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Globalisation and democracy

By John Ralston Saul

Looking for the public good

John Ralston Saul

This is the transcript of the lecture John Ralston Saul delivered in the Clancy Auditorium at the University of New South Wales in Sydney in January 1999, co-sponsored by the Evatt Foundation and broadcast on ABC TV.

Opening remarks

Well thank you Bob [Ellis]. That was quite wonderful, and we did have a good talk. It was sober, and the ocean was good, and I haven't won any prizes tonight but I nevertheless want to thank a few people: the Evatt Foundation, the Social Change Media organisation and the organisation which really organised me coming here, which was Australia's Environmental Education Agency, peak agency, the Australian Association for Environmental Education.

I think that it's true that if you're all here tonight not doing something better, it's not really because of me. It is really - it might be because of Bob actually - it is because something's happening. I do think that the last 12 months have been key months in the beginning of the end of something. It doesn't mean we're turning a corner to something good. It just means we're turning a corner. It's up to us to decide what that corner is going to be like, and where it's going to lead us.

Globalisation

We could be here for all I know to celebrate the glory of globalisation: it's possible, maybe another kind of globalisation. I'm sure there are rooms, sadder rooms these days, but rooms filled with people who are theoretically celebrating that glory. They're going to be doing it in a small town in Switzerland in a few days, where they all gather together to celebrate the glories of globalisation once a year.

And we'd be celebrating in that case the end of the nations; that governments were finished with that terrible interference that governments have in the freedom of men and women. We'd be talking as if the destruction of the power of government was a victory for the citizens - a bit of logic which has always somehow escaped me, since governments are in fact the only structure of power which citizens actually have.

In those conversations, it's as if all nations, all nationalism, when organised, was murderous. As if all governments were somehow either the government of Serbia, or about to become the government of Serbia. And therefore we should all celebrate the end of them so that we can all indeed go to the beach and not have the serious conversation, and just go to the beach when we're not making money, or trying to, or being unemployed.

This whole approach towards the end of a nation as a victory for citizens rests on an essential misinterpretation of what the individual is, of what individualism is. It completely puts aside the real understanding of what an individual is, of what individualism is, which is to say a responsible job for the citizens, responsible individualism. Individuals working together as citizens inside nations, the democratic citizen.

In its place there is a very narrow, uninteresting definition of the individual, which was refined in the 19th century - and it existed before that - which says that the individual is somebody who exists only because they're ultra self-interested, and they only act out of self-interest and therefore out of competition with each other, whether that competition is for money or with guns or whatever.

It's as if we're all, as a poet said, the servants of greed. When the poet wrote that the phrase he was of course talking about a much smaller group of society. It goes without saying that in a society that doesn't believe in the democratic nation, this kind of individualism will be passive, it will be a tributary, a passive tributary of the economic forces which apparently are leading society, in fact inevitably leading society. In fact everything important will seem to be inevitable, and only the unimportant things will be left in our hands. Globalisation has been presented to us, sold to us for 25 years now, because that's when it first - 25 years ago - got a hold of a government, which happened to be the Chilean government interestingly enough. It has been sold to us as something which is and will be inevitable.

Now it's curious because those same people are the people who keep saying democracy has been winning; there's more and more democracy in the world, thanks to globalisation. But how can you have democracy if everything's inevitable? What's the point in voting, what's the point in choosing? I mean if everything's inevitable why would we waste our time in being citizens? I mean if everything's inevitable let's just get some nice sort of, you know, not too nasty dictator to look after things: to look after the detail since everything's going to happen anyway, and all we're doing is negotiating half percentage points in the directions that we're going to take. It's not worth not going to the beach if that's all democracy is.

Personally speaking it's a very tiring idea, this idea. If you live in a democracy, it's very tiring to be always surrounded by great and high abstract generalisations, which are in fact the most banal and naïve cliches dug out of second rate movements of the late 19th century. And one ends up inevitably in arguments which are, excuse me for using the word like this, 'Manichean'; you know, an old philosophical movement where there's good and evil and good is defined by the people of power inevitably. What is good? Good is being free. What is free? Free is not having a government; it's not having regulations. What is cowardly? What is evil? What is wanting to be protected? Obviously if you want to be protected you're cowardly, you're afraid of freedom. You see the logic, the Manichean logic, and what it leads to is what I would call the hypnotic clarity of false choices.

Democracy

Democracy isn't about abstract false clear choices. Democracy is extremely complex. It is extremely concrete. It's about constantly choosing, finding, developing practical options within the common good; constantly searching for how to express in a practical way the common good, not in some grand way, some grand and absolute way, but in a very comfortable way. How can the common good be put in place?

We constructed democracy over a period of 250 years, the modern version of it, we constructed it inside the nation-state. There's all sorts of horrible things that happened inside all of our nation-states. Fortunately, most of the developed countries have managed to put a lot of those ugly things behind us now. But the positive thing that we were doing was developing the idea of the citizen, developing the idea of a common good, developing the mechanisms of democracy. And so if you remove power from the nation and put it in the global arena without compensating for that power that has been taken away from the nation, will the equivalent power for the citizen also be transferred to the international level? If you transfer the power without the power of the citizen, then you're not weakening the nation. That's really a secondary thing. You're weakening democracy.

