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The Party of Davos

The Party of Davos

Posted: 2006-02-01

Although this important article isn't directly about education, it certainly explains a lot about what's happening in public schools. We touched on the horrors of APEC in Why Is Corporate America Bashingt Our Public Schools but did not tie it to NAFTA. We ran out of room.

This NAFTA explanation is something people can understand, even though it means progressive educators will have to stop wasting their time trying to prove Harold McGraw is a crook. He doesn't need to be. His company will do just fine even when a family friend isn't in the White House. The crooks, as Greg Toppo, revealed are the petty functionaries.

So are we going to wait for a "traitor to his class," a "good Democrat" to appear? Or are we going to organize for grass roots revolution?

by Jeff Faus

The Nation

Feb. 13, 2006

The world's movers and shakers are convening once again in January at

the annual World Economic Forum in Davos, the posh ski resort nestled

in the Swiss Alps. Attendance is invitation-only, enforced by police

barricades, razor wire and the latest high-tech military hardware to

guard against terrorists, protesters and curious local citizens.

Some 2,000 people will show up to discuss the world's problems as

defined by those who own and manage the great global concentrations

of wealth (Microsoft, Citigroup, Siemens, Nestl?, Nomura Holdings,

Saudi Basic Industries, etc.). Their guests include prominent

political leaders, international bureaucrats, academics, consultants

and media pundits--with a few NGO and labor union officials sprinkled

along the edges to demonstrate diversity.

Davos is not the place for secret conspiracies. More than 200

hovering journalists will dispatch to the world's citizens breathless

accounts of the chatter and charm of the masters of the economic

universe. Davos is rather the most visible symbol of the virtual

political network that governs the global market in the absence of a

world government. It is more like a political convention, where

elites get to sniff one another out, identify which ideas and people

are "sound" and come away with increased chances that their phone

calls will be returned by those one notch above them in the global

pecking order.

Americans are of course prominent members of this "Party of Davos,"

which relies on the financial and military might of the US superpower

to support its agenda. In exchange, the American members of the Party

of Davos get a privileged place for their projects--and themselves.

Whether it's at Davos, at NATO headquarters or in the boardroom of

the International Monetary Fund, heads turn and people listen more

carefully when the American speaks.

"Davos Man," a term coined by nationalist scholar Samuel Huntington,

is bipartisan. To be sure, Democrats tend to be more comfortable with

the forum's informal seminar-style and big-think topics like global

poverty, cultural diversity and executive stress. Bill Clinton goes

often, and Al Gore, John Kerry, Robert Rubin, Madeleine Albright, Joe

Biden and other prominent Democrats are familiar faces. Republicans

generally prefer more private venues. George W. Bush, of course,

doesn't do anything unscripted. But people like Dick Cheney, Newt

Gingrich, John McCain and Condoleezza Rice have all worked the Davos


That the global economy is developing a global ruling class should

come as no shock. All markets generate economic class differences. In

stable, self-contained national economies, where capital and labor

need each other, political bargaining produces a social contract that

allows enough wealth to trickle down from the top to keep the majority

loyal. "What's good for General Motors is good for America," Dwight

Eisenhower's Defense Secretary famously said in the 1950s. The United

Auto Workers agreed, which at the time seemed to toss the notion of

class warfare into the dustbin of history.

But as domestic markets become global, investors increasingly find

workers, customers and business partners almost anywhere. Not

surprisingly, they have come to share more economic interests with

their peers in other countries than with people who simply have the

same nationality. They also share a common interest in escaping the

restrictions of their domestic social contracts.

The class politics of this new world economic order is obscured by

the confused language that filters the globalization debate from talk

radio to Congressional hearings to university seminars. On the one

hand, we are told that the flow of money and goods across borders is

making nation-states obsolete. On the other, global economic

competition is almost always defined as conflict among national

interests. Thus, for example, the US press warns us of a dire

economic threat from China. Yet much of the "Chinese" menace is a

business partnership between China's commissars, who supply the cheap

labor, and America's (and Japan's and Europe's) capitalists, who

supply the technology and capital. "World poverty" is likewise framed

as an issue of the distribution of wealth between rich and poor

countries, ignoring the existence of rich people in poor countries

and poor people in rich countries.

