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The Party of Davos

The Party of Davos

Publication Date: 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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