Government without Democracy

Critics of the global economy often see it as anarchic, a mad market that has burst national bounds and floats free, unrestrained by the laws and rules that made the nation-based social market a decent place to live and do business. It is "wild capitalism," Benjamin R. Barber wrote last year in The American Prospect ["Globalizing Democracy," September 11, 2000]. He asked: "Can globalism be governed?"

Well, it is governed, but not in a way that soothes its critics or gives hope for democratic control of the global economy. In dozens of forums, from Montreal to Paris to Basel, effective laws, rules, and standards are being written in order to guide and channel global commerce. Government officials and international experts--often helped by the very industries and corporations they seek to regulate--are weaving a legal and supervisory web around the global economy. Nonbinding standards to promote uniformity in banking, accounting, and corporate behavior become templates of good conduct and take on the force of law.

Most insidiously, this governance grows by the day, even without new rules and laws. Often, old national rules and laws are interpreted or bent by regulators, to the point that differences between national codes are shaded or even erased. In the process, a new global law comes into being, to be enforced by the same people who created it. These new global rule-makers are well on their way to legislating the twenty-first century. And they are seldom subject to the same cross-pressures and democratic constraints that limit their domestic counterparts. This reality of governance, and not the dislocations of crossborder trade, is the real threat of globalism to democracy.

Efficiency above Equity

This is not black-helicopter stuff, the evil handiwork of conspirators bent on seizing global power and overriding the people's will. Instead, it's the product of dedicated, hardworking men and women doing what they're paid to do, which is to find ways to make the global economy work better. These people come from many different countries, but they share a faith in markets and a distaste for the messier aspects of democracy. They are members of small fraternities of global experts (often graduates of the same American universities), old pals from past seminars and negotiations: They admit that they may have more in common with one another than with other parts of their own government. Their mandate is a narrow one: efficiency rather than equity. If the world is made safer for bankers or investors or corporations, then they have done their job. They aren't under orders to look out for labor or communities or the environment, which have no voice.

The best-publicized negotiations are those likely to produce treaties that must be debated and ratified by Congress, like the North American Free Trade Agreement (NAFTA). In contrast, Paris talks on the Multilateral Agreement on Investment, which would have overridden innumerable domestic regulations of participating nations, proceeded in secret for two years until nongovernmental organizations (NGOs) such as Global Trade Watch got wind of the endeavor, blew its cover, and helped kill it.

More common are the many new rules and regulations that nations agree upon but that have no chance for debate and no need for ratification. In Basel, the Bank for International Settlements has produced nonbinding but potent standards for bank inspectors. The International Accounting Standards Board in London is moving toward global rules for judging corporate value. In Montreal, the International Organization of Securities Commissions is overseeing regulations for stock markets around the world. The Financial Stability Forum, set up by the Group of Seven (the richest Western democracies) in the wake of the Asian financial crisis in 1997 and 1998, has a mandate to frame a "global financial architecture," although much of the steam went out of its work as the crisis eased. In Geneva, the International Organization for Standardization has set global standards for more than 12,000 products, from the width of credit cards (.76 millimeter) to the size of screw threads. In Paris, the Organization for Economic Cooperation and Development is a hive of this sort of activity: It hosted the abortive Multilateral Agreement on Investment talks, which were conducted in a room tucked away in the basement. This group has produced codes of corporate good behavior aimed at wiping out corruption and is working on harmonizing antitrust regulations.

Antitrust regulation is both arcane and important. It governs mergers and acquisitions in order to block monopolies, preserve market competition, and protect consumers. Such oversight can be densely technical, but it helps define a society's values by striking a balance between business and government. It also is a perfect example of the new rule making: It involves a tight and chummy group of regulators who are subject to little outside scrutiny and who work within a narrow mandate to shape global law.

There is, in fact, no global antitrust law. Instead, there are some 80 national antitrust laws, all descendants of the U.S. Sherman Antitrust Act of 1890. These laws, many written since the Cold War ended, frequently differ in their details, such as documentation required and deadlines for regulatory action. More important, they spring from two different traditions. The free-market American tradition believes in wide-open competition, no matter what happens to individual companies, no matter what turmoil besets the society: Competition is good and, in the long run, will benefit both consumers and society. Opposing this "Chicago school" ideal is the more directed European model. European regulators are more inclined to seek social stability by protecting existing companies from predatory competition.

In short, the americans protect competition and the Europeans protect the competitors. Transnational mergers and acquisitions long ago surpassed trade as a driving force of the global economy. They have been rising at an annual rate of 42 percent for the past 20 years, and the pace is picking up. There were 24,000 transnational mergers and acquisitions in 1999--$2.3 trillion worth--and this doesn't count the global alliances that are creating what Cyrus F. Friedheim, Jr., vice chairman of Booz Allen and Hamilton, calls "the trilliondollar enterprise." Mergers between companies like Daimler and Chrysler, BP and Amoco, or Ford and Mazda are the glistening tip of an iceberg made up of thousands of cross-border linkages, the bulk of them between the United States and the European Union. These deals not only make the global economy happen; they have an enormous impact on where and how people live and work. Just ask the 10,000 Amoco employees who lost their jobs or the German autoworkers who find themselves struggling under leaner, meaner American labor practices.