The conventional wisdom makes globalization synonymous with "free

trade" among autonomous nations. Yet as Renato Ruggiero, the first

director-general of the World Trade Organization, noted in a rare

moment of candor, "We are no longer writing the rules of interaction

among separate national economies. We are writing the constitution of

a single global economy." (Emphasis added.)

On the board of many transnational companies, Ruggiero has been both

trade and foreign minister in the Italian government of right-wing

businessman Silvio Berlusconi. He is now the chair of Citigroup's

Swiss subsidiary. His fellow authors of the Davosian constitution

have similar r?sum?s, tracking careers that flow easily across

borders and between public and private sectors. After just stepping

down as German chancellor, Gerhard Schr?der has become board chair of

a Russian company building a gas pipeline that Schr?der himself had

negotiated while in office. And so it goes.

In the absence of global democracy, the forces that act as

counterweights to the power of the investor class in national

economies--labor, civil society and progressive political

parties--are too weak and unorganized to create a global social

contract. What might be called the "Party of Porto Alegre"--the NGO

activists of the World Social Forum, who also meet annually (usually

in Brazil, this year in Venezuela, Mali and Pakistan) in January--is

hardly a match for Davos. It is therefore no surprise that the

constitution of the world economy protects just one class of global

citizen--the corporate investor.

Given the influence of American elites, the model for this

constitution is the North American Free Trade Agreement, conceived

under Ronald Reagan, nurtured by George H.W. Bush and delivered by

Bill Clinton. Among other things, NAFTA's 1,000-plus pages give

international investors extraordinary rights to override government

protections of workers and the environment. It sets up secret panels,

rife with conflicts of interest, to judge disputes from which there is

no appeal. It makes virtually all nonmilitary government services

subject to privatization and systematically undercuts the public

sector's ability to regulate business. Jorge Casta?eda, later

Mexico's foreign secretary, observed that NAFTA was "an agreement for

the rich and powerful in the United States, Mexico and Canada, an

agreement effectively excluding ordinary people in all three


In the fall of 1993 a corporate lobbyist, exasperated by my

opposition to NAFTA, stopped me in the corridor of the Capitol.

"Don't you understand?" she demanded. "We have to help [then-Mexican

President Carlos] Salinas. He's been to Harvard. He's one of us."

Her reference to "us" seemed odd. Neither she nor I was a Harvard

graduate. So it took me a while to get her point: "We"

internationally mobile professionals had a shared interest in

liberating similarly mobile global investors from regulations imposed

by national governments on behalf of people who were, well, not like

"us." Despite the considerable social distance between Salinas and

both of us, she was appealing to class solidarity.

It's impossible to understand why Democratic Party leaders

collaborated with Republicans to establish NAFTA unless reference is

made to cross-border class interests. There was no compelling

economic or political reason for Bill Clinton to make NAFTA a

priority in his first year as President. In economic terms, nothing

was broken that needed fixing. Politically, NAFTA and the WTO that

followed traded away the interests of the Democratic Party's

blue-collar electoral base while creating a bonanza for Republican

constituencies on Wall Street and in red-state agribusiness.

But Clinton was more Davos than Democrat. Tutored by financier Robert

Rubin, a prodigious fundraiser who became his Treasury Secretary,

Clinton embraced a reactionary, pre-New Deal vision of a global

future in which corporate investors were unregulated and the social

contract was history. Indeed, in all three countries it was the

leaders of the political parties that had historically claimed to

represent ordinary people--the Democrats' Clinton, the Liberal

Party's Jean Chr?tien and the Institutional Revolutionary Party's

Salinas--who delivered NAFTA to their global corporate clients,

undercutting their own constituencies. "NAFTA happened," said the

then-chairman of American Express, "because of the drive Bill Clinton

gave it. He stood up against his two prime constituents, labor and

environment, to drive it home over their dead bodies."

