This important analysis from economist Stephen Roach at Morgan Stanley suggests why those interested in the globalization process – errouneously seen by many as purely a function of economic forces – need to pay close attention to the events in North Korea.

As Roach suggests, one of the key drivers in globalization is the ready availability of cheap labor in places like China. While some in the labor movement advocate cozying up to Beijing, the reality is that that regime is helping undermine global labor standards slowly built up by the trade union movement over many decades. Combining cheap labor – artificially cheap because of repression – with new technology and financial innovations has made “globalization” one of the most powerful political enemies of labor since the rise of stalinism and fascism itself.

But globalization is not just an economic process but a political one as well. The the rise of new forms of authoritarianism such as that in the middle east or in places like Venezuela are a kind of “blowback” against globalization and threatens its success. As Roach notes: “A successful globalization is forged on economic, political, and even military terms. Kim Jong Il is yet another challenge to an already precarious post-9/11 world.” Advocates of globalization, and those in the labor movement who speak of its inevitability, have a lot of explaining to do as these kinds of risks increase.

Morgan Stanley

Here is a followup story by the San Jose Mercury News on the confrontation between leading Valley tech cos. and Congress over the issue of human rights in China. Note the irony of this story – it represents the kind of independence of the press that China does not allow. It is that freedom that helps build great technology companies yet that freedom is now being undermined by those same companies.

https://www.siliconvalley.com/mld/siliconvalley/13884712.htm

Silicon Valley is supposed to represent what is most progressive and successful about this country. That this is partly myth was made abundantly clear today in Washington. Major Valley companies hid behind their lawyers who attempted to avoid tough questions on their companies’ role in aiding and abetting human rights violations in China. Unfortunately, it was, with the exception of Tom Lantos, mostly Republicans who led the charge while Democrats often tried to deflect the attacks.

Here is one account from the Seattle Times.

The Seattle Times: Big Internet companies grilled on China stance

Restructuring artist and Delphi CEO Steve Miller says Delphi is broke and is demanding unprecedented wage cuts from its union workforce. To get his way, Miller is attempting to use the bankruptcy laws as a sword to attack his workforce. As John Gapper of the Financial Times wrote yesterday, “organized labour meet organized capital.”

But there is a deeper story here. Delphi was created as a spinoff of the disparate parts (so to speak) of GM’s internal parts supply divisions. A central purpose of the spinoff by GM of its ownership of the entity was to enable the new company to put greater pressure on its unions to cut wages and benefits. The transaction is actually quite similar to the privatizations of state owned companies as a result of various forms of “shock therapy” in countries like Russia, Poland, and China. Privatization allows the capital markets to carry out the attacks on labor that politically sensitive governments are unwilling to do. Delphi made this clear to anyone willing to listen and said it explicitly in the prospectus it prepared for investors in its 1999 IPO. But it also noted that it was losing money at its birth and that it faced liabilities associated with an underfunded pension plan. And it remained overwhelmingly dependent on its biological parent, GM.

In a sense, then, Delphi was never really an independent company. It was, from the beginning, a political ploy to divide and conquer the GM workforce – a scheme hatched by GM officers and directors and carried out by GM representatives who controlled the Delphi subsidiary. The key was sending Delphi off on its own but on a very tight string – those losses and pension obligations hung over the newly born company like a dark cloud on warm humid Detroit afternoon. Everyone knew, as Bob Dylan might have put it, that a “hard rain was gonna fall.”

And now it has.

But there is a way out. GM remains not just solvent but positively flush with cash – more than 50 billion dollars at last count, and, as Mr. Gapper notes, Delphi has a two year supply of cash as well. Delphi belongs back inside GM not in bankruptcy court. Instead of rewarding its executives, the court should toss the case out and together GM and Delphi should find another way to solve their problems than taking them out on the backs of American workers.

While the Bush regime pushes forward its policy of imposing “freedom and liberty” in the middle east at the point of a gun, it bears recalling what regimes long supported by the United States actually look like from the perspective of its working people. This article makes clear how hard it is to gain respect for basic labor rights in Egypt.