Superficially it's true there's never been so much democracy in the world; there's never been so many governments calling themselves democratic. The reality is that year by year over the last couple of decades we have actually been weakening the reality of the democracy. There have been some good stories, some happy stories. There's been movement in the environmental area, for example. But when one looks at the basic mechanisms of power, in fact democracy - on the big questions - has been weakened over the last 25 years. Battle after battle won over the last 200 years has been reversed in the last 20 years, or is in the process of being reversed.

The very fact that anybody could believe that a democratic society could be led by economics - by self-interest - by definition demotes the citizens and their civilisation to little more than decoration. What that means in practical terms is that since 1945 we put in place in the international arena dozens and dozens of international treaties, hundreds of international treaties, but the only ones which are really binding are the economic treaties. So what we've done has taken the economic power out of the nations and put it at the international level. And we've left all the other powers, the binding powers, inside the nations, which means we've put all the other, non-economic powers at a severe disadvantage.

And that's why we're finding today that democracy feels as if it's been turned on its head; as if it has no teeth, as if it has no power, as if it only can react: because we've engaged in (since we elected a number of governments, all of us), we've engaged in a form of almost unconscious suicide, by allowing these enormously important powers to escape from our hands to the international arena without before, let alone at the same time, getting equivalent binding powers for the common good at the international level. The result is disequilibrium, the disequilibrium which we're living at the moment. The result is an artificial creation of instability, the instability which we're living.

Competition and deregulation

Now of course we're told that, 'yes, we're going through a difficult time'- we've been going through it since 1973 actually - 'but there are great advantages once we get through this difficult period, and the great advantage is that we will have created competition, a new kind of competition and that competition will produce prosperity'. But actually when we look back at the record of this argument, the practical record, we find that it has failed, not according to some socialist critique, or even some small 'l' liberal critique; it's failed according to its own critique, its own claim for what it was going to do.

The merger mania which goes on and on and on is the sign of the disappearance of competition. As we deregulate, the mergers increase, which means there's less and less competition. At the national level, at the regional level, but also at the international level. I mean - these are numbers which I'm sure a lot of you know - that today five firms control 50 per cent of the global markets, in aerospace, in electronic components, automobiles, airlines, electronics and steel. Five control 70 per cent in consumer durables, five control 40 per cent in oil, personal computers and media. Fifty-one per cent of the largest economies in the world today are corporations not countries. Now, Canada is number eight. I believe - I don't have it with me - I believe Australia is between 10 and 15, but I have to warn you, since it's a very competitive country, that Walmart is number 12. So I don't know where you stand vis-a-vis Walmart.

The point is that none of this - none of this loss of competition, which is a form of loss of freedom, to say nothing of a failure of capitalism by its own terms - none of this is inevitable. It's the conscious creation of us somehow as citizens allowing the treatment of economics as the leader of our society, of our societies. We haven't found the way not to treat economics as the leader of our society. It's been disastrous for competition, disastrous for capitalism. It's led us into those terrible roads - monopoly and oligopoly, which I can't even spell, which is all around us. It's bad for prosperity, the prosperity which is needed for their model, their model which is dependent on consumption. It's disastrous for their model of consumption.

Why? Because the sales of 200 companies represent 28.3 per cent of the world's GDP. I always wonder who does these numbers. You know, I just take them out. I have a theory. If you can take a number, a statistic, and you can either halve it or double it and it's still shocking then you can use it. So 200 companies sales represent 28.3 per cent of the world's GDP, and those companies employ 0.75 per cent of the workforce, less than one per cent of the workforce.

So you don't have to be left-wing to be horrified by that. You know, any decent conservative capitalist would be horrified to realise that so much production was in the hands of people who provide so few jobs, because it's that production which provides wages to people which allows them to consume. So it's their model that's failing, not the socialist model, not the social democratic model, not even the small 'l' liberal model; it's the economic rationalist model which fails by its own definition.

And what's more, these large corporations, which we call transnationals, usually are extremely bad for their market place. Why? Because these organisations - and all of their work on this area, on economics, tells us this; I'm not using anybody else's work; I'm using conservative statistics here, right-wing statistics, rather. Every time you do statistics on corporations, you find out that the transnationals take the fewest risks, do the least long-term investment, do the least R&D (compared to small real capitalist companies), are the most top heavy in management, are much more bureaucratic than government departments, and have much more expensive bureaucracy than government bureaucracies. They reward mediocrity - that's the purpose of business schools. It doesn't matter how badly they're doing, they just keep hiring more people who come from the same training as themselves, and that's called - it used to be called nobility - it's now called business schools and mediocrity. It's certainly not meritocracy.

