Protectionism on the increase

By Guest van der Veen

BANDUNG (JP): The same herd mentality that caused the rupiah to plummet last year makes main stream economists regularly speak half-truths. These half-truths are very dangerous because they distort reality.

Main stream economists maintain that globalization is all about the opening of markets. They believe that the keyword is freedom. They want governments to abolish trade regulations so that companies can complete in the same "global playing field". Less bureaucracy and more competition leads in their view to greater efficiency. More efficiency enlarges and improves the economic output of factories. More output means more jobs and more wealth creation.

Who wouldn't want that?

Unfortunately, this rosy picture is false. The reality is that in the global "playing field" a very fierce battle is being fought. Cut-throat competition is the norm and it is endangering the survival of many small and big companies. No wonder that Gen. Schwarzkopf (Desert Storm) is a celebrated lecturer in the international business community. It's war out there! No wonder that many companies are trying to protect themselves.

In order to survive companies speed up their production and cut prices. More and cheaper output means more income and thus greater strength. This oldfashioned way isn't working any longer. International consumer demand is too low and all the competitors do the same thing. It's like a bucket full of lobsters who try to climb out. When one of them reaches a certain altitude, the others pull him down. No lobster can get out because they all use the same technique.

But businessmen are much smarter than lobsters. So they have come up with a new strategy: strategic alliances. Many companies -- especially multinationals -- are at the moment busy forming business partnerships with their former enemies. It is a phenomenon that can be observed every day. The Dutch airline company KLM announced this year that it wants to further strengthen its already close cooperation with American based North West Airlines. The two competitors apparently need each other badly. Announcements like this abound in the international commercial press.

The advantage of this kind of cooperation is obvious: two companies are stronger than one. They have more capital to invest and thus posses more endurance. Another big advantage is that cooperation gives them the ability to regulate competition. Many multinationals seek an escape from the global commercial war that is now being fought. Many multinationals try to make global struggle somewhat less intense. Cooperating companies divide market shares between themselves and thus engage in what could be called "global protectionism".

Does this major restructuring process make the world a better place? I don't think so. It could well be the preamble for the next round of corporate struggle. This time groups of allied multinationals will do battle and the ensuring conflicts will be nasty because so much money is involved. Another possibility is that the "global appeasement process" will continue. In that case unrivaled centers of power will be created as multinationals become more and more interdependent. It is worth to remember that multinationals are not humanitarian institutions. Their prime goal is to make money. Its is worth to remember that the annual budget of many multinationals exceeds that of most developing countries. They can easily blackmail a government.

In fact, they have already done so frequently. When labor protests erupted in Malaysia and Indonesia, multinationals sent a clear signal to the respective governments: we don't want trouble. It's easy for us to move factories to other developing countries. Do something about it! The government quickly put many prominent labor leaders in jail and thus reassured the companies. When unrest surfaced again, it was suppressed.

The mantra of main stream economists -- open markets, less government interference, more competition -- ignores this dark side of globalization. It is not in touch with what is happening on the international stage. World protectionism of multinationals is on the rise, and it will further decrease the power of national governments. There is a big chance that the global market will become much less competitive. Multinationals will fare well. Smaller and medium sized companies however face difficult times. In the global market the keywords are "concentration of power" and not "more freedom for the individual enterprise".