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Before the global economy self-destructs

At an electronics plant in Stuttgart, Germany, a labor leader who is the elected chairman of the factory's works council introduced me to a menacing German phrase: schraube nach unten. It means "ratchet down."

"It's like the thread of a screw that turns downward _ a constant downward path," Alois Suss complained. "They use the plant in Slovakia to persuade Germans to accept less. We are often told, if things don't improve, they will move all of this to India. I tell people: We can't compete with India, because look at their conditions."

German workers, facing 12.4 percent unemployment and a fierce wave of de-industrialization, are scolded for their troubles _ and told they must become more like the Americans. That is, give up their legal job protections and become more "flexible" on wages.

A decade ago, when hundreds of U.S. factories were moving offshore, American workers were told to be more like the Germans. Get more training, work harder. Many did so, but this hasn't stopped the gradual erosion of U.S. wage levels.

The fact is, German and American industrial workers share the same handicap: They earn too much money by world standards. The global system intends to correct that problem for them.

A downward harmonization of wages is slowly under way in the wealthier countries, as multinational corporations globalize production and compete for cost-price advantages. By moving jobs to countries where workers are much cheaper. By reforming production systems to reduce the labor input. By using the leverage of worker insecurity to hold down wages and scale back hard-won political guarantees.

Nobody portrays Japanese workers as fat and lazy, but they, too, have experienced schraube nach unten as their leading firms move manufacturing jobs abroad to lower-wage locations (places like Malaysia and Mexico, or even Kentucky and Tennessee). The Japanese call it kudoka, which in English means "hollowing out."

Despite differences of language, race and culture, distant peoples are now connected by powerful strands of the same marketplace _ as workers and consumers, as managers and investors. And they are experiencing, in different ways, the same globalizing pressures and dislocations. Everyone is caught in the same storm, unlikely to escape at the expense of others. That even includes the poorer nations gaining new industries.

The global convergence of economic interests is the central theme of my new book, One World, Ready or Not: The Manic Logic of Global Capitalism. I traveled through a dozen countries on three continents, talking to workers and multinational managers from various industrial sectors, trying to understand the dynamics driving globalization. Each time I returned home exhilarated by what I saw, feeling both wonder and dread.

People everywhere are taught to think of the global economy as a footrace among competing nations, but the headlines about which nation or which company is winning the competition conceal a larger reality: The global system itself is in deepening trouble, facing vulnerabilities that might lead to calamity if nothing is altered in the process of globalization.

Another popular notion blames heartless multinational corporations for the job losses and deteriorating wages or accuses the chief executive officers of disloyalty and greed. That may satisfy public anger, but it doesn't explain very much.

Multinationals are awesomely aloof and powerful, but they too are driven by insecurity _ caught in their own threatening storm. Instead of demonizing them, I tried to identify the economic imperatives driving their behavior.

The core element of economic instability is an accumulating crisis of surpluses in the global marketplace. Surpluses of labor, production and even capital. The surplus of labor seems obvious _ too many workers bidding for scarce jobs worldwide and pulling down wages at the top. That sets off the irregular jobs auction that is underway worldwide among competing governments. Malaysia or Thailand bid for jobs by granting tax favors or promising to block workers from organizing. Taxpayers in Alabama or Kentucky offer gargantuan bonuses to win a new factory.

Less visible but more ominous is the growing surplus of productive capacity in major industrial sectors _ too many factories chasing too few buyers. This condition ensures that more factories will be closed _ with more job losses ahead _ but it's also ominous because it parallels the imbalances of supply and demand during the 1920s that led to global breakdown.

There is even a surplus of capital, given markets glutted with too much potential output. Instead of investing in real production, finance capital instead seeks better returns in empty speculation, downsizing and takeovers or lending more billions to indebted governments. The dizzy bubble of U.S. stock prices is the latest example of manic investing.

Orthodox economists typically dismiss my analysis, invoking their theoretical model that says markets always come into balance. Multinational managers, however, are familiar with what I'm describing since they live with it. Surplus capacity is the dark cloud hanging over their companies, the main reason why they keep taking self-defensive measures to reduce costs. When supply exceeds demand, the pressure on prices is downward.