Technocracy and capitalism

And these technocracies, these transnationals, do not meet any of the academic definitions of capitalism. They are not capitalistic. The people who have been lecturing us for 25 years, a quarter of a century, on the need to be capitalistic and to take risk, these people themselves work for corporations which are not capitalistic. After all, the transnationals are run by technocrats, business school technocrats, bureaucrats, managers, employees. These people don't have any shares, they don't risk anything. The only shares they've got they got either free from the company, or by borrowing money from the company which your national law may or may not allow them to do without paying interest. I mean that's not exactly what Carnegie or Rockefeller meant by capitalism. It's called really lazy bureaucracy and it's big and expensive, and they're not owned in a capitalistic manner. The ownership of the means of production - the right and the left agree on these definitions - they're owned basically by two groups.

They're owned through the stockmarket by people who buy and sell shares - you know probably a lot of you in the room speculate, there's nothing wrong with a certain amount of speculation; you buy shares, you sell them, you hope to make a profit to pay for, I don't know what, going to the beach; it's a theme. But you're not actually buying these shares because you want to control some major corporation and be there on a regular basis; you know you're not going to be; you're just hoping to make a few bucks. It's called speculation. You've nothing to do with those corporations in a capitalistic manner.

And the other large group are the funds, the pension funds etc, which are great, but they're bureaucratic organisations and they're not buying and owning in a capitalistic manner. So they aren't capitalistic organisations; they're sort of like large icebergs floating around the oceans of the world bumping up against countries and doing damage to them, with no particular direction, no particular agenda; just the agenda of getting bigger and bigger, and providing retirement for this very large bureaucracy which sits on top of the iceberg causing it to melt a bit.

How do they live? Since they don't take risks and they don't do R&D, and they don't have much imagination, and they don't have any capitalistic characteristics. Well, they're rather like draculas. They buy a lot of real capitalistic companies that are really owned by people who have shares and take risks, and are doing R&D and taking risks. And they buy them before they get too big, so they're not too expensive. And it's like getting an injection of fresh blood, and the transnationals suck the blood out of them. They buy two or three, and after a couple of years they've sucked all the blood out and they're feeling rather sloth, so they buy some more.

And in the process they stop our economies from developing, our mixed economies from developing, because they're buying all these companies much too soon. These could be the big companies of the future, the medium big companies of the future. They're buying them too soon, and thereby aborting in a way the development of our economy. It's one of the main causes of economic crisis that we're in, that these transnationals are buying up the real intelligence and force in our economy.

They keep themselves going by pretending that they're being capitalists. Mergers, acquisitions, total inflationary activity which has nothing whatsoever to do with capitalism, with investment, with creation, with risk. In the United States alone in 1998, two-and-a-half trillion Australian dollars was spent on mergers and acquisitions - totally inflationary activity which, on top of being inflationary, actually is done usually by indebting the company bought, and that debt actually holds those companies back, when they're merged, from doing anything interesting, because they have much larger debt ratios than any government.

They spend all their time attacking the debt of government, but it's the debt of the private sector which is out of control. They live by encouraging privatisation, which allows these extremely lazy and not very imaginative people to get a hold of fully developed utilities which don't require any risk or imagination, and they're able to sit there and basically clip their coupons as you flush your toilets. So 'we're big through privatisation'. There are many ways of moving if you think governments are too big; moving things like water out of government into a sort of independent area of the public sector, where there can be a rotating board of directors of a non-profit organisation and the board would be citizens. That can be done if you're worried about how heavy government is. But by moving it into the private sector, you're bleeding real investment capital from the private sector; you're rewarding laziness, and you're rewarding these managers who go about in capitalistic drag.

Directionless corporations, whose only purpose is to avoid collapse through constant expansion, are a classic method - a situation - which inevitably prevents sensible self-examination. The purpose that they have - avoid competition and, indeed, the rhetoric which they paid for, the free-market rhetoric which they paid for - is in fact the reality of the lives that they live.

Free trade and protectionism

Look at the whole question of trade, 'free trade' as it's called. What is being called for is not free trade as opposed to protectionism. We haven't had protectionism of any consequence for 40 years. I mean the level of tariffs has been nothing for 30-40 years, and it's been less and less every year because of various international agreements. It's free trade versus regulation.

But what we've known for 2,500 years in the West is that, if you want to have prosperity, you have to have extremely strict straightforward regulations which will bring the kind of stability, long-term stability, long-term competition, which will bring prosperity. We know that if you don't have that kind of regulation you get boom and bust cycles which end up in terrible depressions. We've learnt that already once in this century, in the '30s, and it's as if we've forgotten it.

A very famous lobbyist courtier said last year that history shows us quite clearly that trade and direct investment are powerful catalysts for economic liberalisation, democratisation and the improvement of domestic social conditions. And I hope you listened to that really important statement, for if you actually look at history in a calm sort of way, that isn't what history tells you. It just isn't what history tells you. Trade does not necessarily lead to all those sorts of improvements. In fact, the principle which underlies this theory is that all trade is good, all investment is good, we must do as much of it as possible because it will be good. It will produce democracy. It will produce liberalisation. It will produce better social conditions. But when you actually look at history, what you find is the exact opposite.