Nor do these cross-border mergers affect only the companies' home countries. In a world in which global corporations do business everywhere, the merger of two companies from the same country can resonate in dozens of markets, especially if that country is the United States. The merger of Exxon and Mobil had to be approved by regulators in 60 countries. The biggest recent transatlantic disputes, over the mergers of Boeing with McDonnell Douglas and AOL with Time Warner, were caused by the power of these American firms in the European market. Similarly, the merger in Europe of Vodafone, AirTouch Communications, and Mannesmann had to be approved by the United States.

A Global Brotherhood

Overseeing all this activity are a few hundred antitrust officials in Washington, D.C., and Brussels. Obviously, they can't keep track of it all, and they don't try. Only the largest mergers are even officially "notified." Of these, about 10 percent get reviewed, and perhaps 1 percent are challenged. Almost all go through smoothly and quietly, maybe with a modification or two. It is only the rare challenge--like the European Union's questioning of the merger of AOL with Time Warner--that becomes a political issue and hits the headlines. In fact, regulators see these public challenges as a breakdown in the system they are trying to build. Though there is no single global antitrust law, these men and women often behave as though there is. Pro-market, they are lowering the barrier to mergers as far as possible. Outright monopolies are out. Short of that, bigness is in.

In the process, global antitrust practice is converging--but not toward some happy medium between U.S. and European traditions. The American approach has taken over. The goal now on both sides of the Atlantic "is to benefit consumers through economic efficiency," says Bernard J. (Joe) Phillips, an antitrust official with the Organization for Economic Cooperation and Development. "This has become a global attitude."

In other words, score another win for the Chicago school, thanks as much to a global good-old-boy network as to economic analysis. Antitrust officials may work for different governments, but they come out of the same stable. They all speak English, of course, and they speak the same ideological language. Many non-Americans among them are graduates of U.S universities, where the free market theology runs strong. They communicate daily by phone or e-mail, coordinating their approaches to reviews and challenges. The regulators also meet regularly--at conferences, at European universities, at an annual seminar at Fordham University, at meetings organized by the American Bar Association, and especially at the Organization for Economic Cooperation and Development, which actively promotes harmonization of antitrust practice. Seen by the public as a transatlantic donnybrook, the AOL–Time Warner merger was actually an example of cooperation in overdrive: Officials in Washington and Brussels pulled together to save the merger, despite genuine EU worries about its competitive impact in Europe.

By necessity, this arcane priesthood of regulators works closely with merging corporations and their lawyers, many of whom used to be regulators themselves. So in the framing of global antitrust law, business has a seat at the table. But labor doesn't, nor do environmentalists, nor do communities. They aren't asked to participate, and most of them don't realize the stake they have in any merger until a factory closes or a headquarters crosses an ocean.

Even the NGOs that try to keep an eye on the World Trade Organization (WTO) and International Monetary Fund find that there's just too much going on--not only in antitrust but in all the other rule making--for their small staffs to monitor. Spokeswoman Katie Burnham of Global Trade Watch, the bane of the WTO, says that her group is overwhelmed by all this new global governance: "It's so hard to keep up, much less educate the public about what's going on."

As members of governments, antitrust officials probably should consider the impact of mergers on the broader society before blessing them. But this isn't part of their mandate. They are under orders to decide whether a particular merger restricts competition or promotes the free market. If it passes these tests, it's okay. The regulators assume that labor activists or environmentalists can influence a merger by pressuring some other part of the government. Theoretically, this is true. In practice, it seldom happens.

The Bush administration probably will promote this casual lumping together of national antitrust laws even more enthusiastically than the Clinton administration did, if only because big business wants it so badly. Global corporations despise the time and effort required to notify dozens of jurisdictions of pending mergers and are pressing for one-stop shopping--some standard notification coupled with a unified deadline for regulatory action. Joel Klein, the Justice Department's Microsoft buster who spearheaded much of this kind of transatlantic cooperation, made a speech just before his retirement calling for a new international agency to coordinate antitrust activity--a sort of WTO for mergers. The European Union even has suggested giving this job to the WTO itself, despite that body's unpopularity outside the globalizing elite. In addition, the European Union, the United States, and the Organization for Economic Cooperation and Development are helping emerging economies to write their antitrust laws; and these new laws, not surprisingly, often look like clones.