Middle East Times

What a difference a decade makes. In the early 1990s opposition to NAFTA was found largely in the United States and Canada. In Mexico the labor movement was largely silent thinking that the pact would result in job creation for Mexican workers. Only the left wing PRD was critical. Now, after a decade of experience with the Washington Consensus workers in the south realize that these trade pacts are a dead end. There have been large demonstrations in countries like Nicaragua against the proposed CAFTA. This is part of a general shift to the left in Latin America, even if some of that shift has been towards populist authoritarians like Chavez in Venezuela.

Trade Pacts to the South Losing Appeal – New York Times

I recall the comment of a partner I once worked for who suggested that law school meant that I would always know how to read a Supreme Court opinion but now it was time to make some money. Well, I am glad that I actually do know how to read Supreme Court opinions, especially when they are about how we make money in this country. And yesterday’s decision in Kelo v. City of New London is well worth reading in this regard.

I post this comment and the link here because the case touches on some fundamental conflicts withing capitalism itself. But it also, interestingly, raises concerns about the proper relationship between corporations and the public interest. As one dissenter notes, corporations used to be above all else instruments of a public purpose, whereas in Kelo it is the private interest of Pfizer, the pharma giant, that is one of the issues on trial.

More generally, the split decision (5-4) reflects the basic antinomy in capitalism between a general interest in having a government serve the larger directions of capitalist development versus a strong bias towards individual rights and property ownership. This is not an easy divide to resolve.

The decision is also interesting, of course, because it is part of the larger debates about originalism, federalism and the proper role of the courts in deciding what law is. And if that were not enough motivation to read the entire opinion, along the way we are treated to the delightfully ironic spectacle of arch-conservative Justice Thomas quoting America’s leading marxist legal scholar, Morton Horwitz as well as Justice Holmes’ famous anti-free market dissent in Lochner!

https://laws.findlaw.com/us/000/04-108.html

The Financial Times’ regular columnist, Amity Shlaes, hopes the nomination of Rep. Christopher Cox to head up the SEC will take the teeth out of the corporate reform effort underway in the post-Enron environment. Here is my reply to her recent column which the FT ran along with a nice photo of Justice William O. Douglas.

FT.com / Letters – SEC’s first duty should be to investors

I was recently part of a panel on corporate governance at a conference sponsored by Santa Clara’s Markkula Center for Applied Ethics. I used this opportunity to continue my attempt to reframe our understanding of the modern corporation. In my view the governance debate must tackle the immense political and economic power of private corporations. The paper outlines one approach. The URL is:

Corporate Governance

Nobel prize winning economist Douglass North recently opined on the pages of the Wall Street Journal that China needs to establish clear property rights in order to make capitalism work there. I wrote a letter in response that questioned the feasibility of this approach. To my pleasant surprise, the Journal saw fit to publish my letter. I have reprinted the letter here below and the North article itself can be found at: https://online.wsj.com/article/0,,SB111283514152300351,00.html.

As Chinese stock markets continue their descent the fragility of the Chinese economy continues to worry many around the globe.

The letter:

Mr. North is certainly right that Chinese leaders need to establish clear property rights if they are to move to the next stage of modern capitalism. What he seems unable to explain is why that move is likely to be deeply problematic, if not impossible.

To establish property rights to assets effective enough to enable efficient trading and innovation to take place would almost certainly require a violent confrontation with the Chinese working class and peasantry — groups that, understandably, believe they have a claim to the nation’s wealth senior in priority to that of the party and newly emerging wealthy elite. That confrontation has been taking place sub rosa since the bloody suppression of the democracy movement centered in Tiananmen Square in 1989. But conflict is now more open, with strikes and even violent confrontations between the state and aggrieved citizens increasingly the norm.

The regime is clearly hesitant to unleash a final confrontation. To resolve this conflict, China must find an alternative way forward that relies, instead of on authoritarianism, on democracy and social equity.

Stephen F. Diamond
Assistant Professor of Law
School of Law, Santa Clara University
Santa Clara, Calif.