For example, this person has also said - as many do: you'll hear it on a regular basis, probably once a week or once a day if you spend your time listening to the radio and television - you'll hear as part of this argument that "people who trade with each other don't fight each other". And you've all heard this. It's a central argument of the last 25 years. And yet you look at the history of the British empire and you discover that the whole core idea of the British empire was you move in and start trading, and then when you're not getting what you want in trade, you go in and beat the hell out of them. It's trade which led to the construction of the British and the French and the German, and the Italian empires.

The war that led to the independence of the United States - the UK-American war - was a war about trade. The Falklands War was really a war between 250 year-old close trading partners. Argentina's most loved trading partner was Britain. The US-Iraq war a few years ago was all about trade and oil. The United Kingdom went to war twice in this century, world wars with Germany - Germany, their closest industrial trading partner. Simlarly with Italy, Yugoslavia, and the Sino-Japanese war at the beginning of this century. Hannibal, you know, Hannibal tried to take Rome. Why did he do it? It was about the wheat trade of course. So if you were going to make the kind of banal simplistic generalistic ideological argument that we've been forced to listen to for the last 25 years, then you would have to argue that the principle or leading cause of war is trade.

I'm not going to make that argument, even though it seems to be related in some way. What in fact I am saying by giving you that bit of history is that economic dissatisfaction or greed, or dissatisfaction arising out of trade, leads to war. This is not an argument against trade, but an argument which says that interest-based societies, societies which perceive themselves as being interest-based, end up in violence. This is a natural outcome of the natural imbalance of markets. So if you give in to the natural imbalance of markets - you'll notice that I'm not going to get a Nobel prize for economics by saying that - if you give in to the idea of a natural imbalance of markets, you will indeed have war because of trade. What prevents war isn't economics. What prevents war is a shared understanding of the common good. That's not an idealistic idea. It's a practical idea.

Looking over the centuries, we know that countries that don't go to war with each other are countries which have worked very, very hard to find something which they have in common, and to find practical ways of evoking what they have in common. That's what France and Germany took out finally, rather late in the day, out of the Second World War; that they simply couldn't go on killing each other over economic territorial military racial reasons; that they had to in fact think about what they had in common in spite of all that.

And even in the Manichean idea of protectionism versus freedom, free trade is a dubious idea. When you talk about the role of competition, Joseph Stiglitz, senior vice-president and chief economist of the World Bank - see, all my quotes are very respectable - just last year said regarding competition and free trade: "the usual argument that protectionism itself stifled innovation was somewhat confused". Yeah, they gave them all those Nobel prizes. "Governments could have created competition among domestic firms, which would have provided incentives to import new technology. It was the failure to create competition more than protection from abroad that was the cause of the stagnation." I'm sorry it's really boring, but it's also interesting in a funny kind of way. "The trade liberalisation that's going on is neither necessary nor sufficient for creating a competitive and innovative economy." I didn't say that, Stiglitz did.

Commodity-trading nations

Let me go a little bit further and say something that he probably wouldn't have said: not all trade is good. Amazingly, the concept that all trade is good isn't actually very well based in reality. Wrong kinds of trade can create, for example, dependency. For the last quarter century, every year we've had growth in almost all of the developed countries, growth in trade. Every year we've broken new records, and I think Australia is just like all the other countries. And these enormous growths in trade are the result of those international economically binding treaties that I mentioned earlier.

For countries like Australia and Canada, Brazil, Argentina etc, there has been a big growth in non-commodity trades, which a lot of people say, well, 'we're diversifying'. But when you actually look at it, what you discover is that there has been a big growth in non-commodity exports, but there's been usually an even bigger growth in non-commodity, non-natural resources, imports. And so in fact we have deficits, countries like Australia and Canada aren't usually in the cutting edge of non-commodity trade areas, which means that we are as dependent in reality if not more dependent on commodities than we were a quarter of a century ago.

You look around: why the crisis today? I mean, they must have noticed that things are happening out there. When there's a major crisis, who's in trouble? Well, if you listen to a lot of the neoliberal economic rationalists, economists, they're saying "the commodity-dependent exporters" are in trouble because - you hear the word dependent, that's a quote - they're saying that somebody could be dependent on trade and thereby weakened from exporting too much. Funny, they didn't tell us about that. They told us we just had to keep on exporting. Apparently if you don't export the right way you can get into deep trouble, and we're in deep trouble. They told us all trade was good, but it turns out that it actually depends on the circumstances of the trade, the quality of the trade, the variety of the trade, the geo-political spread that you're involved in. And the worst thing that you can do is be dependent on the export of commodities. It's funny you know, that's something we knew in the 1950's and 1960's. We knew that. We knew it was a problem. But we were told that it wasn't going to be a problem anymore.

Look at the early 20th century. You look at the trade dependent countries, particularly the commodity trade dependent countries, you'll find the breakdown of country after country after country leading into the First World War was as a result of their over-dependence on exports. And particular the countries dependent on the export of commodities. The Latin American disaster, which they were only just beginning to recover from, began at the end of the last century and the beginning of this century. Juan Peron came to power in Argentina precisely because Argentina was too dependent on exports, on free trade, on the exports of commodities. The countries in trouble today are, indeed, from the trade point of view, Argentina, Brazil, Chile, Canada, Australia, South Africa, New Zealand and a few others. The list of our problems if you look at them are absolutely typical of the historical list of problems faced by commodity dependent countries.