A year later, in November 1994, enough angry Democratic voters stayed

away from the polls to give the Republicans control of the House.

Since then, many working-class Americans, feeling abandoned by the

Democrats, have responded to the Republican definition of class

struggle as a fight over gun control, school prayer and abortion. The

Democrats have still not recovered.

Consistent with a deal among the rich and powerful, NAFTA made the

distribution of income, wealth and political power more unequal

throughout the continent. In all three countries, wages in

manufacturing fell behind productivity increases, shifting income

from labor to capital. Ordinary Mexicans especially went through the

economic wringer--to which the willingness of hundreds of thousands

of them to risk their lives each year crossing the border continues

to be tragic testimony.

On the other hand, opportunities blossomed for the rich and powerful

in all three nations. American and Canadian investors got access to

cheaper labor and privatized Mexican companies, while Mexican

oligarchs got to broker the deals. One example was the way NAFTA was

used to open up Mexico's banking system to foreign ownership,

profiting elites on both sides of the border.

The governments of Carlos Salinas and his successor, Ernesto

Zedillo--hailed in Washington as great free-market

reformers--privatized government-owned banks, turning them over to

business cronies, and, through NAFTA, revoked the legal ban on

foreign ownership. When the banks started to fail, they were given

huge government subsidies to make them attractive to transnational

buyers. At the same time, the "reform" government was slashing

subsidies to the poor for food and medicine.

Banamex, the country's second-largest bank, was bought by a Mexican

syndicate, owned by Salinas pal Roberto Hernandez Rodriguez, for $3.2

billion and when, thanks to NAFTA, foreigners were allowed to own

Mexican banks, it was resold to Citigroup for $12.5 billion. Robert

Rubin negotiated the deal for Citigroup, where he had gone after

leaving the Treasury Department. The Mexican government's welfare

program for Citigroup and other foreign investors continues: In 2003

government subsidies to private banks (more than 85 percent of them

now owned by foreigners) were almost three times those spent on

roads, schools and other infrastructure.

NAFTA was only the beginning. The Clinton/Republican alliance then

pushed through the WTO agreement and the subsequent deal with China

that traded off more US industrial jobs in exchange for protections

for US investors in that huge Asian market. Not only has this

produced a massive trade deficit with China and further downward

pressure on US wages, it has also sent some 250,000 jobs from Mexico

to China. The ubiquitous Citigroup, with banking operations in 100

countries, is now busy building its Chinese banking empire--with

Chinese partners.

That well-connected people who move in and out of government and

business act in ways that benefit their class and take advantage of

their contacts to further their own interests is neither illegal nor

new. That's the way class privilege works. Thus, it is unlikely that

Dick Cheney ever ordered anyone at the Pentagon to give a huge

sole-source contract to Halliburton. He did not have to. Procurement

officers already knew the relationship between the company and the

Vice President. And Cheney's promotion of more funds for the military

and for the war in Iraq in particular was bound to benefit the world

to which he belonged--his circle of rich and powerful people who

would always be there for him and his projects.

There are of course important differences between the ways the elites

of the different parties promote the Davos agenda. The preferred

instruments of Rubin Democrats are the economic levers of the US

Treasury, the IMF, the World Bank and other international financial

institutions. Rumsfeld/Cheney Republicans prefer the Defense and

Energy departments. The Rubin mode is certainly less lethal and

probably more effective. Still, Davos relies on the Pentagon to

protect its class privileges with a worldwide web of military bases,

training schools and the always-present threat to send in the

Marines. It's worth remembering that virtually the only section of

Saddam Hussein's law still untouched by the US occupation is its

oppressive labor code.

But the twin pillars of the US superpower--the Pentagon and Wall

Street--are slipping into their own crises and soon may not be able

to provide the military and economic muscle for the Davos agenda.

The crisis on the military side involves blowback from the overreach

in Iraq. Bush, Cheney and Rumsfeld--despite their thick transnational

corporate connections--have created a disaster for Davos. The war has

unleashed an army of enemies of Western modernization that is making

global corporations nervous. Two years ago the wiser heads at Davos

were appalled at Cheney's delusional report on the Bush

Administration's progress in turning the Middle East into a shopping

mall--however much they might have sympathized with the objective.

