Prologue - Dangerous Business, The Risks of Globalization for America by Pat Choate

“The extraordinary enigma we must seek to understand is that despite an expanding economy, violence increases, the number of those living in poverty grows and urban slums spread in cities throughout the world. How is it that our greatest period of technological and scientific achievement has come to endanger the conditions that allow life on earth? There is a growing realization that something fundamental has gone wrong and a pervasive feeling that those in power do not know what should be done.”
(The Trap by Sir James Goldsmith, 1993)

After the fall of the Berlin Wall in 1989 and before the creation of the World Trade Organization in 1995, the toughest geo-political question the world faced was how to integrate into the global economy the four billion people who had long been separated from the West by their political systems, which were primarily communist or socialist. The solution adopted by the United States, Europe and Japan is what became known as “globalization.”

Months before the U.S. Congress voted to ratify U.S. membership in the World Trade Organization (WTO), the main institution for globalization, Sir James Goldsmith, one of Europe’s most flamboyant financiers and a staunch WTO opponent, came to Washington to meet with like minded-people, of which I was one, in preparation for a similar political battle in Europe.

A citizen of both England and France, a Member of the British establishment, a French aristocrat who owned a three-star restaurant in Paris, a person who traveled on his own two-bedroom Boeing 757 and a man with three families, Sir James was greeted in Washington with some uncertainty. Any doubts immediately disappeared, however, upon exchanging views with him. His interest was neither superficial nor temporary.

Indeed, he was instructively well informed, even prescient. Goldsmith’s concern was that an unfettered, unregulated open trade regime, under the World Trade Organization, would “shatter the way in which value-added is shared between capital and labor. “In mature societies,” he said, “we have been able to develop a general agreement as to how it should be shared. That agreement has been reached through generations of political debate, elections, strikes, lockouts and other conflicts.

Overnight that agreement will be destroyed. The social divisions that this will cause will be deeper than anything ever envisaged by Marx.”

Transnational corporations, he argued in his book, The Trap, would seek the lowest cost labor in nations with the weakest environmental and worker safety  regulations. These companies would shift as much of their manufacturing as they could, plus their service work as well. The interests of these corporations, who owed alliance to no country, were divorced from those of society.

Surely, he said, it would be a mistake for a nation to adopt an economic policy that makes its corporations rich if they transfer production abroad and eliminate their national work force, but which bankrupts them if they do not relocate and continue to employ their country’s workers. This was the trap.

Sir James and his allies failed to persuade the European governments to reject the WTO and create a less ideological, more practical system of global trade, as we WTO opponents in the United States also failed.

By joining the WTO, the United States altered radically its trade policies with other nations. The domestic social compact forged between corporations, workers and society over the prior century was fractured and soon began to shatter. Over the next decade, more than 40,000 U.S. factories were moved abroad or closed. Millions of American workers and their communities where they lived were left to their own devices. Moreover, those were only the most visible and most immediate consequences of this great policy shift.

Which brings us to the subject of this book---the dangers of globalization. We are now deeply trapped in the world that Goldsmith feared. The globalization policies adopted by the administrations of Presidents George H.W. Bush, Bill Clinton and George W. Bush collectively constitute the single worst economic policy mistake in U.S. history.

Millions of American workers are moving from higher paying jobs with health insurance and pensions to lower paying jobs with no benefits. Lifetime jobs are being replaced with short-term, dead-end work, destroying our middle-class. The U.S. industrial base is being hollowed out to the point that our national security is threatened.

The federal government has gone deep into debt, with foreign owners owning almost half of the debt. The U.S. trade deficit has soared to more than $800 billion per year. The U.S. government has surrendered, through dozens of trade treaties, its sovereign right to act unilaterally against other nations that violate their trade obligations to the U.S. The economies of most developing nations, such as Mexico, are so ravaged by these policies that millions of their citizens have illegally entered the U.S. in search for work. Foreign workers are being abused in dozens of countries to a degree and on a scale that future historians will view as economic war crimes. And as Goldsmith predicted, the global environment is being rapidly destroyed.

These historic changes are neither political accidents nor the consequences of immutable cosmic forces. They flow directly from the decisions of our last three Presidents and the Congress who year-after-year purposefully have ignored the outsourcing of American jobs and the resulting decline in U.S. living standards, even as they pursue ever more open-ended trade treaties without providing even the most elementary safeguards for American consumers and workers. Their actions have enabled decision makers in transnational corporations and global finance to place their interests and those of their investors above those of the American people and the nation. These corporations and the compliant politicians they support are transforming the United States into a corporate state, the mass of whose citizens face an increasingly bleak future.

The challenge we face is to institute a new approach to globalization that creates a broad-based prosperity with stability, sovereignty with vision and security with peace, while not endangering the conditions that allow life on earth.

The central question surrounding further integration of the world economy (globalization) is not whether the U.S. economy will become ever more entwined with those of other nations, for it will. The issue is how will this be done, to what degree and in whose best interests. This book explores three fundamental questions:

1. Why did the United States, still the world’s trading and economic powerhouse, choose to integrate its economy with the rest of the world without providing even the most basic safeguards for the nation and its people?
2. Can the United States maintain its standard of living, pay its debts, retain its sovereignty and assure its national security under present policies?
3. What must the U.S. do to gain the benefits of globalization without plunging itself into economic ruin?

Pat Choate has a new book, a profound book, "Dangerous Business."  It lays bare the faults with the globalization model.  Here is the Prologue.

From one of the most respected and vigorous economic thinkers in Washington, a wake-up call about the perils of unfettered globalization. In this impassioned, prescient book, Pat Choate shows us that while increased worldwide economic integration has some benefits for our fiscal efficiency, it also creates dependencies, vulnerabilities, national security risks, and social costs that now outweigh its advantages. He takes the long view of developments such as technology-driven progress, the offshoring of jobs, and open trade, arguing that current U.S. policies are leading to worldwide economic and political instability, in much the same way as before the Great Depression.

Choate writes convincingly about the Defense Department’s growing dependence on foreign sources for its technologies, the leasing of parts of our interstate highway system to overseas investors, China’s economic mercantilism, and international currency manipulation that damages the dollar. We have been borrowing heavily from foreign lenders, who by 2009 will own more than half of the Treasury debt, a third of U.S. corporate bonds, and a sixth of U.S. corporate assets—all of which, if handled improperly, could trigger a global economic collapse.

But our economic forecast need not be dire. Choate sees a way out of these dilemmas and presents politically viable steps the United States can take to remain sovereign, prosperous, and secure. He presents bold new research that identifies the special interests and structural corruption that have overtaken our democracy—and shows how they can be corrected. He illustrates how our policy-making and legislative process, currently beholden to the highest bidder, can be transformed from one of corporatism and elitism into one of greater transparency. Clear-eyed and persuasive, this is sure to be one of the most widely discussed books of the year.