[Benjamin]

Fortsetzung....

In the fifth WTO ministerial conference held in Cancun, Mexico, in September 2003, the richer countries rejected the demands of poorer nations for radical reform of agricultural subsidies that have decimated Third World agriculture. Failure to get the Doha Round back on track after the collapse of Cancun runs the danger of a global resurgence of protectionism, with the US leading the way. Larry Elliott reported on October 13, 2003, in The Guardian on the failed 2003 Cancun ministerial meeting: "The language of globalization is all about democracy, free trade and sharing the benefits of technological advance. The reality is about rule by elites, mercantilism and selfishness." Elliot noted that the process is full of paradoxes: why is it that in a world where human capital is supposed to be the new wealth of nations, labor is treated with such contempt?

Sam Mpasu, Malawi's commerce and industry minister, asked at Cancun for his comments about the benefits of trade liberalization, replied dryly: "We have opened our economy. That's why we are flat on our back." Mpasu's comments summarized the wide chasm that divides the perspectives of those who write the rules of globalization and those who are powerless to resist them.
Exports of manufactures by low-wage developing countries have increased rapidly over the past three decades due in part to falling tariffs and declining transport costs that enable outsourcing based on wage arbitrage. It grew from 25% in 1965 to nearly 75% over three decades, while agriculture's share of developing-country exports has fallen from 50% to less than 10%. Many developing countries have gained relatively little from increased manufactures trade, with most of the profit going to foreign capital. Market access for their most competitive manufactured export, such as textiles and apparel, remains highly restricted, and recent trade disputes threaten further restrictions. Still, the key cause of unemployment in all developing economies is the trade-related collapse of agriculture, exacerbated by the massive government subsidies provided to farmers in rich economies. Many poor economies are predominantly agriculturally based and a collapse of agriculture means a general collapse of the whole economy.

The Doha Development Agenda negotiations, sponsored by the WTO, collapsed in Cancun over the question of government support for agriculture in rich economies and its potential impacts on causing more poverty in developing countries. Negotiations since Cancun have focused on the need to understand better the linkages between trade policies, particularly those of the rich economies, and poverty in the developing world. While poverty reduction is now more widely accepted by establishment economists as a necessary central focus for development efforts and has become the main mission of the World Bank and other development institutions, very few effective measures have been forthcoming.

The UN Millennium Development Goals (UNMDG) commit the international community to halving world poverty by 2015, a decade from now. With current trends, that goal is likely to be achievable only through the death of half of the poor by starvation, disease and local conflicts. The UN Development Program warns that 3 million children will die in sub-Saharan Africa alone by 2015 if the world continues on its current path of failing to meet the UNMDG agreed to in 2000. Several key avenues to this goal supposedly lie in international trade, but the record of poverty reduction has been exceedingly poor, if not outright negative. The fundamental question whether trade can replace or even augment socio-economic development remains unasked, let alone answered. Until such issues are earnestly addressed, protectionism will re-emerge in the poor countries. Under such conditions, if democracy expresses the will of the people, democracy will demand protectionism more than government by elite.

While tariffs in the past decade have been coming down like leaves in autumn, flexible exchange rates have become a form of virtual countervailing tariff. In the current globalized neo-liberal trade regime operating in a deregulated global foreign-exchange market, the exchanged value of a currency is regularly used to balance trade through government intervention in currency-market fluctuations against the world's main reserve currency - the US dollar, as the head of the international monetary snake.

Purchasing power parity (PPP) measures the disconnection between exchange rates and local prices. PPP contrasts with the interest rate parity (IRP) theory, which assumes that the actions of investors, whose transactions are recorded on the capital account, induce changes in the exchange rate. For a dollar investor to earn the same interest rate in a foreign economy with a PPP of four times, such as the purchasing power parity between the US dollar and the Chinese yuan, local wages would have to be at least four times (75%) lower than US wages. PPP theory is based on an extension and variation of the "law of one price" as applied to the aggregate economy.

The law of one price says that identical goods should sell for the same price in two separate markets when there are no transportation costs and no differential taxes applied in the two markets. But the law of one price does not apply to the price of labor. Price arbitrage is the opposite of wage arbitrage in that producers seek to make their goods in the lowest wage locations and to sell their goods in the highest price markets. This is the incentive for outsourcing, which never seeks to sell products locally at prices that reflect PPP differentials. What is not generally noticed is that price deflation in an economy increases its PPP, in that the same local currency buys more. But the cross-border one-price phenomenon applies only to certain products, such as oil, thus for a PPP of four times, a rise in oil prices will cost the Chinese economy four times the equivalent in other goods, or wages, than in the US. The larger the purchasing power parity between a local currency and the dollar, the more severe is the tyranny of dollar hegemony on forcing down wage differentials.

