Reforming the WTO:
Criticisms and Recommendations
J.T. Ross Jackson
Address to the State of the World Forum, New York, September 7, 2000
The Seattle demonstration against the World Trade Organization (WTO) meeting last November was a very significant historical event, and not just another left wing happening dominated by irresponsible youngsters, as the media tended to describe it. Businessmen should be paying very close attention to why this happened and how it fits in with the major force dominating the world at this time — commercial globalization. Failure to appreciate the background, and what is likely to follow from this event could be a very costly mistake on the part of the business community.
The Seattle demonstration was one of the first signs of backlash from Civil Society to the ongoing shift in power from nation states to commercial corporations. This shift has been happening gradually for the last 50 years but accelerated dramatically in the 1990’s after the collapse of the former Soviet Union, and the broad adoption of the principles of “free trade” by most of the major countries of the world. The most concrete result of this shift was the establishment of the WTO in 1994. The WTO was almost a dream come true for the business community, a set of rules for resolving international trade conflicts written by businessmen for businessmen with no public debate and a poor understanding of the consequences by the general public and by our political leaders.
It was a historical opportunity and the business community took full advantage of it. Today, the ability of nation states to control events, even domestic events in their own countries is substantially less than in the past. For the first time ever, commercial corporations are more powerful than nation states. This is a far cry from historical times where the opposite was true. My thesis is that this is not necessarily a good thing for anyone, certainly not for Civil Society, and not even for the business community in the long run.
Civil Society represents in my terminology the forces that are influencing policy by non-commercial, non-governmental agencies. This would include NGOs and many spontaneous actions taken directly by citizens in the streets and shops, such as demonstrations and boycotts. This “third” force has historically been very insignificant, but is now growing very rapidly, not least due to the opportunities offered by the advancements in information technology. For example, over 500 NGOs were said to be involved in organizing the Seattle demonstrations over the Internet. Even more are following closely every move taken by the WTO, the IMF, the World Bank, and the other business-related power centers. The future will be much more transparent than the past. It will be far more difficult to circumvent Civil Society in the way it was done with the establishment of the WTO.
Civil Society activists perform a critical function as guardians of the non-commercial aspects of our world, such as the environment, local culture, and the harmonious functioning of local communities. As it is specifically these aspects which are omitted entirely from the framework of the WTO, they feel very threatened. Therefore, we can expect to see increasing resistance to the WTO from Civil Society as a form of countervailing power, partially filling the vacuum being left by the nation states, whose political leadership is now very much synonymous with commercial interests. Ideally, the three centers of power in society ought to be more or less equal, and relatively independent. It is my thesis also that it is in everyone’s interest that we move in the direction of a more equal sharing of power. Businessmen sometimes forget that they are also a part of civil society, and have a vested interest in the same things that the activists of this sector are protecting.
This last point emphasizes that the problem is not so much with the individual businessman, who may well have great sympathy with the goals of Civil Society, but the system itself, which tends to destroy community and the environment. If an individual business leader rebels, the system replaces him with another, who will take on shareholder value as his mission, even though he may be undermining the very foundation of his own family’s future. How did we ever get into this situation? Part of the answer lies in the new “free trade” rules, which deviate fundamentally from the classical ideas of Adam Smith, who is ironically often used as the justification for these rules.
Adam Smith’s rules included the following:
- capital should remain local
- no monopolies or oligopolies allowed
- products should be durable and labor intensive
- money should be primarily a medium of exchange
- capital should be invested in productive jobs
- taxation should be based on the ability to pay
- the trader mentality cannot be reconciled with sovereign goals
If we look at these 7 principles of Adam Smith’s theory of “the invisible hand” linking individual self-interest with community interest, we find that every one of them has been violated in the “new economics” of the WTO regime. Thus the supposed theoretical basis for “free trade” is not being adhered to.