Today the mess in Iraq has revealed to Davos both the incompetence of

the American governing class and the unwillingness of the American

electorate to make the sacrifices necessary to act as security police

for the world's rich and powerful.

The looming economic crisis comes from the unsustainable US external

debt. For more than a quarter-century, we Americans have been buying

more from the rest of the world than we have been selling it, and

borrowing from abroad to make up the difference. The resulting trade

deficit has been a major engine of global growth under Davos's

management. But common sense and simple arithmetic tell us that even

the United States cannot go on much longer spending more than it is


When the day of reckoning comes, high interest rates and a falling

dollar will force us Americans to rebalance our trade by cutting the

price of what we sell and raising the price of what we buy, lowering

real incomes. The crisis in the nation's trade sector will be

transmitted to the rest of the economy, made vulnerable by

overindebted consumers, overleveraged pension funds and overpriced

houses. Thanks to George W. Bush's reckless fiscal deficits, the

government will have less ability to overcome an economic crisis

through borrow-and-spend, as it did in the last economic downturn.

With the appetite for America's IOUs diminishing, US politicians will

have their hands full dealing with rising energy costs and the

tottering finances of healthcare, education and pensions.

The basics of a harder-times scenario are not much in dispute. The

debate is between those who foresee a hard landing and those who

believe that the world's central bankers will somehow figure out a

way to avoid a global financial meltdown. But hard landing or soft,

even the staunchest supporters of globalization admit that lower

living standards are already in the cards. N. Gregory Mankiw, who as

Bush's chief economist famously praised the offshoring of American

jobs, recently acknowledged that US reliance on foreign savings to

support its consumption means a "less prosperous future."

Financier Warren Buffett reaches the obvious conclusion: We are

headed for "significant political unrest." Democratic Senator Max

Baucus, a staunch free-trader, recently told Chinese business

executives that unless they cut their country's trade deficit with

America "US politics will become unmanageable." New York Times

columnist and Davos champion Thomas Friedman, who also sees the

writing on the wall, suggests dividing political parties by economic

class, with Republican Wall Street joining with Democratic Hollywood

against disgruntled working-class "populists" in both red and blue


But working-class disgruntlement is likely to go beyond Freidman's

stereotype of uneducated losers. The outsourcing and downsizing of

opportunities is already adding to the insecurity of people much

further up the skill ladder. There are signs that the anxiety is

spreading to the business class as well; within organizations such as

the National Association of Manufacturers, the owners of smaller and

medium-sized businesses, who still depend on an American workforce,

are beginning to dissent from the once united front in favor of


Resistance to Davos is also growing in our own hemispheric

neighborhood. Latin American oligarchs who prospered by selling their

countries' assets and people to transnational investors have been

ousted in Brazil, Argentina, Venezuela, Uruguay and Bolivia. In

Mexico, which is having a presidential election this July, a leftist

critic of NAFTA leads in the polls. The Party of Davos may not be

over, but the rest of the world seems less willing to foot the bill.

Here in America, the coming unrest could turn right as well as left.

The Republican Party is hopelessly tied to the multinational

priorities of the US business elite, but its managers are skilled at

stoking nationalist resentment among the working-class victims.

In the two-party system the burden therefore rests on the Democrats'

ability to produce leaders who are not co-opted by the Party of

Davos. Given the current crop, our chances may not seem great. But

leaders are often produced by the times. As globalization's squeeze

on ordinary Americans continues, the political price will rise for

those who continue to give priority to bringing Burger King to

Baghdad over healthcare to Baltimore. It's worth remembering that

Franklin Roosevelt, who was as elite and privileged as one could get,

responded to the economic crisis of his time by becoming--as they

muttered in the best clubs--"a traitor to his class."


Jeff Faux was the founder of and is now distinguished fellow at the Economic Policy Institute. His latest book, The Global Class War (Wiley), was published in January 2006.

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