaders — particularly in the US — who ignored the needs of the average person and unleashed a new surge in speculation that led again to growing inequality starting in the 1970s. “In the past four decades, the economy has turned viciously against ordinary working people.” (Page 2)
 
The main concern of corporations is, of course, profits and the greatest profits often can be made by shifting the work force of a company to countries where labor is cheaper. This leads to other people losing their jobs or being forced to work for lower wages. Generations of families that once expected their children to have improved living standards now are seeing their lifestyles stagnate or deteriorate. Many live from one paycheck to the next, cannot afford a college education or training that leads to greater prosperity, and are unsure of having enough funds for retirement. “Between the 1960s and the current era, US employment in manufacturing declined from over 25 percent of total jobs to just 8 percent…worker productivity more than doubled, but manufacturing wages stagnated….From Carter to Obama, small token programs made little difference to these devastated cities and regions. And these were precisely the locales that supported Trump and breached the supposed blue firewall of the Democrats.” (Page 191)
 
Democracy is about recognition of the dignity and needs of the average person, and democracy has failed many who no longer see that it works to their benefit. Simply voting is no guarantee of human rights — it only is one limited aspect of a well-functioning democracy. When leaders fail to address the real needs of those they serve, people become understandably upset and vote for someone new in the hope that their condition will improve. But when that person or party also fails them it sets up a vicious cycle, and many become disillusioned that there ever can be a way out.
 
In 1999, the protections of the Glass-Steagall Act that prohibited banks from engaging in speculation were terminated by a Republican Congress working in concert with a Democratic President. This allowed banks to move beyond making loans, to put the money of depositors into speculative investments. Huge returns were made by banks and others who participated in high-risk investment schemes. Few expected the real estate bubble to collapse, which of course it did, beginning in 2007, taking the economy with it. Many people no longer could afford mortgage payments that had gotten to unrealistic levels based on speculation and the belief that the market could never collapse. This is similar to the stock market bubble collapse that led to the Great Depression in the early 1930s.
 
In 2008, what became known as the Great Recession took the stock market down to less than one half of its previous level. Many people lost their homes because of payments that were beyond what they could afford, and unemployment jumped to 10%. Barack Obama easily won in November, as George W. Bush and the Republicans were blamed for the downturn.

A number of measures were put in place to stop the economy from going into a full depression. These included The Emergency Economic Stabilization Act, which the US Treasury used to purchase $421 billion in troubled assets (and eventually recovered its money with a bit of interest), The American Recovery and Reinvestment Act was an effort to save jobs by investing in infrastructure, energy efficiency, and providing assistance to the unemployed. A number of other actions were taken to pump money into the economy and fund small businesses by easing many of the country’s securities regulations. But all of these failed to address the losses and economic stagnation of many, especially in the Midwest, to this day.

“By 2016,” according to Kuttner, “the US was importing about three dollars of manufactured goods for every dollar it exported…. The trade deficit in goods in 2016 was $347 billion with China alone.” This of course has a considerable impact on jobs and wages in the US.

Kuttner is not against the use of tariffs when necessary. “Democratic nations could and should use policies such as tariffs to limit the damage to their own systems and to encourage trading nations to have at least minimally decent labor and human rights protections.” (Page 210) 

The tax avoidance dilemma created by most large corporations by shifting their headquarters and official tax base to small compliant countries has increased the tax burden on individuals who do pay taxes: “With higher taxes, and lower benefits to show for them, the social contract tilted further against ordinary working people.” (Page 219) Yet corporations and the wealthiest individuals, through their lobbying, were still able to force through tax breaks for themselves that further increased inequality. “What dragged down the economy was not a lack of business confidence caused by deficits. The culprits were flat wages, mortgage foreclosures, financial losses of overly indebted households, and traumatized banks.” (Page 220)
 
→What We Can Do

As the US founders emphasized, the most important factor in maintaining democracy is an informed citizenry. Most people who are adversely affected by economic downturns cling to their political parties or heroes without understanding the most basic principles required to maintain a sound economy. Thus politicians cater to the idea that fixing blame will solve our economic woes rather that proposing realistic solutions. In schools and our everyday conversations, basic economic principles need to be discussed, such as (1) The tax burden needs to be distributed according to income, including corporations, as it was after World War II, to reverse the continuing trend toward inequality; (2) Our tax money needs to be invested in job training and infrastructure to rebuild the middle class; (3) This will benefit all as more people have greater incomes and spend money which fuels the economy; (4) International agreements must guarantee a decent wage for workers in all countries which, by the way, will greatly improve the problem of immigrant flight toward the more prosperous countries. We should support politicians who show that they really are interested in improving the economy — and lessening inequality — by promoting these principles in their legislative records as well as their campaign speeches. 

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