How do we in Australia, in Canada, avoid Juan Peron. The way we avoid it - Juan Peron - is by consciously intervening in the economy; in the society in order to create, artificially, a middle-class society. We completely deformed the effects of the market place in order to create the society which you live in today. We broke all of the rules which are supposedly inevitable rules in order to create the society we live in today.

Harold Innis, the great historian and inventor, really, of the 20th century philosophy of communications, said "civilisations can survive through a concern with their limitations". They're not grandiose,; they're concerned with their limitations. And economics: what you need is an economics which derives its laws from the history of the place, rather than deriving the place from a set of all-purpose laws formulated elsewhere.

Today Australia exports somewhere between 20 and 25 per cent of its GDP. Canada exports 35.2 per cent; actually it's almost 40 per cent now of our GDP, so we're in a worse position than you are. What's called a success is actually our problem. It's interesting to look at the countries who aren't in trouble. The United States exports 8.8 per cent. Europe exports 10 per cent. They're not export-dependent. They have a much better balanced economy.

So have we in fact been engaged in a brilliant invasion of the world market place, or have we in fact been giving in to laziness and becoming dependent in a way that we were smart enough to avoid in the 1920s and 30s when Argentina was not smart enough to avoid it? We were told that unstructured trade would bring diversity, but if you listen carefully what they said was that unstructured trade would allow people to succeed at their strengths, and of course what are the strengths of countries like Canada and Australia? Commodities. So in fact by moving in to an unstructured scenario, increasingly, we trapped ourselves in the commodity trap.

Distribution of wealth

Remember something very important, and that is that societies have shapes. A middle-class democracy hopes to be shaped like a diamond standing on its point, you know, a little bit of rich at the top, unfortunately some really poor at the bottom that you're always trying to deal with but you never manage to deal with at all, and then most of people are there in the middle.

The 19th century pure capitalist model of society was a pyramid, concentrations of enormous wealth in a small group at the top, a not very big middle-class in the middle, and an enormous percentage of the population in the bottom part of the pyramid. And the job of the not too big middle-class was to sort of act as a go-between: on the one hand carrying money back up to the top, and orders down to the bottom. By allowing economics to move back into leadership in our societies, we began a process which would take us away from this attempt at the diamond standing on a point, towards the pyramid. And, indeed, whenever you see those numbers that say income disparities are growing, the middle-class is shrinking, all those numbers, they're all about taking a diamond and turning it into a pyramid. That's what's happening to us. We're moving away from our social victory, towards the disaster which we avoided earlier in this century.

Now it may be that in some countries, even, for example Chile, by going to the pyramid - because it was actually almost a diamond before Mr. Pinochet came to power - that it may indeed be the case in some developing countries that you raise the poorest of the poor up higher than they were. But the problem is that you've gone up a half or two per cent in the bottom, and when that sort of balloon, pyramid - sorry two images - rises, of course we all know in economics it falls, and when it falls it's not falling with a small percentage of the population at the bottom. It's falling with most of the population at the bottom. So it's a disastrous form of society, a very dangerous form.

There is an obligation when you live in a democracy to diversify the types of trade you'll be involved in, diversify your markets, your production, your internal-external balance, develop your internal markets so you're not dependent on exports. But in order to do all of that you need an industrial policy. Funny thing, for 2500 years, all great civilisations have had industry policies, trade policies, regulations. Athens had one. Rome had one. Remember that's what Hannibal was mad about: the industry policy. No sophisticated civilisation in the history of the world has existed without an industry policy. Only in the last 20 years have we discovered this astonishing thing; that an invisible hand is going to reach out of the sky and remove the necessity of an industry policy.

Education and democracy

The crisis that we're in is very real. The technocratic corporate community is responding to this crisis with some very interesting solutions - slip into commodities, concentrate on speculation, work on mergers, as in the 1930s. Go back and look at what they said in the 1930s: cut red tape and cut taxes, those were their two main policies during the Great Depression. Now, in all of that, there's nothing positive, there's nothing creative, there's nothing new, there's no policies, there's a total lack of imagination, there's mediocrity, and, of course, there is an attempt to ignore the fact that when you cut taxes you do automatically cut public policy.

They say governments can no longer act because everything's inevitable. They say that it's no longer possible to have governments like the government that you had here with Don Dunstan - Bob Ellis called it, I think, "a wistful Athenian administration". It's no longer possible to have governments that actually have ideas and do things; a government like Gough Whitlam's, which I understand marked the way the society would move for two decades. They can't exist anymore because everything is inevitable. You can't come to power and think about what you're going to do. You have to come to power and administrate the details. Governments of ideas are finished. What matters is efficiency.

In other words, democracy no longer matters. And what's worse is that, in saying all of this, they're saying that government equals bureaucracy in the negative sense of the word. When in reality government can and should equal the expression, the practical expression of the common good. There's a very important revelation in all of this; a revelation which means that those who are arguing for globalisation actually don't believe in it. And you can find this in their suggestions for the reforms of education.

