How To Make Globalization Work
MAI, Part 3

In the last Rant I shocked the world by announcing my two-point plan for economic health and independence for developing nations -- and I made the further rash claim that if a country were to do these two things, it need not fear economic globalization.

Now, it should be understood at the outset that these reforms are not something a nation could undertake lightly. Nor, as Rob Wagner points out, could any existing third-world government (having more interest in transnational finance than in its own people) be expected to undertake them. So (alas) it was implicit in my proposals that they could only be achieved by a democratic (or revolutionary) seizure of control by a nation's actual wealth producers -- its citizens. But so be it. Let's say, for now, that our purpose here is to advise the brave revolutionaries on what economic course to take once they seize control of the corrupt state apparatus. So what were those two points again?

I. Immediately institute the Georgist remedy domestically. Collect the full rental value of land for public revenue, and abolish all other taxes that hinder productive enterprise.

II. Immediately stop making any payments on interest or principal on loans from foreign banks. Make no further payments on these loans.

What could we expect to happen if a nation took these steps? Would it be allowed to proceed -- or would it be judged to be so dangerous to the world economic order that it had to be stopped? And if so, would it be stopped by a military invasion or by the gentle bludgeonment of economic sanctions?

Defaulting on foreign debt would, of course, deny the nation's government any further extension of credit from Western banks, or from the IMF. Wouldn't it be devastating to have its line of credit completely shut off?

No, in fact, it might be a tremendous relief! It is generally conceded that the principal of most third-world debt is already uncollectible, and only remains on the asset lists of banks through creative refinancing -- essentially the granting of an endless series of new loans to make the interest payments on the old loans. In most cases those loans lined the pockets of landowners and corrupt politicians and never added one iota to the nations' productive capacities. And they never will, now -- the governments are merely borrowing to meet their interest payments so they can keep participating in the international credit system.

Nevertheless, the wealth producers in those countires are called upon to repay the loans. They must endure the "austerity programs" that enable their governments to make sufficient interest payments to justify more loans. But since the people never agreed to borrow all this money in the first place, and the loans never benefitted them (yet the payments burden them), how could they not be better off by throwing the international credit monkey off of their backs?

But: even if the loans had been misused in the past, don't developing countries still need an infusion of capital, in order to industrialize and improve living standards? The surprising answer is that they don't. Not at all, not in any essential part of the nature of things. Why, after all, are "underdeveloped" countries "underdeveloped"? Was the United States ever "underdeveloped?"

No. In its early stages it was the very land of opportunity. Population increased, markets grew, innovation flourished. The US economy didn't start to stagnate until all its land became monopolized.

Fine in theory. But how will a backward, neocolonial basket case like La Bonita (our hypothetical Banana Republic) manage to create its own capital? Here, we must look at the effects, foreign and domestic, of its adoption of my first proposal: that it enact the Single Tax. For those of you who are just tuning in, that amounts to the public collection of the rent of land, in lieu of all other taxes on the production of wealth. That's right: it means the elimination of income taxes, sales taxes, value-added taxes, and tariffs on imports (and that last one could well have been the sole source of revenue for a government like La Bonita's). It also means elimination of the hoarding of natural opportunities and the attendant (forced) unemployment and low wages.

As you can well imagine, this would have a profound stimulating effect on La Bonita's economy. Vast amounts of hoarded land would become available for use, providing the peasantry with viable alternative employment, and thus raising wages generally. This would stimulate demand for all manner of goods and services, with the attendant creation of jobs, incentives, innovation, all that free-market stuff that the US claims to want -- and all of this rampant free enterprise would proceed completely unhindered by taxation. The rising land values created by the improved economy would not merely inflate a senseless real estate bubble; they would provide the funds for the improved infrastructure (and the pollution control mechanisms) that a 21st century developing economy would need. Released from the shackles of taxation, enhanced by well-funded public infrastructure, capital formation would be a snap. Who needs the IMF?

But -- alas -- under the Multilateral Agreement on Investment (MAI), and various other rules of the World Trade Organization (WTO), monkey wrenches would be thrown into these works. You see, a major part of international investment is in real estate, and such investments are explicitly protected under MAI. Under time-honored and common-sensical principles, the rent of a nation's land belongs to that nation's people -- but not under MAI. Investors buy land in order to realize a "capital gain" as the global economy heats up its value. For a nation to try to recapture that socially-created value would amount to a "taking" of the most important variety of international investment that the MAI is designed to protect.

The immediate consequence of this would be trade sanctions. La Bonita would be removed from the "most favored" status of every single WTO nation; each would be, essentially, required to slap its most severe tariffs on La Bonitan products. Soon, La Bonita would find it virtually impossible to sell its products abroad. Domestic prosperity would increase demand for imports, however -- and remember, imports in La Bonita are now tariff-free. Soon our plucky little republic would be facing a huge trade deficit. With its exports nixed by WTO retaliation, how will it get the foreign exchange it must have to pay its debts?

