Fair trade today: When business undermines life

Yanuar Nugroho, Director The Business Watch Indonesia Lecturer, Sahid Univ. Surakarta, Researcher, Unisosdem Jakarta, yanuar-n@unisosdem.org

Despite apparent global growth and steadily increasing per capita income, the gap both within and between rich and poor countries seems to be widening. The United Nations reported that in 1960, the richest fifth of the world's population received 70 percent of global income compared to 2.3 percent of the world's poorest 20 percent. By 1989, the richest 20 percent had increased their share to 82.7 percent while the bottom fifth's share of global income shrank from 2.3 percent to 1.4 percent (UN Development Report, 1992).

OXFAM reports that developing countries with low income cover more than 40 percent of the world population, but they can only access 3 percent of the world market. The rich countries export goods and services valued at US$6,000 per capita, while that value in developing countries is only $330 and in low-income countries only $100. And there are 1.1 billion people trying to survive with less than $1 per day.

Today, of the 100 largest world's economies, 51 are corporations and only 49 are countries. According to John Cavanagh, Wal-Mart -- the number 12 corporation -- is bigger than 161 countries, including Israel, Poland and Greece. General Motors is bigger than Denmark, Mitsubishi is larger than the fourth most populous country, Indonesia, Toyota is bigger than Norway and Ford is bigger than South Africa. If we subtract the gross domestic product of the big nine economies -- the U.S., Japan, Germany, France, Italy, the UK, Brazil, Canada and China -- the combined GDP of the other 182 countries is $6.9 trillion. Compare this with the combined sales of the top 200 corporations reaches $7.1 trillion, as the Institute for Policy Studies reported last year.

How do these imbalances take place?

Reporting on the world investment, the UN Conference on Trade and Development (UNCTAD) noted there are 40,000 corporations in the world whose activities cross national boundaries. These firms ply overseas markets through some 250,000 foreign affiliates. It is indicated that the top 200 global firms account for an alarming and growing share of the world's economic activity.

The world's economic income and wealth remain highly concentrated among the rich. The UN reports that some 85 percent of the world's GDP is controlled by the richest fifth and only 15 percent by the poorest four-fifths. Thus, the poorer 4.5 billion people in the world account for only $3.9 trillion of economic activity -- a little over half the combined revenues of the top 200 firms' $7.1 trillion.

So the rich get richer and the poor get poorer.

And growth-centered economics is pushing the regenerative capacities of the planet's ecosystem to the brink.

What is at the heart of globalization? It is the "ism" called neo-liberalism, in which all humans are believed to be homo economicus and that the economic motive in human life is the only motive that drives humane livelihood. This is very central to understand, in addition to another central idea of globalization -- that capital has to be freed from the social survival so that it can freely move everywhere to seek and accumulate profit.

Thus any discourse on globalization assumes (and therefore explains and admits) one thing: That capital power has been so enormous and is mostly taking over the legitimate power of state apparatus and the sovereignty of communities.

Even currency speculator George Soros has been quoted as saying, that insofar as there is a dominant belief in society today, it is the belief in the "magic of the marketplace".

"Laissez-faire" capitalism holds that the common good is best served by the uninhibited pursuit of self-interest. Yet, unsure of what they stand for, people increasingly rely on money as the criterion of value. The cult of success has replaced a belief in principles and society has lost its anchor, as Wayne Ellwood wrote last year.

The "magic of the marketplace" was formulated when Adam Smith published The Wealth of Nations nearly 250 years ago. But Smith believed that capital would be best invested locally. His vision of an efficient market is one composed of small owner- managed enterprises located in the communities where the owner resided. It is a market that has little in common with a globalized economy today, dominated by massive corporations without local or national allegiance, managed by professionals who are removed from real owners by layers of investment institutions and holding companies. Smith's The Wealth of Nations has become The Wealth of Global Corporations.

Globalization is being supported by three pillars. First, it is the working of business and trade across boundaries. Second, the players are the trans-national and multi-national corporations. Third, the underlying ideology to keep the business and trade on their roles is "consumerism". It is within these three ideas that the term "free" (whether put before "trade" or "business") gets its legitimation regardless of whether it would be practiced fairly or otherwise.

When General Motors trades with itself, is that fair free trade? UNCTAD reported in 1995 that one-third of world trade is simply transactions among various units of the same corporation. This figure has remained steady for the past few years, and is higher in certain countries. In 1993, the UN calculated that of the $3.3 trillion in exports of goods and services in 1990, roughly $1.1 trillion was intra-firm trade. Two-fifths of Japanese exports, for example, are intra-firm (UNCTC, 1993).

OXFAM reports that when the developing countries export their yields to the market of rich countries, they have to face tariff barriers four times higher than those faced by the developed ones.

These barriers have cost those developing countries $100 billion per year -- almost two folds of the amount they receive as aid. If Sub-Saharan Africa, East and South Asia and Latin America could increase their international export market of 1 percent, theoretically they would be able to alleviate the poverty of their 128 million people. The current trading system promoted by WTO nowadays cannot be continued. Instead of "free trade" it is the time to make trade fair.

Therefore it is most urgent to democratize business and economic power. And at the very idea of fair-trade movements is the democratization of business practices and the control of capital flow.

No one can reject this basic argument. Yet it is not easy to admit either. This is because we cannot understand reality -- we are entrapped in the old-fashioned analytical reflection. Regarding globalization, we still think that state power is superior to other power centers. Yet, rising inequalities between those who benefit from global economic activity and those who are left behind shows how outdated such assumptions are.

Similarly this "epistemic-lag", the gap between analysis and reality, is still there regarding the term "fair trade", which still entails a belief in the magic of the marketplace. If trade undermines life, narrows or impoverishes it, it destroys the world. If it enhances life, then it can change the world.

But, how would we address the working of the marketplace in this world captured by economic power? Is it still "magical" -- or manipulated by the capital and market interests? If we can make trade fair, we must ensure that we do not suffer from the gap of reality and analysis. Otherwise, fair trade will be left out from a history drawn up by victors in our economic war.