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NAFTA on Steroids: The TransPacific Partnership and Global Neoliberalism

Can democracy save capitalism, as it did in the 1930s, when it provided popular pressure to force the elite to accept changes otherwise resisted by capital, Cliff DuRand asks.

(Photo: via Shutterstock )

A world without democracy, ruled by a technocratic elite serving the interests of US and global capital – protecting “investor rights” against national laws and regulations – is now being created in secret negotiations over free-trade treaties, one of which, the TransPacific Parnership (TPP), may be sewn up this fall. Can popular will stop it?

For four decades now, we have seen corporate-led neoliberal globalization transforming nation-states into globalized states that serve the interests of transnational capital above the interests of national populations. This tendency has been strong in states both of the global North and of the global South. Everywhere sovereignty is being compromised. The ideal political system most suitable for such globalized states is polyarchy, since it legitimates relatively autonomous elite rule. However, even in such a managed “democracy,” there are moments when elites can be made accountable to national populations through the struggles of social movements. Occupy Wall Street was the beginning of such a social movement.

As philosopher Milton Fisk has argued in The State and Justice: An Essay in Political Theory, in the class-divided societies of capitalist countries, the function of the state is to maintain the social order. This means the political elite promotes the interests of the economically dominant class. This is due to what István Mészáros calls “the metabolic reproductive process” of capitalist society. However, to maintain governability, it is sometimes necessary to limit the benefits going to capital and to increase the benefits going to the popular classes. How far the elite moves in the direction of social justice depends on the level of the subject classes’ political activity. The elite’s default position is to favor the interests of capital, if only because the interests of the dominated classes depend on them.

A state is a democratic nation-state insofar as it represents the interests of the peoples it governs. That nation includes both the dominant class of capitalists and the dependent popular classes. The constellation of class forces within the nation at any given time directs the nation-state. The state mediates class relations, as, for instance, in constructing the class compromise of the capital-labor accord represented in the Fordist regime of production, a model of economic expansion named after Henry Ford.

Popular Sovereignty Gone with Globalization

However, with globalization, transnational corporate capital has leaped over the territorial and legal boundaries of the nation, and the state is following it. In so doing, the nation-state is morphing into a globalized state that serves the interests of transnational capital rather than any “own” national population. Contrary to what some have claimed, globalization has not weakened the state. In some respects, it has even strengthened it, particularly the executive branch. But globalization has weakened the state’s connection with its own citizens as the state follows capital into a new global economic system.

Following William I. Robinson’s seminal critique of US “democracy promotion” programs, Promoting Polyarchy: Globalization, US Intervention and Hegemony, we argue that polyarchy is the ideal political form for globalized states. Contested elections are an effective way to periodically renew the perceived legitimacy of elite rule. That is the genius of the US political system that has made it so stable. However, in times of extreme systemic crisis, as in the Great Depression of the 1930s, electoral politics was supplemented by the more genuine democracy of social movements. It was this popular pressure from outside the formal established political process that saved capitalism from itself by forcing the elite to accept changes otherwise resisted by capital. It was democracy that saved capitalism.

Normally, the state is able to function as a kind of Central Committee for the capitalist class, attending to the systemic needs of the capitalist system as a whole. This at least was the case during the era of national capitalism. The unrestrained individual interests of capitalists could destroy the system. States regulate and moderate in the interests of capital as a whole. Popular pressures often pushed states in this direction. Each capitalist, for example, seeks to pay low wages so as to increase profits and wishes his competitors will pay high wages so there will be consumers to buy his commodities. Popular pressure and state action are needed to sustain capitalism.

Karl Polanyi pointed out in his classic 1944 work, The Great Transformation, that “capitalism would be an unsustainable and chaotic social order if the state played the minimalist role specified in the libertarian fantasy.” According to Eric Olin Wright in, Envisioning Real Utopias (p.124), it is just such a minimalist role that neoliberalism demands. Neoliberalism is the default position of capitalism in the absence of countervailing pressure on capital from popular forces pressing for greater social justice. That pressure usually acts through the instrumentality of the state as the rule-making body for society. As we have said, the function of the state is to maintain the social order, which means the capitalist relations, but it must sometimes modify these in the face of popular pressure to maintain governability. In those circumstances, a liberal sector of the political elite may modify neoliberalism in the direction of a social liberalism of the sort seen in the New Deal. Absent that, the state reverts to neoliberal policies that support the supremacy of capital.

