Protectionism on the increase

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".