Power to the People

Across the western world – in Athens, Rome, London, and New York – people are taking to the streets, literally and figuratively, to reclaim democracy from the tyranny of globalization. But who exactly is the enemy? And how should we measure victory?

It is fitting that Greece, the cradle of democracy, is the central stage on which this drama is being played out, although the storyline is becoming familiar throughout Europe and North America. Globalization robs citizens of power; it hijacks democratic choice. Backed by unaccountable international organizations, like the European Commission and the International Monetary Fund (IMF), it forces governments to cut spending and slash social programs, even as it rewards the already rich. Greece is just the latest, and most vulnerable, victim of a voracious and predatory capitalist system that has grown out of control. No wonder we sympathize with the young Greek protestors fighting back against unbridled financial markets. Greece’s David is standing up to capitalism’s Goliath.

Except for one problem. Greece is not powerless, and never has been. Greece was not forced by global capital markets to run unsustainable public deficits for over three decades, accumulating a debt mountain reaching 180 per cent of its gross domestic product. International bankers did not coerce Greece into floating its bonds on foreign markets. Brussels did not blackmail Athens into adopting the euro in 2002 – in fact, Greece browbeat skeptical EU members, like France, into letting it join, precisely because it wanted to exchange monetary “flexibility” (i.e., uncertainty) for monetary stability. And Greek voters were not intimidated into electing a succession of governments that conveniently ignored one of the most lax tax regimes, generous pension systems, over-staffed bureaucracies, and ridged labour markets in the Organisation for Economic Co-operation and Development – and then “cooked the books” to hide the extent of the problem. By the same token, there is nothing stopping Greece from deciding to leave the euro or default on its debts – as Argentina did in 2002 or as Russia did in 1998.

Europe’s problems are also of its own choosing. European governments chose to turn a blind eye to the serial deficits of Greece, Portugal, Italy, and other Eurozone members. Indeed, export powerhouses, like Germany, have benefited enormously in selling everything from cars to telecommunications equipment to debt-fuelled southern consumers. European banks, until it was too late, chose to ignore the inherent risks of lending to an increasingly insolvent Greece – even though Greece has spent half of the past two centuries in default – just as European financial regulators chose to ignore their banks’ dangerous over-exposure to sovereign debt. In the same way, the solution to the European Union’s escalating financial crisis rests in Europe’s hands: Bail out the indebted South, ramp up exports to the creditor North, and/or allow Europe’s periphery to default or devalue (i.e., leave the Eurozone). What’s stopping Europe is its own bickering and dithering over whom picks up the tab for past mistakes and how to share the inevitable economic and social pain.   

Indebtedness is rarely empowering. Bankrupt countries – like bankrupt individuals – want to blame financial markets for their misfortunes, but the main cause is their own short-sightedness, reckless policies, and resulting vulnerability. They find themselves at the mercy of capital markets, sovereign lenders, or the IMF, simply because they want to borrow money. And, if their fiscal situation is dire enough, they have relatively little say over the conditions (higher risk premiums or explicit policy reforms) that wary foreign lenders attach to their loans. This same basic dynamic explains the relative weakness of all deficit countries – Greece, Italy, Spain, even the “mighty” United States – versus the relative strength of surplus countries – Switzerland, Singapore, or China. It’s worth noting that no one is telling Singapore how to tighten its tax system or slash social spending. That’s why, since the 1997 Asian financial crisis, so many developing countries have rushed to cut current account deficits and accumulate foreign reserves. Never again was the IMF going to interfere in the domestic affairs of Korea under the threat of withholding financial first aid.

Even so, what’s striking about the Greek financial crisis is how fears about its knock-on effects have probably increased Greece’s influence – proving the adage that if you owe the bank $1,000 it’s your problem; if you owe the bank $1,000,000 it’s the bank’s problem. Europe wants to avoid a Greek sovereign default because it will turn the spotlight on other low-growth, high-debt Eurozone members, as is already happening with Italy, and highlight the vulnerability of Europe’s banks. The world wants to avoid a Greek default because it will expose how badly over-leveraged the whole global economy has become, highlighting our failure to undertake the painful task of transferring wealth from creditors to debtors, through default, inflation, or fiscal rectitude. Some countries, like Canada, feel smug because their national accounts are relatively healthy; other countries, like Britain, feel superior because they stayed out of the Eurozone. But if Europe slips into recession, or worse, the Eurozone cracks up, the whole world will feel the repercussions.

Doesn’t this mean that economic integration (i.e., globalization) undermines sovereignty? Not unless you believe that the splendid isolation of a North Korea or a Myanmar makes them world powers. Countries open up to trade and investment because it is in their economic interests to do so. They agree to abide by international rules because they want other countries to live by the same rules. And they join international organizations because in tackling shared global challenges, their sovereignty is increased, not diminished, by working in concert with others. In short, integration is a choice, with consequences.

The idea that globalization makes national governments unnecessary is even less valid than the idea that it makes them powerless. For countries to successfully harness globalization, inspired public policy – sound finances, effective regulation, empowering social programs, rigorous and creative education systems, state-of-the-art infrastructure – is more critical than ever. If globalization punished social democracy then Sweden would be on the way down and Nigeria would be on the way up. If globalization rewarded low, or no, regulations, Bangladesh would be the star and Singapore would be the failure. If globalization was all about unfettered banking and bigger bonuses, the United States would be riding high and Canada would be on its knees. Policy matters, in a competitive, integrated and fast-changing world more than ever.

That globalization is imposed on us, strangling our sovereignty and freedom, is the “big lie” of the modern age. In fact, globalization is the exact opposite. It’s all about the decentralization of economic power and the supremacy of individual choice. What drives the global marketplace is the pressure of consumers, electorates, you and me, for more growth, better jobs, higher living standards – the latest gadgets, nicer vacations, better health care, improved education for our kids – which in turn pushes governments to join, not retreat from, globalization. It could even be argued that what people find most scary about this unstable, unpredictable, fast-globalizing world is the result of too much choice, too much individual empowerment, even too  much freedom – but that’s a subject for another day.

Photo courtesy of Reuters.