The contradictions of unbridled neoliberalism are the contradictions of unrestrained capitalism. It is a system that tends toward self-destruction. Capitalism IS crisis, says David Harvey, The Enigma of Capital: and the Crises of Capitalism. To survive, it needs the restraining hand of the state, frequently brought into play by demands of the popular classes.

Capital Escapes Regulatory Reach of Nation-States

With the globalization of capital in its corporate form, capital is escaping the regulatory reach of nation-states. Transnational capital is constructing its own governance structure (World Trade Organization and multilateral free trade agreements) with the assistance of globalized states. Just as neoliberal structural adjustment programs required what the World Bank called “macroeconomic management by an insulated technocratic elite” for their implementation (World Development Report 1997: The State in a Changing World, p. 152.), now a global governance structure is being built on the same political principle, a corporate elite insulated from popular pressures, beholden to transnational corporations only. What is emerging is an unbridled neoliberal regime in which states are only the administrative agents that protect capital against the popular classes. As Renato Ruggiero, director-general of the WTO put it in 1995, “We are no longer writing the rules of interaction among separate national economies. We are writing the constitution of a single global economy.”

This is what has been institutionalized in trade dispute adjudication panels established under the WTO and through free-trade treaties like NAFTA and the pending TransPacific Partnership (TPP). These are secret panels that protect “investor rights” against national laws and regulations that adversely affect corporate profits, no matter how democratically those laws and regulations may have been established. The rationale for investor rights is protection of capital against nationalization. This rationale has been extended to so-called “regulatory takings” as well, which are considered as tantamount to out and out expropriation even though what is usually “taken” is a hypothetical opportunity. Consequently, state actions that protect public health and the environment, such as the Quebec moratorium on fracking in the St. Lawrence River valley, are seen as a “taking” of profits due to the US-chartered corporation that holds a permit for this mining activity that has undetermined adverse effects on the environment. So the corporation is now suing the state for compensation. A NAFTA panel is now considering whether to award the corporation $250 million of taxpayer money to keep them from endangering the health of the people of Quebec.

Closed Courts Determine When “Rights” to Profit Violated

Such “investor-to-state” cases are litigated in special arbitration bodies of the World Bank and the United Nations, which are closed to public participation, observation and input. They have the power to award unlimited amounts of taxpayer dollars to corporations whose rights to make a profit they judge have been violated. By latest count, some 450 investor-to-state cases have been filed against 89 governments by transnational corporations, which have been awarded $700 million to date.

The protection of profits over people has become a standard feature of so-called free trade agreements. Actually, they are more about ensuring corporate profits than trade in any normal sense of the word. It is the protection of free movement of capital across borders more than the free movement of goods that is at stake. It was the Nixon administration that included investor rights in its trade negotiations under the fast track authorization it initiated. It has since become a standard feature of all trade agreements. The 11 countries in TPP already have free-trade agreements. So why this new one? It has the enhanced investor rights transnational corporations have long dreamed of. It is likely that this will also be the case with the new initiative with the European Union proposed by the Obama administration. At least that agreement is being advertised with a more honest name: Transatlantic Trade and Investment Partnership (TTIP). It is likely to privilege transnational corporations in the same way as TPP.

Since rejection of the Free Trade Agreement of the Americas at the hemispheric summit in 2005 by the countries of Latin America and the collapse of the Doha round of WTO negotiations in 2008, transnational capital has sought to embed protection of Trade Related Intellectual Property (TRIP) and other investor rights in new free trade agreements. TPP is the latest such power grab by transnational corporations. TPP has been described as “NAFTA on steroids” by those who have seen some of its leaked provisions. Negotiations began under the Bush administration and the Obama administration is continuing them in secret in hope of completing the agreement by this October. The discussions include trade representatives of the United States and Australia, Brunei, Canada, Chile, Mexico, New Zealand, Peru, Singapore, Malaysia and Vietnam. Japan has just joined. But the public, members of Congress, journalists, and civil society are excluded. Not even Congressional committees have been able to see the draft text, but 600 corporate advisors have. They are writing the rules for trade in their own interests without any democratic input from the people whose lives will be profoundly affected. If adopted, TPP will deny citizens their democratic rights to shape public policies on a host of domestic issues, conceding those decisions to the large corporations.

