One of the greatest achievements of the twentieth century was a social contract that provided far more economic security and prosperity for working Americans than had existed in any previous period. But successive waves of changes in the world economy, together with the ascendancy of a strain of economic philosophy that puts the freedom of capital above the interests of society, have placed enormous strain on the postwar social contracts of all Western countries, resulting in stagnating wages, greater insecurity and levels of income and wealth inequality not seen since the early 1900s. And even more far-reaching challenges arising from the current pattern of globalization, with its emphasis on the outsourcing of service as well as manufacturing jobs, may lie ahead.

Developing a strategy for taming global capitalism anew therefore constitutes the overriding challenge of our time. For that reason, we have invited some of the leading progressive thinkers in this country and a longtime observer of the American economy to offer their ideas on how the United States, as the major capitalist country and the major player in globalization, could reshape both capitalism and globalization in ways that build a new social contract serving the needs of working people everywhere.
--The Editors

A New Domestic and Global Strategy

The challenge we face today in the United States is how to engage in the global economy without decimating our own middle class and gutting our social regulatory system. The logic of global capitalism as currently practiced is to drive down workers' wages, weaken their bargaining power and strip away their social protections in both rich and poor countries, while simultaneously encouraging and celebrating the excesses of debt-driven consumerism.

But this system is inherently unstable and unsustainable. The United States is running a current account deficit of more than $700 billion a year to fund consumption we can't afford. This is not financially sustainable. Meanwhile, many workers in developing countries work twelve to sixteen hours a day, in dangerous conditions, without the right to form an independent union, at poverty pay, so that multinational corporations can boost their bottom line. That is not politically sustainable.

Any policy agenda to build a better system must have both a national and an international component. At the national level, we need to fight for workers' rights to form unions and bargain for decent wages and working conditions; we need affordable and equitable healthcare and retirement security systems that do not create competitive disadvantages for domestic companies; and we need to invest in education, technology and infrastructure, especially in manufacturing.

While national reforms are critical to improving workers' daily lives, we must not ignore the global component, because if we don't get that piece right, unregulated global competitive pressures will eventually undermine any domestic reforms and worker gains. Trying to protect the American middle class without changing our interaction with the global economy is like pouring water into a leaky vessel.

For the United States, there are three key components to a new global strategy: taxes, currency and trade rules. In order to bring about real change, we need to work with domestic businesses as well as with our global justice allies. Domestic producers are equally frustrated by US policies that make it virtually impossible for them to compete in the global economy while producing on American soil.

First, our corporate tax system is insanely inefficient and unfair. American taxpayers currently subsidize the offshoring of their own jobs (at a rate of at least $7 billion a year) through policies that exempt income earned offshore from corporate taxes. Very few other countries have similar systems, and most have some form of "border adjustable" tax that exempts exports from sales or value-added taxes. Our current system taxes exports, while subsidizing the offshoring of jobs. We need a complete overhaul of our corporate tax system to address this self-inflicted wound.

Second, the overvalued dollar is killing our domestic manufacturing sector and exacerbating the problems in tradable services (a category that now covers everything not nailed to the floor). While the high dollar policy serves the Wal-Marts of the corporate world very well, it creates almost insurmountable competitive problems for domestic producers. The Bush Administration has clearly decided to cater to the retailers, outsourcers and importers. It is now up to Congress to pass legislation that will force China and Japan to stop manipulating their currencies to gain competitive advantage.

Third, the framework of rules in the global trading system (through the WTO and our own domestic agreements) is severely lopsided in favor of multinational corporate interests--leaving workers, small farmers, the environment and the poor ever more vulnerable and weak. If we understand the central problem of the global economy to be one of an imbalance of power and income distribution, then it becomes clear that global trade rules need to be rewritten to insure that workers have a voice at their workplaces and in national political debates. Linking core workers' rights as defined by the International Labor Organization to market access would do three important things: It would empower workers and give them a fighting chance to bargain for their fair share of the wealth they create; it would help build a middle class, so that workers can buy some of the goods they produce; and it would put a leash on multinational corporations by taking the profit out of exploitation.

No single action will get us out of the hole we're in, but together these tax, currency and trade policy pieces point us in the right direction.

Thea Lee is policy director of the AFL-CIO.

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