Furthermore, if we look at how the new economics is actually practiced, two additional issues crop up. The first is the lack of democracy in the WTO structure. Certainly the interests of shareholders are well protected. But no consideration is given to the other stakeholders in corporate decisions, such as employees, the environment, the local community, the local tax department, suppliers and consumers, nor to any society’s need for food security and the protection of local culture from foreign exploitation.
A second factor, which was not yet a problem in Smith’s time, is the issue of the indirect costs of production, namely the environmental and social costs, the so-called externalities in economics. In modern economic theory, the cost of a product should include these indirect costs that are a consequence of production, distribution, and usage. But in practice it has never been possible to agree internationally on standards. In practice therefore they are “externalized”, treated as having no value, creating major price distortions and resulting in environmental, social and cultural degeneration. Nor has any serious attempt been made to establish a possible basis for “internalizing” or including these costs through a serious research program. The result is that the taxpayers of this world are subsidizing the corporations of this world, both domestic and foreign. Businessmen correctly see this as a benefit to their companies, but they may not be aware of the long-term negative consequences for their local communities.
Let us look at some of the risks of a policy of “business as usual”, which disregards Civil Society’s demands for WTO reforms:
- increasing financial instability
- consumer backlash
- social inequity
- political instability
- environmental collapse
I believe it is very naïve to think that commercial corporations can continue with the current state of affairs for very long. Unless the business community actively takes the initiative to reform the WTO into a more democratic structure which reflects the broad interests of Civil Society, both in the Northern and Southern hemispheres, then change will be forced on them from below by the actions of Civil Society. Do not underestimate their strength. A recent example of this was the success of English housewives last year in completely turning around the EU policy on genetically modified organisms. By simply boycotting a major supermarket chain, a few thousand activists changed the face of the world in a matter of a few weeks. The housewives forced acceptance of the principle of caution, when the effects of a new technology on human health are unknown, even though there may be no scientific proof. With support from the EU and the developing countries, this controversial concept was later adopted by the WTO, the first crack, and probably not the last, in its armor. This success is almost certainly going to lead to further demonstrations and boycotts by Civil Society.
A further argument for the likelihood of additional actions of this nature is found in the studies of sociologist Paul Ray, who has noted an increase in the number of so-called “cultural creatives” in the USA from 4% in the mid 1970s to 24% in the mid 1990’s. The latest number is 29% and growing, both in the USA and abroad. These individuals, mostly women incidentally, are characterized by their primary values being non-commercial. These are precisely the people who are making Civil Society a power to be reckoned with in the 21st century. And, by the way, many of them are to be found in the business world.
What realistic recommendations then can be made to the WTO in the short run to meet the criticisms that I have mentioned?
The WTO should begin a dialogue with Civil Society representatives, with the objective of defining additional exceptions to the normal WTO rules where there are legitimate concerns of a nation state involved. Two primary tasks of a nation state are (i) to protect its citizens from exploitation by foreign powers, whether they use military or economic means, and (ii) to ensure public health. Besides national security and the cautionary principle in health matters, both of which are now recognized exceptions to the WTO scientific proof argument, additional exceptions might recognize such legitimate concerns as food security, preservation of local culture, environmental protection, and the survival of viable local communities. However, we must not allow a return to the days of abuse of trade tariffs to protect inefficient local industries when not justified by one of the recognized exceptions.
Conflict resolution should be determined by a broader group than three trade experts. There should be participation by persons of other backgrounds, for example environmentalists, sociologists, biologists, and others from a non-business background.
The WTO, in cooperation with its member states, should take the initiative in promoting serious research with substantial funds into the question of internalizing the indirect costs of production, with the intention of introducing such costs gradually over a period of 5-10 years.
The WTO should formally announce its acceptance of the fact that reform of its rules is in everyone’s interest, including the business community.
With positive steps such as the above, we will be on track towards a more satisfying international political and trade environment as well as towards more harmonious and sustainable local communities, a result which will benefit all the involved parties.