The convergence of antitrust rules has several things in common with other global rule-making. First, outside scrutiny is not encouraged. Much of the activity takes place in countries like Switzerland, free of open-meeting rules. Even after Global Trade Watch and other NGOs learned about the Multilateral Agreement on Investment talks in Paris, they were kept in the corridor outside that basement room, forced to ferret out draft treaties from disaffected delegates. The WTO has an arms-length relationship with NGOs based in Geneva. It occasionally invites them in for briefings, but each side views the other with suspicion. The WTO's notorious dispute-settlement procedure, of course, is closed to all outsiders--including affected groups, such as environmentalists, that would like to file briefs.

Second, almost all this work is complex and tedious. This is enough to keep away congressional scrutiny and press coverage: No political or journalistic reputations are made here. It also means that corporations and traders--the only players who really understand what's going on--are writing and enforcing their own rules. Economist Wolfgang H. Reinicke, author of Global Public Policy, has written about how the Bank for International Settlements, faced with the growing complexity of global banking, has been forced to ask the banks themselves for regulatory help.

Third, this work--no matter how arcane--makes a difference in how people live. It matters how and for whom banks are run. Lending codes, for instance, determine which projects get financed, which factories get built, and which workers get jobs. What goes on inside a corporate boardroom is important to everyone that corporation affects: In a world where some corporations are more powerful than the countries with which they do business, transparency counts. When two big companies merge, factories open or close, jobs are won or lost, communities rise or fall.

Finally, no one can doubt the need for new rules and regulations. A truly anarchic global economy would be a jungle ruled by thugs and thieves, with no investment security, no banking standards, no corporate transparency--a Darwinian world where no honest business would dare enter. The global economy exists, whether Pat Buchanan approves or not. If it is to thrive, it must be tamed to the benefit of the people who do business in it. This point is indisputable. But it's not enough. The global governance now taking shape is a lopsided, unbalanced affair that serves the businesspeople, investors, and corporations that drive the governance but not the societies that must live with it.

The WTO exists to promote free trade. The Organization for Economic Cooperation and Development's mission is to further economic integration. The International Organization of Securities Commissions wants a global stock market. Nothing sinister lurks here. Sovereign governments created these organizations and gave them their marching orders, and it is useless to chastise them for doing their job.

But their job is to write and enforce global rules and regulations that are intended to supersede national codes. These national codes existed within a national political framework that included a variety of interests--not just business--all fighting in a public arena where every voice was heard. As Benjamin Barber pointed out in TAP, the global economy has escaped national boundaries, but democracy and its practitioners have not. Most democratic institutions--political parties, parliaments, the press, and many political action committees and pressure groups--are nation-based and nation-bound. NGOs operate globally via the Internet and can have stunning impact. But even the big ones, like Global Trade Watch, are small in comparison to the global activity they must cover. They simply don't have the people or the money to monitor every negotiation on every banking standard or merger.

At best, the progress toward global governance has been uneven. The WTO, the only global body able to enforce its decisions through its own court, would be a useful part of any global government--the way the Commerce Department and the U.S. Trade Representative's Office are in the United States. But such a world government should also include a labor department, an environmental ministry, perhaps a culture ministry, and a cacophony of congressmen or parliamentarians to represent local interests, as national governments do. When a decision had to be made, all these interests would gather around a cabinet table or in a hearing room and fight it out. The result, usually, would be a compromise satisfying no one but serving everyone.

Yet no cabinet table or hearing room exists at the international level. The UN Environment Program, isolated in Nairobi, is a lightweight among the sumo wrestlers of the global economy. The International Labor Organization (ILO) does useful work and beats the drum for the inclusion of labor standards in trade pacts, but its standards are nonbinding and few pay attention. The UN Conference on Trade and Development represents third-world interests and, not coincidentally, publishes the best statistics on foreign investment; but like the ILO, it has no say when important decisions are made.

So the WTO--which should be a useful but equal partner in the business of global governance--looms unchallenged, carrying out its business-driven mandate to expand free trade, without effective opposition from other potential partners. Laws are enforced, but by secret courts like the tribunals that settle WTO disputes or the international tribunals that are replacing national courts in global commercial arbitration. A common denominator of these tribunals is their hostility to briefs from outside parties, who might be affected by their rulings. Civil society may chant outside the gates of Seattle or Quebec, but Washington is not listening. Indeed, President George W. Bush's speech at the Quebec summit in April extolled the blessings bestowed by a Free Trade Area Agreement of the Americas on businesspeople, traders, and investors, while barely giving lip service to protection of laborers, consumers, and the environment. If there is more to life than economics, you'd never know it from the shape the global economy is taking.

The crisis, then, is not global anarchy, nor a lack of laws, nor the weakness of national governments. It is the growing code of global laws--often written by representatives of national governments and enforced by regulators from those governments--that supersede national laws and increasingly govern the lives of citizens who have no say in how they are written. This is governance, and it is certainly a rule of law. But by no means can it be called democracy.