They keep saying that, what we have to do is get jobs for the kids. Right. And the way to get jobs for the kids is to do away with all this abstract stuff, airy fairy stuff, and bring in some solid vocational training. And even at the higher levels it's all moving more and more towards training. Now that's very interesting, because if you actually believe in globalisation, which is to say the opening up of the market place, that would be good because, after all, vocational training means you're teaching people in the middle of a technological revolution. It means you're teaching people to work things which will be obsolete within about five years, about the time they're ready to go on the unemployment list.

This educational reform policy that is happening all around the world is made - unconsciously, I think, because they can't be that stupid - expressly in order to produce long-term unemployment. They can't be that stupid. If they believed in globalisation, well then, what they would want would be students who are coming out of schools and universities who spoke two or three or four languages, who had an intimate knowledge of history, philosophy, language etc,who knew the religions of China, Germany and so on, so that they could go into meeting rooms around the world and negotiate things and make money without making fools of themselves and losing the contract.

What would that mean? Well that would mean you could no longer have these kind of lazy big classes we have. You'd have to get the classes down under about 20 students in the public school system. You'd have to reinforce the public school system. You'd have to hire a lot more teachers. And you'd have to put taxes up. So, in other words, if you are an economic rationalist and you believe in globalisation, the only possible policy you can stand for in terms of education is hiring teachers and raising taxes, which doesn't seem to be their policy.

They argue with people who would disagree with them - or simply 'the left', you'll notice there's a lot of 'it's the left' - as a way of not having to confront their own fears and failures when they're faced by the real global engagement. Is it confidence, is it weakness, is it technocratic facism, is it conscious ideology aimed at undoing the democratic victories of a hundred years? I don't know frankly, I don't know what it is. But one thing is clear to me, democracy of this sort - I don't know Australia well, but I've been here now twice, thank God for me, maybe there'll be a third time later this year - democracies of this sort, middle-class democracies, were built on the basis that the citizens would right away give themselves an egalitarian based public education system of the highest possible quality. Why? Because it was the only way that they would be able to educate themselves in order to be able to engage in the difficult job, the most difficult job in the world of being a citizen.

And so I really believe very strongly that the willful undermining of universal public education by our governments and the direct or indirect encouragement of private education is the most flagrant betrayal of the basic principles of middle-class representative democracy in the last 50 years.

The international money market

What about that other new trade sector, which they were so proud of until about six months ago, the international money market? We were told that money had become something new. It was now a trade item. It wasn't an inflationary activity. The people who said they were the children, the descendants, of Hume and Smith, turned their backs in reality on Hume and Smith.

Hume: "money is not properly speaking one of the subjects of commerce but only the instrument which men have agreed upon to facilitate the exchange of one commodity for the other. It is none of the wheels of trade, it is the oil which renders the motion of the wheels more smooth than easy."




Adam Smith: "money is neither a material to work upon, nor a tool to work with."

The reality is that the more the money market grows, the more the banks grow and merge, the less service of the type Hume and Smith described, the less service they give. The more they move down this road, this international road, the more they are in effect centres of inflation, a kind of inflation which our statistics organisations don't count.
Six trillion dollars American per day moves around in the international money market. Every serious banker I know tells me off the record that 95 per cent of that is just paper. It's just inflation. It's just moving stuff around in the South Sea bubble tradition.

And in fact the growth of the international money market is one of the principal objects blocking our economies, blocking our societies, impoverishing our societies. It's much more in the way of the economy in a real investment sense than any government could possibly be. And yet those international money markets are not inevitable. They're just the result of public passivity. Look at the explanation for the current crisis: Michel Camdessus, head of the IMF: "this is a system in crisis, a system not yet sufficiently adapted to the opportunities and risks of globalisation". It had a quarter of a century - a quarter of a century is a long time in economic experiment, two and a half times the time Napoleon had, quite a long time, five times the length of a World War, very few people get 25 years to do what they want in this world - and to be in a major crisis at the end of 25 years is sort of a sign that you've blown it! And you should step aside.

A minor contradiction: we were all told we had to pay off our public debt, get inflation down, and de-regulate move into capitalism; now, funnily enough, those are all the characteristics of the South-East Asian countries which have collapsed over the last 18 months. They were all in health, in a completely healthy state according to the economic rationalist definition. The result is a rather confused sound that comes out of various ministers of finance in the developed countries. "We're in uncharted waters". "Turbulent seas", these are quotes. I don't know what they read. Barbara Cartland or something. The fact is that we always have been in uncharted waters, didn't they notice? We always have been in turbulent seas. That's what economies are all about. That's why you have to regulate them. That's the point. They missed the point. But then you know ideology is a form of denial, a denial of reality. It is a profound forum of naïveté.

Economists and the crisis

Now it's quite interesting, I noticed the other day in the Japan Times the following about the crisis in Korea: "the state prosecution is studying whether to punish the nation's former or current top economists for their role in triggering the economic crisis". It's quite an interesting idea. They are the ones who say they're social scientists who have the truth. They're the ones who say they're professionals like doctors. So why shouldn't they be sued for malpractice?