It will need to make some deals. (And here is where the US Marines might be getting orders to rehearse their invasion scenarios.) Why? Because, let's face it, there are other countries in La Bonita's situation. There are plenty of other nations that would love to shrug off their foreign debt. There are plenty of nations who feel ill-served by the trade deals they have been forced to accept in order to be players in the new world order. So perhaps they would consider this possibility: La Bonita's is turning its economy around, because of its enlightened public finance policy. But, because they have defaulted on their foreign debts and transgressed the edicts of the WTO, they are having trouble finding export markets.

You -- a fellow struggling, "developing" nation saddled with massive foreign debt and declining living standards -- could let your consumers buy La Bonitan products, tariff-free, at the cost of your good standing in the WTO. Then, of course, your export markets would disappear. But what of it? Are you not staggering under the weight of debt to the North? La Bonita threw off their debt, and they are surviving -- in fact, they will be doing quite well, if you join with them in thumbing your nose at the WTO.

There could well be a much more palpable domino effect than what was threatened by the Red Menace that the US was trumping up in the 50s and 60s (and 80s). The Marines could see some action.

But that might actually be hard to sell at home. Cold Warriors could point to a communitarian society, opposed to personal liberty and private property -- a clear and present enemy to the values we hold dear. But nothing like that would have taken place in La Bonita and its allies. No, they would have instituted a free-market, free trade reform that abolished taxes on sales and income. Would we actually be able to rally support for stopping that sort of thing, by any means necessary?

Lindy Davies, March 15, 1998


What Folks Have Been Saying



Interesting. Sounds very Jeffersonian in many respects, which I like.
The Agrarian
US - Monday, March 16, 1998 at 22:48:41 (EST)
Why do you want to fix the international financial system? It doesn't seem broken to me.
Max Schmoo <
max@saxfone.com>
Brooklyn, usa - Wednesday, March 18, 1998 at 12:12:01 (EST)
please elaborate on the jeffersonian connections
maximus
- Wednesday, March 18, 1998 at 15:40:21 (EST)
Two thoughts come to mind. First, if the US can afford to forgive $11 billion to Egypt in order to get support for the Gulf War how can we not afford to set up a fund to bail out our closest Latin American neighbors from the crushing debt that they struggle under? Would this not be a much better strategic use of money than sending billions more to the IMF? Secondly: Why cannot US foreign policy be managed more efficiently in our own hemisphere and in such a way as to actually foster the growth of strong domestic economies especially in the Carribbean and the countries of Latin America that are currently most vulnerable to unrest and upheaval? Cuba could provide a model for this kind of positive relationship when the current regime finally gives up the ghost. Just some thougnts.
Keith Neal <KeithNeal@srintmail.com>
crouse, NC USA - Sunday, March 22, 1998 at 11:23:44 (EST)
What about more complex problems, like Mexico? Can anything short of military invasion change life for the vast majority of the campesinos and street dwellers of the D.F.? Any ideas?
Keith Neal <KeithNeal@sprintmail.com>
crouse, Nnc usa - Sunday, March 22, 1998 at 11:26:34 (EST)
Could it be, Keith, that you are confused about US foreign policy objectives? I think it is evident that foriegn policy dollars would be better spent the way you suggest -- but only if the US's goal is peace and prosperity among its Latin American neighbors. I suspect that the points you raise are not lost on US foreign policy makers. If I'm right, it follows that the US has no current interest in invading a place like Mexico, because corporate interests are sufficiently well-served by the regime that's in place there. Y'know?
Lindy Davies <lindy@henrygeorge.org>
- Tuesday, March 24, 1998 at 12:57:50 (EST)
At the turn of the century, there was a convergence of anti-imperialism and the "single-tax," among such minds as Mark Twain and a host of others:

http://www.accinet.net/~fjzwick/ail98-35.html

This lends some evidence that the underlying philosophy of the collection of land-rent is inherently decentralist, perhaps even to the point of anti-nationalism. It is also clearly and consistently pro-free trade.
Al Date <Al.Date@Eng.Sun.COM>
- Wednesday, March 25, 1998 at 08:56:41 (EST)


I luuuuuuuv you people... Hey, I can't get to chapter 6 of progress and poverty. The transmission of that document gets jammed.Paalllleeease see if you can find out what's wrong with it. I really want to continue reading. Otherwise if you know of any way I can help with getting this stuff out let me know...I am with you. Bobbo
Bob Gornik <InteleportWbeachnet.com>
la, ca 90034 - Monday, March 30, 1998 at 00:54:55 (EST)
Want to find some answers?


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