Economic truths: Why we riot when times are good - The recent protests against capitalism and all things corporate may owe their origins more to global economic cycles than to any new radicalism

Economic truths: Why we riot when times are good - The recent protests against capitalism and all things corporate may owe their origins more to global economic cycles than to any new radicalism - At the recent Davos world economic forum, those attending

by DAVID SMITH
Last Updated: 31 Aug 2010

At the recent Davos world economic forum, those attending had a chance to take part in an unusual simulation entitled 'Are corporations hostages to fortune?'. As the organisers described it: 'You have been warned that 'extremists' might target your company for direct action. However, nobody anticipated that the local government would fail to protect your operations in an environment in which your company's adversaries have thrown away the rule book. And who invited CNN to cover your every move?'

Sensible companies should have strategic, security and media plans ready to deal with such eventualities, as the threat of such action is real.

Last November, protesters from special interest groups, covering everything from the environment to trade union rights, succeeded in wrecking the ministerial meeting of the World Trade Organisation (WTO) in Seattle.

Symbols of globalisation, particularly multinational companies, were targeted with particular venom.

An accompanying protest in London turned out to be a damp squib, although earlier demonstrations, focusing on the City, caught the police unawares and did much damage. So how seriously should we take all this, and to what extent does it represent a backlash against globalisation, against capitalism itself?

'The setback faced by the WTO has far-reaching consequences beyond the multilateral trading system and should be a concern to all international organisations,' said WTO head Mike Moore recently.

The cynical point is that such protests are partly a reflection of the economic cycle. Environmentalism emerged as a serious challenge in the early 1970s, when the 'golden age' for the post-war world economy was at its peak but about to encounter extreme turbulence due to inflation and the Organisation of Petroleum Exporting Countries (OPEC). It re-emerged strongly in the late 1980s, again near the top of the cycle.

The 1990s was, in general, a triumph for the global economy and the American way. Perhaps not surprisingly, at a time when the US has just beaten the 1960s record of 106 months of continuous economic expansion, environmental protests are loud again - it seems that some people believe you can have too much growth.

It would be foolish, however, to dismiss the protest movement as purely a cyclical phenomenon. The reason the WTO talks in Seattle failed was not that windows were being broken outside the meeting; it was that the views of some of those outside the meeting, including the so-called non-governmental organisations (NGOs), chimed with some of those inside it, particularly the developing countries.

The belief of these countries that the big boys of the world economy steer everything to their own advantage is powerful. The poorest 10% of countries have just 0.3% of world trade, half the share of 20 years ago.

Income inequalities between the richest and poorest 20% of countries are wider than ever before.

Equally powerful is the belief, in some quarters, that the free flow of capital is a highly destructive modern-day force.

According to War on Want: 'The globalisation of financial markets has led to a succession of financial and economic crises ... which have had devastating consequences for the developing world, and a disastrous impact on the poor. Populations have been hit by rising unemployment, wage cuts, inflation and reductions in public spending. Vulnerable sectors - women, children and the elderly - have been particularly hard hit. The progress of human development is being thwarted by the failure of governments and international institutions to regulate the global economy.'

War on Want and others want to put the genie back in the bottle by imposing a 'Tobin tax' on currency dealing (a turnover tax on foreign exchange trading, as proposed by the American economist James Tobin). That the economies hardest hit by the Asian financial crisis of 1997-98 are now on the mend has not diminished the call for such action.

The easy assumptions that the greater the degree of trade liberalisation, the better off the world economy will be - and that financial crises are the price we pay for the far greater benefits of free movement of capital - are not shared by significant numbers of people. Many regard globalisation, the international capital markets and multinational corporations as modern-day evils.

It is not all bad news. Just before the WTO failure in Seattle, and the loss of momentum for trade liberalisation, the welcoming of China into the world trade body was a significant plus. There is no prospect, despite the pressure, of governments agreeing to a tax on currency trading.

Even so, there is clearly a lot more to be done in selling the benefits of free markets and cross-border investment, and in warning of the dangers of slipping back into protectionism. Businesses should not leave this task to governments alone. Otherwise the backlash could turn into something far more serious.

Visit David Smith's web site at www.economicsUK.com.

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