Let me sum up for you what I think the economic rationalist economic theory is, in the words of Horace: "The mountains are in labour and a tiny mouse is born." I think we've come around a corner, I think that the wonderful theatrical thing, which for some reason we the citizens are willing to engage in from time to time, the willing suspension of disbelief, has fallen. We no longer believe in what they've been telling us for the last 25 years.

If you read your own governor of your Reserve Bank, Mr Macfarlane, you find him saying: "if the international capital markets were a smoothly adjusting mechanism that constantly kept the exchange rate in line with the evolving fundament, but this is not what the people observe" - you're the people, he's very good actually, Macfarlane, in all this stuff, so I'm not making fun of him - "they see booms and busts but do not believe the proposition that the market is always right. Attempts by academic economists to persuade them" - you - "that the free market always or nearly always gives the correct equilibrium price are unconvincing. The public scepticism is well placed because the intellectual underpinning of the free market position in relation to asset price determination, the effective market hypothesis, is very weak. In all the exchange rate tests of which I'm aware, the hypothesis has been contradicted by the facts." In other words, the ideology has been contradicted by reality.

Mr Macfarlane, again talking about the fact that markets tend to panic, not balance naturally: the invisible hand doesn't, it turns out, help. And he talks about something called "contagion", which is what I think we used to call panic.

More and more people are asking whether the international financial system as it has operated for most of the 1990s is basically unstable. By now I think the majority of observers have come to the conclusion that it is, and that some changes have to be made.

Remember this is the head of your Reserve Bank, and our minister of finance is starting to say stuff like that as well.The Americans won't admit any of it, or the English. It doesn't matter whether you're the left or the right in power in England. They just can't admit stuff like this because the City is so powerful. We were told that everything was inevitable, there was a natural balance. We did all the things that you've been doing. We took everything apart. We took it apart because they told us it was inevitable, a natural balance, and technology was leaving. And now it turns out that we have to regulate the money markets.

"The most obvious reform here is to do something about the extent to which current regulations allow excessive leverage in financial markets". Suddenly the whole idea of free movement is naïve. Mr Macfarlane: "It is simplistic to insist on the totally free movement of capital in all countries and in all circumstances". Now Mr Macfarlane has to be careful. He has a job. He has to keep your dollar at a reasonable level and ,like ours, it's had some hard times recently. So he's being careful. He's talking about the free movement of capital. But they said that capital was a new part of trade, whereas Mr Macfarlane is purposely excluding trade. He's saying, 'oh no no, it's only capital. There's nothing wrong with trade. It's only the capital markets'. But you can't, sort of for 25 years have it one way, and then suddenly the next day say 'no, no, no we didn't meant it, you know. It's only capital. It's not trade'.

And they're right. There is a relationship between money and economic activity. They are related in reality; not in the way that the globalists have been arguing, but they are related. And the fact is that the problems which we're having in the international money markets are the problems that we're having in the trade markets. Go and ask them in Brazil. Go and ask them in Argentina. Look at the level of your dollar. Look at the level of the Canadian dollar. That's not about the money market. That's about trade itself.

I think that we are at a turning point. I think that we are in a way at a kind of turning point that Tolstoy described in his theory of history, which is all about waves - very appropriate here, sticking with my beach - waves and tides going in and out. Kutuzov retreated as Napoleon advanced, and then when the wave came to its end Kutuzov advanced and Napoleon retreated. Or Vico, the great Neapolitan philosopher who should have been listened to and wasn't, the great humanist who had his inclusive theories of history. In other words what we're seeing is the kind of turning that you would see in humanist theories of history, not the naïve rational sort, which have a linear idea of progress without any memory of what happened yesterday. But the Tolstoyian view; the more careful balanced progress in which technology is not used as a fad. Instead, these are arguments in which, theories of history in which, you look for an expression of civilisation through policy. And policy is used to take hold of technology and use it to advance policy.

The current moment

The situation now isn't that the real force of the wave of globalisation is gone. The momentum of the waves continues, and we haven't yet invented how to stop it or how to turn it around. This is a very dangerous moment. This is the moment when the empty structure which no-one believes in anymore carries on, and when every day that we are inactive as citizens is a dangerous day because it could lead to a radical swing towards protectionism, which is as dangerous - big protectionism - as what they've been selling to us. It could lead to more and more boom and bust cycles, which is what we've been living for the last few years. It could lead to, and we've seen this in all of our countries, the rise of what I call negative nationalist parties. We can fight them down, but you can only fight them down so long if you don't deal with the essential problems that you're facing.

There are some positive signs, Europe and the United States have agreed to coordinate against illegal cartels, and against the dominant positions of the multi-national corporations. Who knows what it really means? The new German anti-cartel director has called for a new European body to regulate cross-border mergers. France withdrew on a clear 'No' from the MAI negotiations. Germany is calling for something extremely important, which is minimum taxation levels for transnational corporations. They don't say it quite that way but that's what they're calling for.

