The Stealth Coup - The WTO and the Fed

Los Angeles Times
Sunday, November 21, 1999
The Stealth Coup

The WTO and the Fed have essentially become two new branches of government, in many ways more powerful than Congress and the president. Who elected them anyway?

By KEVIN PHILLIPS

WASHINGTON--An important prelude to the 2000 elections could take place in Seattle, if organizers can produce their hoped-for "protest of the century" against the Third Ministerial Conference of the World Trade Organization that begins Nov. 30.

Doubters scoff at this. While activists urge people to travel to Seattle to protest the WTO, nine of 10 Americans probably can't explain what the organization is. So they won't be paying attention to complaints that the WTO is about to become an unelected fourth branch of the U.S. government, or that it is a magna carta for U.S. multinational corporations to further decrease their dependence on American employees and loyalties.

The World Trade Organization, though officially only 4 years old, represents a huge intrusion on U.S. politics and on national, state and local decision-making, largely in the interest of multinational corporations and trade lobbies. Scare talk like this has been exaggerated the brink of understanding that they--and the voters--are losing control over the evolution of America's role in the global economy in the 21st century.

This is a grave danger. The historical evidence from the two previous great economic world powers is that whatever financial elites want--high-profit global priorities--is bad for ordinary citizens, who are more vulnerable and require that domestic economics come first.

Yet, headlines from Seattle could launch a public debate, especially if the protesters are largely American. It's this nation whose ordinary citizens have the greatest political and economic stake in limiting the WTO and its anticipated role.

Alienated voters bemoan losing control over U.S. policymaking, but representatives and senators share in the loss. Where the U.S. government once had three branches--executive, legislative and judicial--it now has five. The newest branches are the unelected Federal Reserve Board, which controls money supply, interest rates and, in many respects, the U.S. economy; and the WTO, which not only controls trade practices but can overrule federal, state and local laws that interfere with trade rights as the organization defines them. Politicians and voters have little or no control over either the Fed or the WTO.

Power, quite simply, has been shifting to major financial institutions and multinational corporations. In the Federal Reserve system, which operates behind closed doors, controls its own funds and is independent of Congress, the presidents and boards of the individual regional Federal Reserve banks are selected by the business and financial communities. Yet, some of the regional Fed presidents sit on the Open Market Committee, which makes Federal Reserve interest-rate and monetary policy. This lack of democracy didn't used to matter much. But in the last decade, the world's central banks have been gaining influence over national and international economies and becoming increasingly independent of politicians and elected officials.

Trade policy has similarly been moving from elected hands to unelected private interests and global bureaucrats who better represent the multinational trade and investment communities. This includes international agencies, trade lawyers and lobbyists, banks and multinational corporations of all national stripes, though U.S. firms have the most clout.

Despite occasional talk by right-wing kooks that the WTO is dangerous because the United States has only one vote and could be outmuscled, the effective control in WTO--as in the International Monetary Fund, the World Bank and other such organizations--lies with the Quad countries--the United States, Japan, Canada and the European Union--whose decisions, in turn, are dominated by multinational trade and investment elites. The real problem is that their loyalty is to the man in the executive suite, not the man on the street.

In the last decade, the Washington trade-policy establishment has moved to strip U.S. politicians and voters of their influence over trade policy by a number of devices. For example, in 1994, the key congressional vote in favor of establishing the World Trade Organization was held according to "fast track" rules and during a post-election lame-duck session of Congress, when defeated lawmakers would be pliable and the measure could be slipped through with little discussion. The fast-track procedure was established so that Congress could not tinker with trade agreements sent to Congress but had to reject or rubber-stamp them, as it did with the North American Free Trade Agreement.

The WTO is exhibit A in the neutering of Congress and the voters. WTO procedures allow countries to challenge each other's laws and regulations as violations of WTO trade rules. Cases are decided in secret, with documents, hearings and briefs kept confidential and unreleased, by tribunals of three bureaucrats, usually corporate lawyers. There are no conflict-of-interest restraints for these people. In addition, no appeal is possible outside the WTO.

Under this authority, barely debated in the legislative fast shuffle of 1994, the WTO has already overturned part of the U.S. Clean Air Act and declared illegal a recent U.S. environmental regulation. Now there is talk of enlarging WTO's jurisdiction to include education and health matters. Congress is being fleeced like lambs at a shearing.

Proponents of this transfer generally argue that either 1) globalization is the inevitable and we have to guide it or 2) globalization may involve some sacrifices but, in the long run, most Americans will profit.

History's example, however, raises major cautions. Indeed, the two great world economic powers before the United States--the Dutch in the 17th and early 18th centuries, and the British thereafter--followed the same internationalization trajectory as their world leadership peaked and then went into decline.

This precedent is as frightening as it is clear. As the Dutch and British global economies peaked, their future, said the elites, lay in embracing international rather than internal economic opportunities. As the old industries started to fade--textiles, shipbuilding and fisheries in the Netherlands; coal, textiles and steel in Britain--the elites said: Never mind. We now lead the world in services: banking, finance, overseas investments, shipping, insurance, communications. And that's where the payoff is.

Within each nation--1720-40 Holland and Britain in the "Upstairs, Downstairs" era of 1900-1914--two things came to pass. First, common people started losing the old industrial jobs that had made ordinary Dutchmen and Britons the envy of Europe. The old industrial districts deteriorated. Second, even as industrial decay worsened, finance and investments soared, inequality mushroomed and the elites buzzed about a new golden age. But then, something went wrong; finance, investments and services lost their way. The golden age imploded and the economy became no more than a shell of its old broad-based heyday--Holland in 1770 or Britain in 1945.

This is the enormous risk that ordinary Americans--the huge two-thirds in the economic middle--now take in allowing U.S. democracy and representative government to be undercut and restructured by the U.S. equivalent of the financial and multinational elites that so selfishly misdirected early 20th-century Britain and 18th-century Holland. Recent statistics showing the top 1% of Americans soaring on financial wings, even as inflation-adjusted median family incomes are about the same as they were 25 years ago, buttress the parallel. So do efforts of current U.S. elites to move their investments overseas, as the earlier Dutch and British elites did, and to sell technology to nations like China that could easily become a threat to U.S. interests.

It's easy to see why U.S. corporate CEOs and investment bankers want the new globalism. Dozens have publicly admitted they don't want their organizations to be American any longer; they want them to be international so they can cut loose from stagnant median family incomes and the future pensions and benefits for those 58-year-old workers in Kansas and Kentucky.

The WTO is many things, some of them reasonable. To say otherwise would be misleading. Nonetheless, too many multinational banks and corporations silently applaud the WTO as an enabler of overseas investment that will make it safe for U.S. companies to move more of their employment, profits and loyalties elsewhere. Ordinary Dutchmen and Britons couldn't stop the earlier trends, and maybe Americans can't stop these.

Even so, tens of thousands of angry people in the streets of Seattle, giving these issues a human face, could do more than attract headlines and evening-news coverage. They might propel the matter into an arena where such important decisions should be made: the 2000 presidential and congressional elections. *

Kevin Phillips, a Political Historian, Is Author of "The Politics of Rich and Poor" and "The Cousins' Wars: Religion, Politics and the Triumph of Anglo-america."

*** NOTICE: In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. ***

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