The Jakarta Post, 6 November 2002, Opinion & Editorial

Fair trade today: When business undermines life

Yanuar Nugroho,
Director, The Business Watch Indonesia
Lecturer, Sahid Univ. Surakarta
Researcher, Unisosdem Jakarta
yanuar-n@unisosdem.org

Despite apparent global growth and steadily increasing per capita income, the gap both within
and between rich and poor countries seems to be widening. The United Nations reported that in
1960, the richest fifth of the world's population received 70 percent of global income compared to
2.3 percent of the world's poorest 20 percent. By 1989, the richest 20 percent had increased their
share to 82.7 percent while the bottom fifth's share of global income shrank from 2.3 percent to
1.4 percent (UN Development Report, 1992).

OXFAM reports that developing countries with low income cover more than 40 percent of the
world population, but they can only access 3 percent of the world market. The rich countries
export goods and services valued at US$6,000 per capita, while that value in developing
countries is only $330 and in low-income countries only $100. And there are 1.1 billion people
trying to survive with less than $1 per day.

Today, of the 100 largest world's economies, 51 are corporations and only 49 are countries.
According to John Cavanagh, Wal-Mart -- the number 12 corporation -- is bigger than 161
countries, including Israel, Poland and Greece. General Motors is bigger than Denmark,
Mitsubishi is larger than the fourth most populous country, Indonesia, Toyota is bigger than
Norway and Ford is bigger than South Africa. If we subtract the gross domestic product of the big
nine economies -- the U.S., Japan, Germany, France, Italy, the UK, Brazil, Canada and China --
the combined GDP of the other 182 countries is $6.9 trillion. Compare this with the combined
sales of the top 200 corporations reaches $7.1 trillion, as the Institute for Policy Studies reported
last year.

How do these imbalances take place?

Reporting on the world investment, the UN Conference on Trade and Development (UNCTAD)
noted there are 40,000 corporations in the world whose activities cross national boundaries.
These firms ply overseas markets through some 250,000 foreign affiliates. It is indicated that the
top 200 global firms account for an alarming and growing share of the world's economic activity.

The world's economic income and wealth remain highly concentrated among the rich. The UN
reports that some 85 percent of the world's GDP is controlled by the richest fifth and only 15
percent by the poorest four-fifths. Thus, the poorer 4.5 billion people in the world account for only
$3.9 trillion of economic activity -- a little over half the combined revenues of the top 200 firms'
$7.1 trillion.

So the rich get richer and the poor get poorer.

And growth-centered economics is pushing the regenerative capacities of the planet's ecosystem
to the brink.
What is at the heart of globalization? It is the "ism" called neo-liberalism, in which all humans are
believed to be homo economicus and that the economic motive in human life is the only motive
that drives humane livelihood. This is very central to understand, in addition to another central
idea of globalization -- that capital has to be freed from the social survival so that it can freely
move everywhere to seek and accumulate profit.

Thus any discourse on globalization assumes (and therefore explains and admits) one thing: That
capital power has been so enormous and is mostly taking over the legitimate power of state
apparatus and the sovereignty of communities.

Even currency speculator George Soros has been quoted as saying, that insofar as there is a
dominant belief in society today, it is the belief in the "magic of the marketplace".

"Laissez-faire" capitalism holds that the common good is best served by the uninhibited pursuit of
self-interest. Yet, unsure of what they stand for, people increasingly rely on money as the criterion
of value. The cult of success has replaced a belief in principles and society has lost its anchor, as
Wayne Ellwood wrote last year.

The "magic of the marketplace" was formulated when Adam Smith published The Wealth of
Nations nearly 250 years ago. But Smith believed that capital would be best invested locally. His
vision of an efficient market is one composed of small owner-managed enterprises located in the
communities where the owner resided. It is a market that has little in common with a globalized
economy today, dominated by massive corporations without local or national allegiance,
managed by professionals who are removed from real owners by layers of investment institutions
and holding companies. Smith's The Wealth of Nations has become The Wealth of Global
Corporations.

Globalization is being supported by three pillars. First, it is the working of business and trade
across boundaries. Second, the players are the trans-national and multi-national corporations.
Third, the underlying ideology to keep the business and trade on their roles is "consumerism". It is
within these three ideas that the term "free" (whether put before "trade" or "business") gets its
legitimation regardless of whether it would be practiced fairly or otherwise.

When General Motors trades with itself, is that fair free trade? UNCTAD reported in 1995 that
one-third of world trade is simply transactions among various units of the same corporation. This
figure has remained steady for the past few years, and is higher in certain countries. In 1993, the
UN calculated that of the $3.3 trillion in exports of goods and services in 1990, roughly $1.1 trillion
was intra-firm trade. Two-fifths of Japanese exports, for example, are intra-firm (UNCTC, 1993).

OXFAM reports that when the developing countries export their yields to the market of rich
countries, they have to face tariff barriers four times higher than those faced by the developed
ones.

These barriers have cost those developing countries $100 billion per year -- almost two folds of
the amount they receive as aid. If Sub-Saharan Africa, East and South Asia and Latin America
could increase their international export market of 1 percent, theoretically they would be able to
alleviate the poverty of their 128 million people. The current trading system promoted by WTO
nowadays cannot be continued. Instead of "free trade" it is the time to make trade fair.

Therefore it is most urgent to democratize business and economic power. And at the very idea of
fair-trade movements is the democratization of business practices and the control of capital flow.

No one can reject this basic argument. Yet it is not easy to admit either. This is because we
cannot understand reality -- we are entrapped in the old-fashioned analytical reflection. Regarding
globalization, we still think that state power is superior to other power centers. Yet, rising
inequalities between those who benefit from global economic activity and those who are left
behind shows how outdated such assumptions are.

Similarly this "epistemic-lag", the gap between analysis and reality, is still there regarding the
term "fair trade", which still entails a belief in the magic of the marketplace. If trade undermines
life, narrows or impoverishes it, it destroys the world. If it enhances life, then it can change the
world.

But, how would we address the working of the marketplace in this world captured by economic
power? Is it still "magical" -- or manipulated by the capital and market interests? If we can make
trade fair, we must ensure that we do not suffer from the gap of reality and analysis. Otherwise,
fair trade will be left out from a history drawn up by victors in our economic war.

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