And on the 30th of October, perhaps, if you're a student, the most important event, I think, of your lives took place. It wasn't actually covered in our newspapers. I don't know about the ABC. I wasn't here. But it was very little covered. It was a statement from the Group of Seven in which they basically said 'we're going to bail out the bankrupt developing countries', but the third paragraph said the following, after they got by the money stuff:

we commit to develop and implement international principles and codes of best practice on fiscal policy, financial and monetary policy, corporate governance and accounting and to work to ensure the private sector institutions comply with new standards of disclosure.

That's called international regulation. That's called the end of the globalisation theory as truth. Now, I don't know why it wasn't covered. I don't know, maybe they didn't understand it. Maybe they didn't want to understand it. Maybe they're embarrassed. Maybe the people who wrote it don't mean it. But the fact is they've said it. And you want to know that they said it, because you should be quoting it back to them. You should be using this in your political campaigns.

There are some people who are still happily hand in hand going down to bathe in the global sea, but there are in reality some good people in power, or some frightened people in power who are trying to do something to save us from the global turbulence which we're in fact in at the moment. Their problem is that they're too frightened to admit how big the crisis is, partly because they fear it'll get even more out of control because they believe in the concept of technocratic management, the smooth surface, and also because technocrats have a great fear of admitting error. And it is kind of embarrassing, and they don't lose their jobs.

But the fact is they failed. They've sort of admitted they've failed, and we're at a turning point. There are signs of the revival of democratic energies - the fact that you would come out tonight is a sign of that and I've seen that all around the world. I was just in Chile and in Argentina and various places in Canada and England, and I see everywhere that people are really reaching a point where they're coming out, and they want to say something, or they want to take part. They want to find another way. There's going to be an international human rights court with binding powers in one to two years. The very fact that Mr Pinochet was detained for some time in England, whatever happens to him, is a symbolic beginning of the globalisation of ethics with real power. The Euro is a real step forward. The international agreements on money markets, which are going to come now, they have to come, will throw the energies away from the money markets and into the practical fiscal area of the economy as the crisis continues, which it will.

Conclusion

Let me just finish by saying that we have to remember, I think, that there is a direct relationship between big abstractions and the regression, the shrinking of the public good. Big abstractions are bad for democracy. They're bad for the public good. Democracy is a positive, creative evocation of our limitations, of our reality. It's not natural, democracy. We created it. We put it in place. And I think we've forgotten the energy which it required of our fathers, and it almost sounds like a cliché, but it's what our fathers and our mothers and our grandparents and our great-grandparents used to put in place the basic structures of Australian and Canadian etc democracy, such as the public education system. They fought very hard for that. It didn't come from the top. It came from throughout society, and you don't get to keep things in democracies, just because you got them. You get to keep them because you continue struggling and fighting, giving enormous amounts of your time, boring yourself to death at meetings, trying desperately to get along with people you don't really like.

You know this whole business that nations are about love. I mean it's nonsense. Nations are about the public good and getting along with people who you don't know or love. You love only maybe your wife, if you're lucky, and your children, if you're really lucky. You know, it takes a lot of effort to love someone. So there's an enormous effort required from all of us I think this year, next year, the next decade, if we want to turn this thing away from disaster. Let me just finish with a number of points.

Globalisation as presented and advanced doesn't have to be. It's anti-democratic and is a failed experiment. There is an enormous danger in denying that failure, and denying the fact that markets are not self-regulating. Markets have never been self-regulating. Markets will never be self-regulating. We've been at this for 2500 years. We kind of know.

Democracy was built on the nation-state, and every power removed from the nation-state without a compensating international power for the citizens, is an anti-democratic move, and the primary tool which we require at the international level, I believe, at this point is an international agreement on minimum taxation levels for transnational corporations. Because if you look at the slip, if you look at the slippage, if you analyse the tax base of your country, you'll find that the corporations have moved from paying about 50 years ago somewhere around 45 per cent of the income tax, and they're now probably somewhere around six or seven per cent. That's why you can't afford the public education, that's why you can't afford that Medicare, that's why you're slipping into two-tier health care. And let me say again that is not a left-wing argument. Every decent real conservative of the last 150 years believed that you had to tax the real sources of wealth in order to fund the real necessities of the democratic state.

The social contract is not actually rooted in the nation. It's rooted in the responsible individual citizen, and it's through their activities together that they produce the social contract. None of this has been achieved through the hypnotic clarity of false choices. None of this is done through consensus. Ideology is like consensus. Democracy loves dispute, argument, difference. International treaties based on theories which are not built upon the idea of the citizen are anti-democratic. Democracy requires putting economics, self-interest, which we need, in a subsidiary position: that's the best recipe for stable prosperity. Democracy requires a careful identification of reality and of our limitations; a careful rebalancing of priorities at the international level; binding agreements re the public good at the international level. These are the practical elements which enabled us to build - over 150 years, 200 years, 250 years - to build the democratic nation states, and it's precisely those same practical elements which will enable us to build stable, fair, citizen-based global arrangements.

Thank you very much.


John Ralston Saul is a distinguished Canadian writer. His latest book is entitled On Equilibrium (Penguin, 2002).




Lecture content © 1999 John Ralston Saul

Read more about globalisation and democracy in the Evatt Foundation's new book: Globalisation: Australian Impacts (UNSW Press).