The origins and effects of dollar hegemony
Ever since 1971, when US president Richard Nixon, under pressure from persistent fiscal and trade deficits that drained US gold reserves, took the dollar off the gold standard (at US$35 per ounce), the dollar has been a fiat currency of a country of little fiscal or monetary discipline. The Bretton Woods Conference at the end of World War II established the dollar, a solid currency backed by gold, as a benchmark currency for financing international trade, with all other currencies pegged to it at fixed rates that changed only infrequently. The fixed-exchange-rate regime was designed to keep trading nations honest and prevent them from running perpetual trade deficits. It was not expected to dictate the living standards of trading economies, which were measured by many other factors besides exchange rates. Bretton Woods was conceived when conventional wisdom in international economics did not consider cross-border flow of funds necessary or desirable for financing world trade, precisely for this reason. Since 1971, the dollar has changed from a gold-backed currency to a global reserve monetary instrument that the US, and only the US, can produce by fiat. At the same time, the US has continued to incur both current-account and fiscal deficits.

That was the beginning of dollar hegemony. With deregulation of foreign-exchange and financial markets, many currencies began to free-float against the dollar, not in response to market forces but to maintain export competitiveness. Government interventions in foreign-exchange markets became a regular last-resort option for many trading economies for preserving their export competitiveness and for resisting the effect of dollar hegemony on domestic living standards.

World trade under dollar hegemony is a game in which the US produces paper dollars and the rest of the world produces real things that paper dollars can buy. The world's interlinked economies no longer trade to capture comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies in foreign-exchange markets. To prevent speculative and manipulative attacks on their currencies in deregulated markets, the world's central banks must acquire and hold dollar reserves in corresponding amounts to market pressure on their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces all central banks to acquire and hold more dollar reserves, making it stronger. This anomalous phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars. Everyone accepts dollars because dollars can buy oil. The denomination of oil in dollars and the recycling of petro-dollars is the price the US has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973.

By definition, dollar reserves must be invested in dollar-denominated assets, creating a capital-accounts surplus for the US economy. A strong-dollar policy is in the US national interest because it keeps US inflation low through low-cost imports and it makes US assets denominated in dollars expensive for foreign investors. This arrangement, which Federal Reserve Board chairman Alan Greenspan proudly calls US financial hegemony in congressional testimony, has kept the US economy booming in the face of recurrent financial crises in the rest of the world. It has distorted globalization into a "race to the bottom" process of exploiting the lowest labor costs and the highest environmental abuse worldwide to produce items and produce for export to US markets in a quest for the almighty dollar, which has not been backed by gold since 1971, nor by economic fundamentals for more than a decade. The adverse effects of this type of globalization on the developing economies are obvious. It robs them of the meager fruits of their exports and keeps their domestic economies starved for capital, as all surplus dollars must be reinvested in US treasuries to prevent the collapse of their own domestic currencies.

The adverse effect of this type of globalization on the US economy is also becoming clear. In order to act as consumer of last resort for the whole world, the US economy has been pushed into a debt bubble that thrives on conspicuous consumption and fraudulent accounting. The unsustainable and irrational rise of US equity and real-estate prices, unsupported by revenue or profit, has meant a de facto devaluation of the dollar. Ironically, the recent fall in US equity prices from their 2004 peak and the anticipated fall in real-estate prices reflect a trend to an even stronger dollar, as the same amount of dollars can buy more deflated shares and properties. The rise in the purchasing power of the dollar inside the United States impacts its purchasing-power disparity with other currencies unevenly, causing sharp price instability in the economies with freely exchangeable currencies and fixed exchange rates, such as Hong Kong and until recently Argentina. For the US, a falling exchange rate of the dollar actually causes asset prices to rise. Thus with a debt bubble in the US economy, a strong dollar is not in the US national interest. Debt has turned US policy on the dollar on its head.

The setting of exchange values of currencies is practiced not only by sovereign governments on their own currencies as a sovereign right. The US, exploiting dollar hegemony, usurps the privilege of dictating the exchange value of all foreign currencies to support its own economic nationalism in the name of global free trade. And the US position on exchange rates has not been consistent. When the dollar was rising, as it did in the 1980s, the US, to protect its export trade, hailed the stabilizing wisdom of fixed exchange rates. When the dollar falls as it has been in recent years, the US, to deflect blame for its trade deficit, attacks fixed exchange rates as currency manipulation, as it now targets China's currency, which has been pegged to the dollar for more than a decade. How can a nation manipulate the exchange value of its currency when it is pegged to the dollar at the same rate over long periods? Any manipulation came from the dollar, not the yuan.

Economic nationalism
The recent rise of the euro against the dollar, the first appreciation wave since its introduction on January 1, 2002, is the result of an EU version of the 1985 Plaza Accord on the Japanese yen, albeit without a formal accord. The strategic purpose is more than merely moderating the US trade deficit. The record shows that even with a 30% drop of the dollar against the euro, the US trade deficit continued to climb. The strategic purpose of driving up the euro is to reduce it to the status of the yen, as a subordinated currency to dollar hegemony. The real effect of the Plaza Accord was to shift the cost of support for the dollar-denominated US trade deficit, and the socio-economic pain associated with that support, from the United States to Japan. What is happening to the euro now is far from being the beginning of the demise of the dollar. Rather, it is the beginning of the reduction of the euro into a subservient currency to the dollar to support the US debt bubble.