Some sections have been leaked. And what they reveal is “an agreement that actually formalizes the priority of corporate power over government,” according to Lori Wallach of Public Citizen’s Global Trade Watch. Only 5 of the 29 chapters have to do with trade. Wallach says the rest of the draft:

“include[s] new rights for the big pharmaceutical companies to expand, to raise medical prices, expand monopoly patents; [there are] limits on Internet freedom, penalties for inadvertent noncommercial copying, [like] sending something to a friend. There are the same rules that promote off-shoring of jobs that were in NAFTA that are more robust [and] that literally give privileges and protections if you leave. There is a ban on “buy American” and “buy local” or “green” or sweat-free procurement. There are limits on domestic financial stability regulations. There are limits on imported food safety standards and product standards. There are limits on how we can regulate energy towards a more green future – all of these things are what they call “Behind the Borders” agenda. And the operating clause of TPP is: “Each country shall ensure the conformity of its domestic laws, regulations and administrative procedures with these agreements.” That’s to say, that we’re told to conform all of our domestics laws – including all the important public interest laws fought for so hard by people around the country – for these corporate dictates, and it’s strongly enforceable. If we do not conform our laws, another country can challenge us and impose trade sanctions until we do, but this one is even privately enforceable by the corporations themselves.

What is being constructed secretly, bit by bit, is a global governance structure in which corporations are the citizens and globalized states are the local administrative structures that enforce corporate dictates and maintain order. This is a world without popular sovereignty and without democracy. It is a world ruled by an insulated technocratic elite serving the interests of global capital.

What are progressives to do in the face of all of this? Those with a cosmopolitan consciousness may dream of a future democratic global governance structure. But that is a long-term project, and we are faced with a more immediate prospect of the consolidation of a very undemocratic global governance structure serving the interests of transnational corporations under a neoliberal regime that will roll back all of the hard-won progressive gains of the last century. Our immediate task is then to block this corporate end-run around domestic policy making processes.

Who can do this? In the United States, working class consciousness is very low, and unions are weak. The left is also weak. Nevertheless, there is a growing anticapitalist, or at least anticorporate, sentiment in the popular classes. Rather expansively, Occupy Wall Street called this the 99%. The challenge Occupy presented to itself was to mobilize a broad multiclass popular movement against the plutocracy. I view this as a call for a social movement based on shared national interests that have been betrayed by transnational capital and the political elite beholden to it.

In the final chapter of Recreating Democracy in a Globalized State, I argue that in a polyarchic political system like the United States’, it takes social movements to bend the political elite away from its corporate-friendly agenda. With sufficient street heat, to maintain governability, it will need to adopt in some measure the form of justice demanded by the popular classes. This is our democratic moment.

We can defeat TPP. Polls show an overwhelming opposition to free trade.* In fact, across the political spectrum, from the left, to the Tea Party, and the John Birch Society on the Right and everywhere in between, the one thing there is agreement on in the current highly polarized political climate is opposition to free-trade treaties. That, combined with the partisan gridlock in Washington, tells me we can win this one.

This may be our last best chance to stop the consolidation of the corporate global governance structure. It makes crystal clear the contradiction between the national interest, i.e. the interest of the people of the nation, and the interest of global capital. There is no longer the convergence between the interests of capital and those of the popular classes that there was in the era of national capital. The divergence of interests that globalization has brought us enables us to build a broad social movement based on shared national interests, drawing on a national identity that can be a powerful motivator of collective action. We should follow Mao Zedong’s strategic principle: Unite the many to defeat the few.

As I said at the beginning, capitalism has needed a guiding hand from the state to protect it from its own self-destructive tendencies. And it has been popular struggles that have often compelled the state in that direction. But now that capitalism has become a global system, there is no state able to do that. In fact, the global governance structure being constructed by transnational capital is dedicated to the very neoliberal ideology that now threatens to be its nemesis. If we can stop that, not only can we save ourselves and the possibility for democratic politics, as ironic as it may be, we might even save capitalism from itself.

* A major NBC News-Wall Street Journal poll from September of 2010 revealed that “the impact of trade and outsourcing is one of the only issues on which Americans of different classes, occupations and political persuasions agree, with 86 percent saying that outsourcing jobs by US companies to poor countries was “a top cause of our economic woes,” and 69 percent thinking that “free-trade agreements between the United States and other countries cost the United States jobs.” Only 17 percent of Americans in 2010 felt that “free-trade agreements” benefit the United States – compared to 28 percent in 2007.

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