The perverse paradox is this: The very strategies pursued by the multinationals to stay ahead in the chase end up making things worse for the system as a whole. Factories are closed or moved, production is streamlined, labor costs are reduced. Yet the system still winds up with more surplus capacity.

The global auto industry provides a straightforward example of the trend. Scores of factories have been closed during the last 20 years, and many more are marked for extinction. Car companies have become more efficient and moved major elements of production to low-wage countries like Mexico. Yet the industry did not bring supply into balance with demand. It dug deeper in the same hole.

An American company shared its internal estimates for the year 2000: The global industry will be able to produce 79-million cars and trucks for a worldwide market of buyers that won't consume more than 58-million vehicles. That demand gap _ 22-million units _ is nearly three times larger than it was 15 years ago. Indeed, it is larger than the North American market. Similar disorders confront aircraft, chemicals, electronics, steel and other sectors.

Faced with this reality, companies are naturally desperate to gain entry into the hot markets where demand is rising _ places like China or Indonesia. Boosters of globalization nurture a belief that emerging markets will keep the system afloat with their new middle-class consumers. Another fanciful illusion.

China cannot solve the supply-demand problem because its industrialization will make the problem much worse. China intends to become a major exporter itself _ producing aircraft, autos, chemicals and other advanced goods with very cheap labor. Beijing understands that, in a world of excess capacity and insufficient demand, it has the market leverage and is using that leverage to acquire a share of the global industrial base.

Leading companies, from Boeing and Motorola to Volvo and Mitsubishi, are literally trading away jobs and technology in exchange for sales. I saw some of the factories where Chinese machinists, who earn $50 a month, are making tail sections for Boeing 737s or components for Siemens and Daimler-Benz. Their "union" is not free but merely an appendage of the Communist Party. On the shop floor, they are supervised by Communist Party cadres.

Another wave of deindustrialization is forming there. In the meantime, the United States is once again playing the role of buyer-of-last-resort, propping up the global system by absorbing some of its surplus production. That is the real meaning of our swollen annual trade deficits. Instead of a new market for American goods, China now enjoys an astonishing trade surplus with the United States _ $40-billion in 1996. The Chinese sold Americans five times more than U.S. firms sold to them.

Even the United States, wealthy as it is, cannot do this forever. When America finally buckles under its accumulated foreign indebtedness, the systemic crisis should become visible to all. If the United States can no longer mop up surpluses, who will buy China's $40-billion in exports? Not Japan or Germany, certainly.

There is a way out of this dilemma, but it will require a fundamental reordering in official thinking, not just in the United States but among other major trading partners. The focus must shift to the demand side of the equation and take measures to bolster inadequate consumption. In plainer language, that means boosting work and wages on both ends of the global system _ creating more purchasing power to buy the goods the world can already produce.

These measures will require both national action and concerted international efforts. Taxing capital more, labor less, to encourage job creation. Forcing the Federal Reserve and other central banks to allow faster rates of economic growth. Recontrolling global finance to moderate its frenzies and restore the accountability of investors. Above all, writing new terms of trade for the global system that require countries to honor labor rights _ that is, free speech and freedom of assembly.

The rhetoric of free trade obscures the fact that the global system is only half-free _ free for buyers and sellers of exports but not free for many of the people who make them. Unless workers in poorer countries have the freedom to speak for themselves and bargain collectively for a fairer share of the returns, the gap between supply and demand will likely grow wider because, when firms trade high-wage workers for cheaper ones somewhere else, the system loses purchasing power.

American workers and German and Japanese are not going to get out of this storm until they focus on the conditions of workers at the other end and demand reforms that will bring the bottom up, instead of pulling the top down. Altruistic concern for human rights has converged with economic self-interest.

William Greider is national editor for Rolling Stone magazine. He is the author of several books.

Lexington Herald-Leader (Lexington, Ky.).